Category: Estate Planning

I Don’t Have an Estate, So I Don’t Need an Estate Plan

November 4, 2012 / Michael

I recently ran across this Forbes.com article and it struck a chord. Why? Because I hear the same thing all the time. Of course, you would expect that a Grand Rapids, Mi estate planning attorney would hear the comment quite often – so don’t take my word for it. Read the article! You may be surprised what an “estate” actually is.

Oh, and don’t forget to read a couple of my previous posts that drill down into a little more detail on what “estate” means. You can find out what a Michigan estate is by clicking here, and what your estate tax estate is by clicking here.

Feel free to call us at 616-827-7596 with questions. We welcome them!

Michael Lichterman is an estate planning and charitable planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™. This goes beyond merely planning for “stuff” – it’s about who your are and what’s important to you. He focuses on estate, charitable, and asset protection planning for all generations (“young” and “experienced”), the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses, and pet planning. He enjoys creating life long relationships with his clients centered on their family’s values, insights, stories and experiences.

The Value of Family Stories in Your Estate Plan

October 27, 2012 / Michael

Most families think of “wealth” as a dollar amount or financial standing. Yet, the true “wealth” that all of us has is our values, insights, stories and experiences – this is what I call Whole Family Wealth. Making sure that this “intangible” wealth is part of your estate plan is critical. Yet, very, very few families take the step to include this true “wealth” in their plan – and, sadly, very, very few attorneys ever think about it.

But it’s beyond important, which is why we include a Priceless Conversation in our planning with each of our client families. It’s recorded conversation on any number of topics, meant to capture a little bit of who they are and what’s important to them. I’m very passionate about each client family doing a Priceless Conversation. And yes, sometimes maybe even a little pushy. But with good reason – because I’ve made the mistake of missing one and you can read about it in this previous post. That was the hardest post I’ve written, from an emotional standpoint.

And I was beyond touched to recently read this post by one of my wonderful client families. I’m not going to reproduce any of it here because it is well worth your time to read it yourself. Let’s just say that they truly realize the gift they are giving their children through capturing their Whole Family Wealth through Priceless Conversations and, moreso, through their blog. And don’t forget to read the comments at the bottom of post. They are powerful and share personal stories of how important this “intangible” wealth is.

Ready to have an estate plan for your Whole Family Wealth not just financial assets? Call us at 616-827-7596 to schedule a Peace of Mind Planning Session today!

Even The Rich and Famous Struggle with Naming Guardians for Their Children

October 20, 2012 / Michael

As many of my blog readers know, I’m beyond passionate about spreading the word on the importance of parents nominating guardians for their minor children. It’s why I regularly speak at schools, daycare, preschools, MOMS groups, and MOPS groups in the Grand Rapids, Mi area. It’s also why we make sure every family with minor children has a comprehensive Children Protection Plan in place.

As a caring parent, naming guardians for your children will be the most important decision you ever make . . . and for many, it’s the most difficult decision too. Take, for instance, Adam Yauch – founder of Beastie Boys. As you can see from this Forbes.com article, Yauch really struggled with naming guardians for his children. I won’t say his decision – you’ll have to read the article for that.

Wealthy or not wealthy, famous or not famous, many parents struggle with this decision. Unfortunately, the vast majority of parents come to the worst possible solution – they don’t name guardians at all. Not naming anyone is not a solution – it can cause an extreme amount of hurt and anguish, and ultimately will mean that a court determine who cares for your children. Is that what you would want? Trust me, you can do it. Although I’ve met with many parents who didn’t agree on who should be guardian of their children or in what order, we have always come to a solution agreeable to both parents.

It reminds me of this blog post I wrote back in 2009. It’s worth the read – trust me.

Don’t let your children be cared for by a court-appointed guardian if something happens to you. Give us a call at 616-827-7597 and have the added peace of mind of having a caring plan in place for your family!

Where Should I Keep My Estate Plan Documents?

