- Can I make my pet a life insurance beneficiary?
- March 14, 2014
You have read the stories; some billionaire leaves an entire estate to their favorite dog, without leaving their kids a dime. While your first reaction might be, “Oh, well, they are rich and eccentric,” what if you wanted to leave your favorite furry friend ALL of your worldly possessions? If a “regular” person had a decent-sized life insurance policy, could he or she leave it all Fido?
When an emergency arises, the pets are often among the last belongings considered, and in many sad circumstances, are shipped off to the nearest shelter. Even if you do not have a ton of dollars, you can use life insurance to care for your pet. But it is not as straightforward as naming your cat, dog or iguana the beneficiary to your insurance policy. Pets are legally considered property.
“The reasons a pet cannot be the sole beneficiary of a life insurance policy are basically because it would be very difficult to verify the pet’s identity. Not to mention, a pet can’t sign off on any legal documents,” said Holly Anderson, spokesperson for State Farm Insurance.
There are no agencies that provide life insurance for pets, but plenty that provide pet health insurance, including the American Society for Prevention of Cruelty to Animals.
So, if you have a life insurance policy and want to make sure your pet is pampered for the rest of its life, the easiest thing to do is establish a living trust to accommodate your pet’s needs, and specify the proceeds of your trust to go to everything from a regular vet checkup to funeral services.
“Lots of people have different options as to where they put their funds,” said Tricia Clements, legal assistant at Lane & Karlo, LLP, a law firm specializing in estate planning, and, most recently, pet trusts.
This option is feasible, but there are drawbacks, according to Clements.
Most trusts work by having a trustee appointed to manage and allocate the funds to their designated recipients. For a pet trust, this would mean establishing a trustee, appointing a caregiver for the animal, and creating a system of checks and balances to make sure your favorite animal is cared for properly.
“There are numerous options to fund a pet trust. For example, somebody may have a life insurance policy and name the [pet] trust a partial or sole beneficiary,” Clements said.
Another way to use your life insurance to care for your animals is to name the caregiver the sole beneficiary of your life insurance policy or make the policy a conditional gift. You can then possibly follow that up with specifying how the funds are to be used in your will, or have them sign a contract.
“A [pet] trust has a trustee who manages the money and pays the caretaker. It is best to have the trustee and caretaker separate so there’s a system of checks and balances. The problem with making a life insurance policy conditional gift is that it cannot be enforced, so you need to be very comfortable with the person you leave this money to—you are basically giving them the money with no guarantee,” Clements said.
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