From the May 2015 issue of Investment Advisor • Subscribe!

(Pet) Protection Money

Advisors can show additional value by helping clients protect beloved pets when they’re no longer able to care for them

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Initiate a life insurance conversation by asking clients, 'Who will take care of Max if something happens to you?' (Photo: Pete McArthur/Corbis) Initiate a life insurance conversation by asking clients, 'Who will take care of Max if something happens to you?' (Photo: Pete McArthur/Corbis)

It's hard enough to get clients to talk about life insurance for themselves, but National Pet Month in May is a good opportunity to open the door to that discussion—by asking them if they’ve made arrangements for any companion animals in the event of their death.

Headline grabbers like the $12 million pet trust set up by the late Leona Helmsley for her dog Trouble cause many to see arrangements for a pet's care after its guardian's death as a joke. However, pets are regarded by most people more as members of the family than as property—their status in law.

Determined pet guardians are finding ways around that, as came to my attention in an article about a new animal sanctuary in Texas. The Circle Star Pet Haven will accept pets to live out their lives comfortably after their human guardians have died or are incapacitated.

Of course, there's a price for such a service. In fact, according to Kim Bressant-Kibwe, trust and estates counsel for the ASPCA, “Some animal sanctuaries can cost $10,000–$25,000 or even more. [...] That's where life insurance comes in handy.”

Circle Star suggests that pet guardians “obtain a life insurance policy or rename the beneficiary on an existing policy to cover the care of your pet based on its life expectancy.”

Attorney Rachel Hirschfeld, who has been advocating for years for people to make arrangements for their animals’ care after their own death, says insurance is the best way to ensure the money will be there—particularly when it is done as part of a pet protection agreement or a pet trust set up by a lawyer—not in a pet trust that is part of a will.

“Many pet trusts only kick in after you’re dead or after the will has been probated,” warned Hirschfeld, “and that can be a death sentence for the pet” if no carer has been designated—or if that person instead decides to drop off the pet at a shelter that will euthanize it.

A pet protection agreement, on the other hand, will bring insurance into play right away. It ensures that the money in the policy is used for the care of the pet and no other purpose, because it imposes a fiduciary obligation on the person or entity receiving the money. And it is not subject to the interpretation of a judge in a jurisdiction unsympathetic to the worries of people for their pets.

Hirschfeld said that when researching her book, “Petriarch: The Complete Guide to Financial and Legal Planning for a Pet's Continued Care,” she found that as many as 2.5 million animals ended up in shelters when their owners were incapacitated.

While the numbers have since gone down—thanks in part to assisted living facilities and nursing homes increasingly allowing people to bring their pets with them—it still happens far too often, even if money has been left for their care. If the money is left in a pet trust that's part of a will, the amount could be reduced or even awarded to other heirs instead of kept for the care of the animal, who then is at the mercy of people who may not care what happens to it.

Also, money that only comes to light after a will has been probated could come months too late, particularly if a beloved pet has a serious health issue that requires expensive treatment. Without money for care, such a pet would likely be euthanized regardless of its late owner's wishes.

Steven Weisbart, senior vice president and chief economist with the Insurance Information Institute, said that as long as the policy is taken out by the person who owns the pet—because of insurable interest requirements—and the beneficiary is not a minor but someone “who can sign for the death benefit when the time comes,” insurers won't have a problem with a policy intended to care for a pet.

ASPCA's Bressant-Kibwe said, “You’d be surprised how many pets are at home and no one even knows that they’re there. [A pet alert card] says to call this person to gain access to the house in case of emergency. [There you are], sitting in the hospital unconscious; nobody knows you’re there and your pets are sitting at home.”

Bressant-Kibwe also pointed out that there's always group insurance at work. “You can say, ‘I want 20% of the proceeds to go to the care of my pet,’” she said.

Bressant-Kibwe said that even a small amount of money left to a rescue group to defray costs while the group finds the pet a new home is helpful.

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