October 7, 2012 / Michael

Congratulations! You took the very important step of putting an estate plan in place for you family. Now, where should you keep your estate planning documents? That’s the most common question I’m asked, and it’s a good one. And, like most questions, there isn’t necessarily one, correct answer. There are several good options and you should choose the one that works best for your family.

At Lichterman Law, we provide our clients with a very nice, sturdy estate planning portfolio binder which contains all their original estate planning documents, copies of a few of the more often used documents, and a cd containing pdf scanned copies of all of their estate planning documents. We recommend that our clients keep their original wills, guardian nominations, and cd in a home safe. We also make sure that they use the Introduction tab of their estate planning portfolio binder as a place to write where those important originals are located. No matter where you keep your estate plan documents, it’s critically important to let someone (or multiple people) know where it is, especially those people who you’ve nominated to carry out your plan (personal representatives, trustees, agents under powers of attorney, guardians for minor children, etc.).

So that’s what we recommend for our clients. But, I realize not everyone reading this is one of our clients, so here are a few alternatives (some ok and some not):

Keep everything in a safe. Although this is not a “bad” idea, I think it’s overkill and makes notifying others of the location and how to access the safe extra important, because time is of the essence when some of the estate planning documents are needed.
Safe deposit box at a bank or credit union. Personally, I’m not a fan of safe deposit boxes because I’ve heard very few good stories about them. That said, many families still place vital documents and other items in a safe deposit box. Again, the key (pun intended) is making sure those people you’ve named for important roles in your plan know where the box is and how to access it (where the key is).
Somewhere “safe” in your home. Some families don’t have an actual safe and will keep their planning documents in a “safe” place in their home. This is ok, just make sure that “safe” place is well protected from fire and water.
An original will can be filed for a nominal fee with the probate court in the county you live in. This is only an option for wills, and even then I don’t recommend it. Why? Because your life will change, what you have will change, what you want to have happen will change, and the laws will change, so if you truly care about your family, your estate plan will need to change too. Sometimes there can be numerous changes over a person’s lifetime, and the court having the document is just one more thing to remember each of those time (retrieve and destroy the old will when the new one is signed).

Michigan’s New Durable Financial Power of Attorney Law

September 30, 2012 / Michael

Benjamin Franklin once said that there are two things that are certain – death and taxes. Well, as a Grand Rapids, Mi estate planning attorney, I’m going to add one to that list – laws will constantly be changing. I remind each of our client families that their lives, what they have, what they want to happen with what they have, and the laws will change throughout their lives. That’s a big reason why we include ongoing three-year plan reviews for all our clients at no charge.

Today, a change to the durable financial power of attorney law goes into effect here in Michigan. If you enjoy reading the law yourself, you can read MCL 700.5501. I won’t go into intricate detail on all the changes, but I will point out a big one. For durable powers of attorney signed on or after October 1, 2012, the attorney-in-fact must sign a statutory acknowledgement of his or her responsibilities. The list of responsibilities can be found here (MCL 700.5501(4)).

It’s important to note that third parties (e.g., banks, retirement plan companies, life insurance companies, other financial institutions, and other people) will not be liable to anyone involved for their good-faith compliance with a durable power of attorney, even if there is no signed acknowledgment. And, I think more importantly, third parties are not liable to anyone involved for requiring that the attorney-in-fact sign an acknowledgment before they will recognize the attorney-in-fact’s power under the durable power of attorney. It wouldn’t surprise me if all financial institutions require the acknowledgment. And if that means more of them will comply with a durable power of attorney, I’m all for it.

Practically speaking, what does that mean for you? First, make sure you work with an attorney who focuses on estate planning, not one who “dabbles” in it, so they are up to speed on the latest laws and planning techniques. Second, if you haven’t updated your durable power of attorney recently, now would be a good time to do it. And third, make sure you have the your attorney-in-fact appropriately sign the required acknowledgment so that they have better odds of financial institutions following it when it’s needed most.

Give us a call if you have questions or need to have your durable power of attorney reviewed and updated.

