Financial Planning Insights
4 minute read time
Gunther VI, Trouble, Blackie, Choupette, Lulu and Conchita — What do these dogs and cats have in common? They all inherited millions after their owners’ passing, Trust-Fund Fur Babies, so to speak!
If you’re reading this article, chances are you have a pet and likely consider that pet a member of your family. Recent MarketWatch data puts the number of pet-owning American households at 86.9 million American households — which is two-thirds of all homes. As a pet owner, you have likely been the recipient of that unconditional pet love and affection that so endears us to them. Also, you’re likely aware a pet isn’t an inexpensive proposition— the same MarketWatch study estimates the cost of pet ownership at $30,000 over the lifetime of the pet. So, what happens to your pet when you’re no longer here? Most pets won’t be the recipient of millions as the pets of the rich and famous listed above have, but the care of your pet after you’re gone is no less important.
Ensuring that members of your family are cared for after you’re gone is a given, and most of us utilize tools such as wills and trusts to protect those we love. However, before 2014, Wisconsin residents couldn’t care for their canine or feline family members in the same fashion. Previously, Wisconsin law considered pets to be property— and trust beneficiaries were required to be people rather than property.
In 2014, the Wisconsin legislature changed that through the enactment of Wisconsin statutes section 701.0408. Under that section, people (referred to as the “settlors”) are allowed to leave property in trust for the benefit of one or more pets that are living during the settlor’s lifetime. The trust must terminate at the death of the pet, or if the trust provides for more than one pet, at the death of the last surviving pet. At that time, the assets remaining are to be distributed to the trust’s remainder beneficiaries.
The process of creating a pet trust requires four basic considerations: casting roles, providing guidance, estimating (and justifying) costs and providing funding. We’ll take each in turn.
A pet trust can have several roles:
Under the statute, there are no provisional requirements of a pet trust. This leaves the settlor complete freedom to provide the trustee whatever rules or guidance the settlor chooses as to how the pet is cared for. Settlors should be guided by the underlying principle of ensuring the animal is cared for in the same fashion the settlor would have if alive. The settlor will want to be both specific in terms that are important (for example, the trustee shall invest in pet insurance) and yet flexible enough to allow the trustee and the caretaker to handle changing circumstances in a caring and humane fashion.
By law, the remainder beneficiaries have the right to petition the court to distribute to them any trust funds that exceed the costs of its intended use. To avoid any potential conflict, the settlor should have a detailed, broad budget of all the expenses that could be required to care for the pet over the course of his or her lifetime. That budget should then provide the “evidence” for the assets used to fund the trust. Settlors who follow this process will protect the pet and the caretaker from greedy remainder beneficiaries arguing that the “intended use” of the trust was narrower and less expensive than the settlor intended.
Finally, the settlor will want to ensure that the pet trust, and its funding, is incorporated into the settlor’s overall estate plan. That plan should get the right property with the right value to the right people. Further, that plan should be created by a financial advisor that runs various scenarios and tests that the plan “works” with material increases and decreases in pre-funding asset values. For example, the settlor might draft the plan to provide 10% of the assets to the pet trust and 90% of the assets to the children based on current values, but if the value of assets at death were to be materially higher, might want to cap the amount provided to the pet trust. The financial advisor should help the settlor with the analysis— the estate planning attorney should provide appropriate funding language.
For most pet owners, pets are family members that should be cared for upon the owner’s death. The affection my Golden Labradoodle, Miller, has showered on our family over the years has created a deep and heartfelt connection. His presence has been a constant source of comfort and happiness— should I pass before he does, I want to ensure his wellbeing as a testament to his profound impact. A thoughtfully designed and funded pet trust is a way for owners to care for pets that have cared for them.
If you have any questions or need assistance, please don't hesitate to contact your wealth advisor at Johnson Financial Group, or reach out to find one today.
