About 15 years ago, I had a client with a terminal illness.
Her biggest concern wasn’t about her own health, but rather who was going to take care of her dog after she died.
I hadn’t really given that type of question a lot of thought until that day.
Today, one of the questions we ask clients is if they have any pets. For many of our clients, their pet is a member of the family. Your pet is dependent on you for its survival and well-being. A contingency plan should be in place if something were to happen to you. When we ask clients about who will take care of their pet(s) when they pass away, most have not considered the matter, let alone made any concrete plans.
Ideally, you have a family member or friend in mind who could care for your pet. To be sure, it is best to have this discussion with the individual to make sure they would be willing and able to care for your pet in the event something were to happen. You should ensure that the new owner is able to keep the pet. Allergies, being too busy, conflict with other pets, prohibition of pets in the new owner’s residence and lack of interest are a few complicating factors for you to consider.
Let us assume you have found the right individual to care for your pet(s). It is not possible for you to leave money to your pet in your will. A pet is considered property under the law. It is, however, possible to leave a pet to the named individual to care for. A simple method is to leave your pet to the named individual, which we will call the “caretaker,” within your will.
Normally a sentence would be added in this section of your will to deal with the contingency of the caretaker being unable or unwilling to care for your pet. One approach in this situation is to give your executor the power to select an appropriate person to take in the animals.
Another approach is to establish a more formal arrangement for your pet’s care. Some people refer to this as a Pet Trust.
Let’s say you have a dog named Marley. You could establish the “Marley Fund” in your will. Although you cannot leave money directly to Marley, you can establish a trust for Marley’s care.
In order to establish this type of trust, you must have a caretaker that you also name as the trustee. The Marley Fund would receive a sum of money payable to the trustee/caretaker provided that the trustee/caretaker uses it to look after Marley. Similar to up above, a sentence would be added in the Marley Fund section of your will to deal with the contingency of the trustee/caretaker you previous chose being unable, or unwilling, to care for your pet. Normally, you would give your executor the power to select an appropriate trustee/caretaker to accept the money from the Fluffy Fund and take responsibility for caring for Fluffy.
Naturally, the above paragraphs brings up the discussion of how much money should be left through your will for the care of your pet(s). Several media stories have talked about the ultra-wealth leaving millions of dollars for their pet(s) care to the trustee/caretaker. Those stories are certainly not the norm. In the majority of the wills I have reviewed with these clauses, the amounts are much more modest.
It should be relatively straight-forward to estimate a reasonable dollar amount to designate for the trustee/caretaker. The calculation could be based on your assessment of the life expectancy of your pet, age of the pet and an estimate of the annual costs.
Perhaps the largest annual costs for caring for pets are veterinarian costs if your pet needed specific medical care. Some of our clients have pet insurance for which they pay monthly insurance premiums. Similar to adult term insurance, the premiums are normally adjusted upward as the pet ages. The insurance approach can easily be budgeted out for future cash flows. Even when a pet is covered under insurance, small deductibles are still normally payable. The estimated annual cost of insurance and the deductibles could be part of the calculation.
Each pet is different. Grooming costs, equipment costs and medications will fluctuate. Estimating food and other costs for your pets should also be a relatively easy exercise. The budget could even include the costs of pet cremation and burial, as well as an extra amount for your caretaker/trustee for the time caring for your pet.
You could simply leave a flat dollar amount to the trust or create a methodology that is outlined along with the estimated remaining life of your pet. You could create a budget that says it costs roughly $2,000 a year for your pet. If you feel you would like to leave $2,000 for each estimated year of life left for your pet you would have to know your pet's age and estimated lifespan. If your dog’s breed has an average lifespan of 12 years then you could build this formula into the calculation. The amount that you set aside for the caretaker for a three-year-old dog (nine years estimated remaining lifespan) would be greater then the amount you set aside for a ten year old dog (two years estimated remaining lifespan). If you use this type of methodology we would recommend you discuss this with the caretaker to make sure they are agreeable.
Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at www.timescolonist.com. Call 250.389.2138. greenardgroup.com