Estate Planning’s Critical Importance for Blended Families

September 16, 2012 / Michael

Being a Grand Rapids, Mi estate planning attorney and being married to someone who works in the financial industry, I’ve seen the disaster that lack of planning (or poor planning) can cause in blended families (second marriages, “uncommon” children, etc.). As a matter of fact, I wrote this previous post about a very common mistake that can disinherit your children.

But don’t take just my word for how important quality, comprehensive estate planning is for blended families. Read this USA Today article about family feuds in estate planning and how they are expected to become more common due to changing demographics. In particular, read the section titled “Tangled Family Trees.” What to you think?

If you are part of a “blended family,” run, don’t walk, to an attorney who focuses on estate planning for blended families. Why would you risk waiting? Call us at 616-827-7596 today!

Do it Yourself (DIY) Estate Planning – Risk Worth Taking?

September 9, 2012 / Michael

Do it yourself (DIY) estate planning is something I’ve warned families about many times. My first personal experience with it was reviewing an “estate plan” done on Legal Zoom. You can read about it in this previous blog post. Then again, you would probably expect me to discourage families from using DIY estate planning products because I’m an estate planning attorney.

The question asked by many families is, “why should I hire an attorney when we can do our own estate planning (using online forms, etc.)?” That’s a valid question. After all, many people change the oil in their own car and fix things around their home. Why not create your own estate plan?

Well, I recently ran across this Forbes.com article on “What Could Happen if you Write Your Own Living Trust,” and am sharing it because it’s not written by an estate planning attorney. I encourage you to read the article yourself, as I believe Ms. Jacobs does a great job covering some of the practical downsides of doing your own planning.

The article’s many good points can be summed up in this statement: “The trouble with do-it-yourself planning is that even if your situation seems simple, there are many oddball things a layman wouldn’t think of that can go wrong, especially with wills and trusts. These mistakes can end up costing you or your heirs a lot more than you saved in legal fees.”

So, what do you think? If you still want to do your own estate planning, what’s keeping you from working with an attorney? Fees? Reputation of attorneys? Let us know and we’ll help you through those decisions, whether we end up working together or not. Call us today at 616-827-7596.

Estate Planning is Not Just About Taxes

August 26, 2012 / Michael

It seems that many families are motivated to do estate planning only when they think a lot of their estate will be lost to taxes. Sadly, this leaves many families without an estate plan when it’s needed most. And unfortunately, many times their family is left with a mess due to lack of planning . . . no matter how “small” their “estate” may be. I can’t overemphasize how important it is to remember that an “estate” is not what you think it is – read this post and this post to find out what an estate really is.

The great news is that this fact is become more of a “known” than an “unknown.” Proof is in this Yahoo! Finance article I came across last week. It’s a short read and certainly worth your time. The article points out that, even if estate taxes don’t go up at the beginning of 2013 as they are scheduled to, “I’d still take the threat of higher estate taxes as a wake-up call.” The article goes on to 5 estate critical estate planning tasks that you should absolutely not put off. Although there are many more, I generally agree with the 5 they list. And, as can be seen from this previous blog post, the #1 item on the list can cause some real headaches (and heartaches).

So “take the bull by the horns” and call us at 616-827-7596 to schedule your Peace of Mind Planning Session to make sure you have all these items handled in a way that is a true reflection of your family – who you are and what is important to you.

Michigan Intestacy Laws Can Hurt Your Family

August 7, 2012 / Michael

I imagine there are some people who think I write about the importance of Michigan estate planning so much out of self interest. I am, after all, a Grand Rapids, Mi estate planning attorney, right? So I can understand why they may think that. However, the truth is that I write about it because it is critically important to families and their legacies, and because I see the “ugly” side of not planning. Which is what led me to write this post.

