People with pets come to our offices because they want to create a pet plan. Like estate plans, pet plans address issues that arise should you die or become incapacitated. As the name implies, however, pet plans are specifically designed to address the needs of your pet when you are no longer able to care for the animal.
Some of our clients ask us if they can use life insurance as a part of their pet plans. While a good insurance policy can be a great way to protect your pet, you can only use it in such a fashion if you take some specific steps. Here is what you should know.
Insurance Policy Beneficiaries
When you buy an insurance policy you agree to make regular premium payments in return for a payout from the insurance carrier upon your death. (Of course, there are different types of insurance policies that have different features, but the death benefit is a basic part of all policies.)
The person who is entitled to receive the death benefit is known as the beneficiary. As the policy holder, you can choose who you want that person to be. You can also change the beneficiary whenever you like as long as you are mentally capable and follow the change of beneficiary process outlined under the terms of your insurance policy.
Pets and Property
People with pets sometimes ask if they can use their life insurance as a way to protect their animals. Can you, for example, name your pet as your policy beneficiary? This seems like a natural solution to the pet planning problem, as giving your pet money upon your death seems like it would take care of everything.
Unfortunately, it’s not that simple. The law does not view pets as people. They cannot own property, receive inheritances, or make decisions. You, as your pet’s owner, have the right to care for your pet and use your property to the pet’s benefit, but the pet cannot own property on its own.
For this reason, you cannot list your pet as your life insurance beneficiary. What you can do, however, is create a pet trust and name the trust as the beneficiary.
Pets and Pet Trusts
A trust is a legal entity separate from the people who manage it or create it. Like a corporation, a trust can own money or property and can operate after the person who creates it dies.
A pet trust is a special kind of trust designed specifically to own property on behalf of a pet after the owner dies or becomes incapacitated. When you create a pet trust you create an entity that is solely designed to care for your pet’s needs when you can no longer do so.
So, since a pet trust is a legal entity that can own property, you can name the trust as your life insurance beneficiary. As long as the trust is created properly, it can, after receiving the policy payout, use the money to care for your pet’s needs.
To properly plan for a pet, consult with an experienced and qualified estate planning attorney.
Latest posts by Timothy P. Murphy (see all)
- Special Needs Planning Offers Critical Protections - January 21, 2019
- Differences Between a “Conservator” and a “Guardian” - January 19, 2019
- Who is Eligible for Veterans Aid and Attendance Benefits? - January 17, 2019