Financing Fido: Should you consider a pet trust?
Pet lovers often consider their dogs, cats, birds and other pets as fury, feathery or scaly family members. Opening your home to a pet comes with many joys, results in some interesting stories and can even have some health benefits – but it also comes with a cost.
A literal cost.
The care and upkeep of a pet can vary widely in cost, depending on the type of food, toys and other items you tend to purchase. Add in vet care and the occasional pet sitter and costs easily run in the thousands annually. As a result, it is often wise for even the casual pet owner to consider including a pet trust within his or her estate plan.
What is a pet trust?
A pet trust, like any other trust, is a legal instrument that allows the creator to have some control over what the funds placed within the trust are used towards. The trust is managed by a third party, called a trustee, and is designed to benefit a named beneficiary. In this case, the beneficiary is the pet.
How common are pet trusts?
Pet trusts are not uncommon. In fact, a recent piece by Bloomberg discussed the use of these legal tools, noting that there are many different types available.
Two of the more common types of pet trusts include:
- Statutory pet trust. This type of trust is created by including a sentence within your will. Although it establishes that you want the pet cared for and may provide some funds to do so, it does not allow much control on how the funds are to be used or what type of care the animal should receive.
- Freestanding Pet Trust. Those that wish to provide more guidance often consider this type of trust. It offers you a great deal more options. It can be structured to cover all pets that are currently, or may in the future, be owned by the creator. It can include a named guardian for the pets as well as instructions on the care and maintenance of the pets.
Like any trust, there can also be tax benefits if structured wisely. Funding the trust, for example, can be done by using annual tax-free gifts. The amount allowed can vary year to year depending on tax law, but is currently set at $14,000 for individuals and $28,000 for married couples.