Ok, first a little background. The vast majority of Americans have no estate plan. Last I heard it was less than 40%. Yes, you read that right . . . less than 40% of adult Americans have legally documented who they want to handle their “estate” and how they want it handled if they pass away. And even worse, they also haven’t legally documented who would handle their finances if they weren’t able to (financial power of attorney) or who would make their medical decisions if they weren’t able to (healthcare power of attorney).

Well, if you pass away without an estate plan, the State of Michigan has a plan for you. It’s referred to as the “intestacy laws.” For purpose of this e-newsletter, intestacy means someone who passes away without an estate plan. Well, I don’t know about you, but “one size fits all” clothes tend not to fit me. And as much at the state legislature tries to guess what families would want to happen when they pass away, the don’t know your individual circumstances, goals or desires.

And there are some rather harrowing real life stories about what can happen. I gave a few, brief examples in this previous post. And I just read a blog post by an attorney friend of mine, Rania Combs, about just such a real life situation. Rather than rehash the entire thing here, I encourage you to read her blog post by clicking here. I promise that it will be very eye opening.

Although she practices law in Texas, very similar situations happen all the time right here in Michigan. So please, take the time to this post with someone you know who may not have an estate plan, but for whom you care deeply. Families need to know that things like this happen in real life.

Estate Planning for Disability

August 2, 2012 / Michael

Planning for the possibility of disability is probably the most overlooked part of estate planning. While many people will give serious consideration to estate planning for their death, few will seriously consider planning for their disability. Yet disability planning should be the more important part of estate planning from the client’s perspective both because it benefits the client directly, and because, until a person is well past retirement age, the probability of becoming disabled in the next year exceeds the probability of dying in that period. As a Grand Rapids, Mi estate planning attorney, I like to phrase it as “estate planning is not just about taking care of others, it’s about taking care of yourself too!”

The best vehicle for disability planning is a fully funded trust – usually a revocable living trust. It’s very important to understand different ways you can design your living trusts, both to provide for taking care of the you in the event of your client’s disability and to provide for anyone who is dependent on you when the disability event occurs.

In this post we’ll take a look at what happens when someone becomes disabled and has not planned for it, and how the right planning can prevent a court from having to step in to protect you and your assets.

Disability Planning Defined
Disability planning is planning for when you are mentally incapacitated to the degree that you are not competent to make business or personal care decisions or so physically disabled that you cannot communicate directions for the management of the your affairs.

A person is considered incompetent when a medical determination has been made that the individual does not have the mental ability to make business or personal care decisions.

A person is incapacitated when a court has declared the person legally incompetent to make business or personal care decisions. When a person is determined to be incapacitated, the court will take away the person’s right to make personal care and business decisions and may empower someone else to do so under the court’s supervision.

Planning for disability is vitally important because disability can happen to anyone, at any age, and at any time. Many of our clients tend to think of disability as being something that only happens to old people, like when they develop dementia. However, as noted earlier, a person’s probability of dying in the next year is much lower than his or her probability of becoming disabled in the next year unless the person is well past retirement age. With people living longer due to advances in medicine, their lifetime probability of becoming disabled is increasing. Today, the odds are better than 50:50 that any given person in the U.S. will have some period of incapacity.

But younger, healthy people can suddenly become disabled from accidents or illnesses—or even acts of violence. For example, Terry Schiavo was just 29 years old when she suffered a cardiac arrest that resulted in permanent, profound brain injury. The consequences of disability without planning can add another level of disaster. That is why everyone, regardless of age and wealth, need disability planning—just in case.

What Happens if We Don’t Plan: Life Probate
Most people think of probate as a legal process for changing titles on assets from the name of a deceased person to the name of the deceased person’s beneficiaries or heirs. But there is another probate court process, a “living probate.”

Living probate is what happens when someone is alleged to be incompetent to manage their own affairs. Someone literally sues them in a probate court, asking the judge to take away their right to make their own care and/or business decisions and give that right to someone else. It is an expensive process in which the alleged incompetent person pays the lawyers on both sides. If the person is found to be incompetent to manage their business affairs and there are business affairs to be managed, the court will appoint a guardian or conservator to do so. The court will require that the guardian or conservator post a bond against theft or mismanagement and provide a detailed accounting to the court on a periodic basis for the court to audit. Sometimes the responsibility for the physical care of a disabled person and the responsibility for the management of assets that are titled in the disabled person’s name are given to two different people: a guardian/conservator of the person (for physical care) and a guardian/conservator of the person’s assets (for financial care).

If there are no assets titled in the incapacitated person’s name, such as when the person’s assets have been placed in a trust, the court has no need to appoint a guardian/conservator of the incapacitated person’s assets. This is just like there is no need for post-death probate if there are no assets titled in a deceased person’s name that are not controlled by beneficiary designation.

Because the courts jealously guard everyone’s rights to manage their own personal affairs and property, living probate provides a form of protection that is anything but free. Living probate, especially when there are assets to be managed, can be costly, time consuming and cumbersome with annual accountings, bonds, reports, ongoing determinations of incapacity/incompetency, and fees for attorneys, accountants, doctors and guardians. All those costs are paid from the disabled person’s assets, and living probate proceedings are a public record. Once a guardianship/conservatorship is established, it will go on until the incapacitated person dies or the court determines that he or she is no longer incapacitated. That can be many years.

Another possible problem is that a court cannot allow an incapacitated person’s resources to be used to provide care for anyone who is not the incapacitated person’s legal responsibility. That means that adult children, parents, grandchildren and others for whom the disabled person was providing support will be on their own.

A Fully Funded Revocable Living Trust Avoids Living Probate
When a living trust is fully funded, all titles of assets are changed from the individual’s name to the name of the trustee and new assets acquired are taken in the name of the trust. Then, if the client becomes disabled, there is no reason for a living probate for asset management because the client does not own any assets in his own name that need managing. While a guardian/conservator of the person may still need to be appointed by the court, a fully funded living trust will allow the person (or people) you choose to be involved with the management of your assets under the direction of your successor trustee.

Living Trust v. Durable Power of Attorney
A durable power of attorney is not a substitute for a fully funded revocable living trust for several reasons. For example:

A durable power of attorney will endure the disability, but not the death, of the asset owner (principal). A living trust, on the other hand, is not affected by the trust maker’s death.
A holder of trust assets cannot decline to accept the requests of a validly authorized trustee (or successor trustee). A durable power of attorney, on the other hand, works only if whoever is holding the assets decides to accept it. That can be a real problem. Perhaps whoever is holding the assets will think the power of attorney is not broad enough to be acceptable. Or perhaps that it is too complex to understand without a legal opinion that the asset holder is unwilling to seek. Powers of attorney also may not be accepted if more than a certain number of days or months have elapsed since they were executed. This is a particular problem when the power is given to a spouse. Many institutions will not accept a power of attorney unless it is on their own form. We could go on. With a living trust, the trustee is the owner of the trust assets; institutions and securities transfer agents must honor the trustee’s ownership.
Durable powers of attorney will not endure the disability or death of the agent to whom the power is given. If the principal is disabled, a living probate will likely be needed if no successor agent is available and willing to serve. By contrast, a trust will not fail for lack of a trustee. A well-drafted living trust will contain trustee succession provisions, and even if all named successors are unavailable to serve, a professional trustee can be appointed.
A living probate will cause all powers of attorney to terminate; the court will simply take over and put a conservator/guardian in charge. As explained earlier, a fully funded living trust will eliminate the need for a guardian/conservator of the estate because there is no estate.
If the power of attorney fails to work for any reason at the principal’s disability, a living probate may be the only solution for taking care of the principal. The guardian/conservator of the estate will be someone appointed by the court. If the incapacitated person has not made his or her wishes known by a certain kind of formal document, the court may choose someone who is a professional guardian/conservator but a total stranger to the family. With a living trust, you handpick the successor trustees for your trust.
Federal agencies, such as the IRS and the Social Security Administration will generally not honor powers of attorney; agents may not be able to cash Social Security checks or sign tax returns. With a living trust, Social Security checks can be set up ahead of time for direct deposit to a living trust account and a trustee will be empowered to deal with the IRS.
A power of attorney must contain very specific instructions for running a sole proprietorship or other business entity. If the sole proprietorship or business entity is owned by the living trust, the successor trustee will be able to step in and running the business. The successor trustee can also hire other persons to run the business if the successor trustee does not want to run the business or does not have the proper license to do so. An agent may not have the power to delegate.

Additional Documents for Disability Planning
Durable Power of Attorney
A durable power of attorney can be useful. Often one will be accepted to transfer titled assets to the principal’s revocable living trust, and they are effective in managing assets (like IRAs) that cannot be put into the living trust before a disability event.

Durable Power of Attorney for Health Care
Also called a Health Care Proxy or Medical Power of Attorney, this document lets you legally give someone the authority to make health care decisions (including life and death decisions) for you if you can no longer make them for yourself. Without a designated health care agent, your client could be kept alive by artificial means for an indefinite period of time. (Most clients will remember this happening to Terri Schiavo. Terri’s tragic incapacity saga and information about the Terri Schiavo Foundation can be found at http://www.terrisfight.org).

Living Wills or Directives to Physicians
A living will is different from a living trust. A living trust is a document used in estate planning for control and management of a person’s assets during lifetime and after death, and as explained above, can prevent a living probate at disability because of the way the assets are titled. A living will or directive to physicians is a document that lets a physician know the kind of life support treatment someone would want provided or withheld in case of terminal illness or permanent condition when the affected person cannot make his or her desires known. Please note – living wills may not be enforceable in Michigan. Read this previous post for more information.

HIPPA Authorizations
HIPPA authorizations give written consent for doctors to discuss your medical situation with others you have designated and to disclose your medical information to them. These documents are vitally important for disability planning because they can allow not only family members to discuss a your situation and prognosis with the doctors if you are disabled, but they can also allow the trustee and your professional adviser to be kept fully informed.

Defining and Providing for Disability in the Revocable Living Trust
A revocable living trust provides the client the opportunity to define disability in a way that will provide for the continuity of trustee services, to make sure the trust maker and loved ones will be taken care of during a disability, and to ensure that debts, liabilities and obligations will continue to be paid. Options to define disability can include:

A determination by two physicians that certify that the trust maker is disabled. (HIPPA authority will be necessary to allow the doctors to discuss the client’s condition with the trustee and other advisors.
A determination of incapacity by a living probate court. (The court does not have to appoint a conservator of the estate if all titles are in the name of the trustee.)
A determination of disability by a disability panel named in the trust. This option allows you to pre-select a group of people to determine his/her disability. (An odd number is recommended to prevent deadlocks.)

Planning Tip: If you should disappear or are being detained against your will (kidnapped, held hostage, in jail or prison), you can be declared disabled so the trustee can take care of the obligations and people who need to be cared for. (In contrast, years must pass before a missing person can legally be declared dead by a court.)

Designing “Take Care of” Instructions in the Revocable Living Trust
The revocable living trust should include instructions regarding the persons who are to be taken care of in the event of your disability. For example, it could be the you only; or you and your spouse; or you, your spouse and legal dependents. You may also want to include others who are not legal dependents, like parents and adult children who are actually receiving support at the time of your disability. Also, priority must be established for those who you would like to care for, in case there are not enough funds to provide for everyone.

Planning Tip: It’s also important to give direction on how you want to be taken care of and what things are important to you. Are there social, recreation and entertainment needs? Are there religious needs? These instructions can be as detailed as they need to be.

Conclusion
Disability before death is usually not expected, but it should be properly planned for. We should all put disability planning on the same level as estate planning and recognize that this planning for life is at least as important as after-death planning.

Even Joe Paterno Can’t Keep His Will Private

July 21, 2012 / Michael

Now, more than ever, families are valuing their privacy. It’s not surprising given the amount of fraud, scammers, spammers, and others out there trying to use the personal information of others to gain some benefit for themselves. What does surprise many families is that just having an estate plan may not be enough to keep your personal affairs from the prying eyes of those who would use it for their own benefit. I’ve heard the surprise in the voices of many families I’ve met with . . . so many in fact, that I wrote this previous blog post about privacy in your estate plan.

And sure enough, within a couple weeks of writing that post there was a very public example of the lack of privacy with some estate plans. It turns out that Joe Paterno’s family was trying to keep his will from being part of the public probate court record after his passing. But, as you can see from reading this Forbes.com article, they were unsuccessful. Why? Because a will must be filed as part of the probate court process. As Ms. Jacobs, the article’s author, points out, typically the best way to avoid this is with a living trust. And I’ll add my own comment that just having a trust is not enough. It must be a fully “funded” trust. Read this previous post to find out why that is critical to avoiding the public probate process.

Call us at 616-827-7596 to schedule a Peace of Mind Planning Session to help make sure that your family’s legacy will be kept among your family, not shared with everyone via a public probate court filing.

What Happens to My Pets If I Die?

July 5, 2012 / Michael

For many of us, pets are members of the family. Some even say that if something happens to them, they are more concerned with what will happen to their pets than to their children or spouse.

In this post, we’ll look at the issues surrounding caring for pets after the disability or death of the pet’s owner. Given the feelings of many individuals towards their pets, and the costs of care and longevity of some types of pets, planning in this area can be of critical importance. This is particularly true given our mobile society and that the laws of a different county or state may impact you and your pets or the pets of parents and other loved ones.

What Will Happen to the Pets When the Owner Becomes Disabled or Passes Away?
Most pet owners do not want their pets killed if something should happen to them. However, without proper planning, the death of the pet is almost certain in some areas. For example, in some Nevada counties, if the owner does not provide for a pet by way of a trust, when the owner dies Animal Control must take the pet to the local kill shelter if there is not a family member present who is willing to care for the pet. Some kill shelters euthanize animals 72 hours after they arrive at the facility, making it virtually impossible for anyone to adopt the pet. It is critically important that pet owners know how their state and county laws may impact their pets.

Planning Tip: Pet owners should discuss with their advisor team how state and county laws affect pets after the owner dies or cannot care for the pet.

Planning Tip: A good resource for pet owners is Providing for Your Pet’s Future Without You by the Humane Society of the United States (order a free kit by calling 202-452-1100 or e-mailing petsinwills@hsus.org). It includes a door/window sign for emergency workers, an emergency contacts sticker for inside of the door, emergency pet care instruction forms for neighbors/friends/family, wallet alert cards, and a detailed instruction sheet for caregivers.

Providing for Pets Upon the Owner’s Death

Outright Gifts
The law treats pets as property, and thus an individual cannot leave money outright to a pet, as property cannot own other property. An individual may leave an outright gift of money to a caretaker with the request that the caretaker care for the individual’s pet for the rest of the pet’s life. However, because the caretaker received the gift outright, and not in trust, no one is responsible for making sure the pet is receiving the care requested by the pet owner.

Once the caretaker receives the gift and the pet’s owner is gone or incompetent, there is nothing to stop the caretaker from having the pet euthanized, throwing it out on the street, taking it to a local kill shelter, or using the assets in ways unrelated to the care of the pet. Also, once in the caregiver’s hands, the assets are exposed to the caregiver’s creditors and they may be transferred to a former spouse on the caregiver’s divorce.

Statutory Pet Trusts
The majority of states and the District of Columbia have enacted statutes pertaining to pet trusts, and Michigan is no exception (find out more by reading this previous blog post). These statutes allow virtually any third party designated by the terms of the trust to use the trust funds for the benefit of pets.

Some state statutes specifically limit the terms of a pet trust. For example, some states limit the amount of money an individual can leave in trust for his or her pet to the amount required to care for the animal over the term of the trust. The trust must distribute any excess funds to the beneficiary(ies) who would have taken them had the pet trust terminated.

The pet’s current standard of care determines the endowment amount required to provide care for the pet. Factors include: the cost of daily care (food, treats, and daycare), veterinary care (yearly teeth cleaning, shots, nail trimming, and emergency care), grooming, boarding, travel expenses, and pet insurance. Additional factors may apply in particular cases. For example, horses are expensive to maintain and require exercise, training, and a large tract of land; some birds and reptiles have very long life expectancies; and care of some pets will require construction of a special habitat on the caregiver’s property.

Traditional Trusts
Even in states that do not have a specific pet trust statute, a pet owner can name a human caregiver as the beneficiary of a trust, require that the distributions to the beneficiary are dependent on the beneficiary caring appropriately for the pet, and require the trustee to ensure that the beneficiary is properly caring for the pet using trust assets. This type of trust may be used without regard to whether the state has a specific pet trust statute.

Planning Tip: Both statutory pet trusts and traditional trusts allow the pet owner to provide detailed requirements as to how the caregiver must care for the pets upon the pet owner’s disability or death.

Planning Tip: Will planning is usually inadequate for pets because Wills do not address disability and because of the time lapse between the pet owner’s death and the Will being admitted to probate.

Funding Pet Care
Many pet owners do not have sufficient funds to properly care for their pets after their disability or death. Life insurance is one way to increase funds available to care for pets after the pet owner’s death.

Planning Tip: Pet owners should consider life insurance that names a pet trust or traditional trust as beneficiary to fund a pet’s care. If the pet owner is concerned that funding of a pet or traditional trust will reduce the inheritance of children or other beneficiaries, he or she should consider life insurance that names both (1) the pet or traditional trust and (2) other beneficiaries (or a trust for their benefit). These assets can be invested like any other assets during the owner’s lifetime, and those who currently manage the assets can continue to do so for the pet’s lifetime.

Trust Terms
Here are several issues for pet owners’ consideration:

Creating a pet panel to offer guidance to the trustee and caregiver/beneficiary, and to remove and replace the trustee and caregiver/beneficiary if necessary. Consider including a veterinarian to make the final decision regarding euthanization for medical reasons, to ensure that the pet is not euthanized prematurely by the caregiver/beneficiary.
Paying the caregiver/beneficiary a monthly fee for caring for the pet or allowing the caregiver/beneficiary to live in the pet owner’s home, rent free.
Awarding a bonus to the caregiver/beneficiary at the end of the pet’s life as a “thank you” for taking care of the pet.
Determining how the trustee is to distribute the remaining trust funds after the last pet dies.

If the pet owner decides against creation of a pet panel to determine who will be a successor caregiver/beneficiary, the trust should name multiple successor caregivers/beneficiaries (three or more) in case a caregiver/beneficiary is unwilling or unable to serve. As a final back-up, the pet owner should consider requiring the trustee to give the pet to a no-kill animal sanctuary if there are no caregivers/beneficiaries available.

An alternative to naming individual caregivers is for the pet owner to name a local charitable organization that will ensure care in exchange for a contribution upon the owner’s disability or death. A listing of such organizations nationally is available online by clicking here.

Pet Identification
To prevent the caregiver/beneficiary from replacing a pet that dies in order to continue receiving trust benefits, the pet owner should specify how the trustee can identify the pet. Micro-chipping the pet or having DNA samples preserved are two methods commonly used for verification.

Other
Some pet owners want their healthy pets euthanized when they pass away because “no one can care for my pets as well as I do.” However, many courts have invalidated euthanasia provisions on the basis that destruction of estate property is against public policy. Instead, pet owners should consider no-kill organizations that have the pet’s best interest in mind and will find the next best home for the pets.

Conclusion

Many individuals are unaware of the issues surrounding the care of their pets after their disability or death. By discussing these issues with a Michigan Pet Trust Lawyer, pet owners can ensure that all of their loved ones are cared for, even when the owner is unable to care for them directly.

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