The Rich Are Putting Millions Into Trust for This Cherished Family Member. Here's Why

More than two-thirds (68%) of U.S. households own at least one pet, and boy, do we love them. Not only are most pets bonafide members of the family, but we spend an estimated $99 billion annually to meet their needs. And for some of us, meeting those needs includes making sure they'll be cared for after we die.

Planning for pets

Several years ago, my husband and I hired an estate attorney to set up a family trust. At the same time, we updated our wills. It had been years since our last update and much had changed in that time. Our boys were grown, had babies of their own, and we'd added two dogs to the family.

At the time, we were both worried about what would happen to Hank and Harlow if we died. While we'd had discussions with the kids regarding the pups' care, there was nothing in writing. Fortunately, our attorney was able to walk us through the process after adding Hank and Harlow to our will.

We can't legally leave money to pets. But we were able to spell out who will care for them when we're gone. We were also able to designate a specific amount of money to the caretakers to cover the cost of Hank and Harlow's care.

Remembering pets in a last will and testament or revocable trust is relatively common, particularly among those of us who don't have billions of dollars in our bank accounts. For the ultra-wealthy, it's all about setting up a purpose trust.

Purpose trust

When a rich person wants to leave enough money behind for something they care about -- like caring for a beloved pet, seeing to the liquidation of a valuable art collection, or covering the upkeep of the family cabin -- their attorney is likely to point them toward a purpose trust. As the name suggests, a purpose trust is set up with a specific purpose in mind.

The primary reason a person would opt to have such a trust drawn up is to be sure their wishes are honored, even if their heirs think those wishes are wacky. Purpose trusts may include specific language that lays out how funds should be spent, while also making it clear that children, grandchildren, and other beneficiaries are excluded from those funds.

No matter what heirs may think of the idea, a purpose trust allows a pet owner to allocate enough money to pay a caretaker, buy food, cover the cost of pet insurance, and otherwise ensure that their pets will be comfortable for the remainder of their lives.

How it works

A purpose trust gives a pet owner the ability to provide guidance regarding the care of their pet after they're gone. It's a deliberate and clear way to lay out wishes, and to leave enough money behind to cover costs.

As mentioned, those of us with small to moderate estates can allocate funds for pet care through our wills or revocable trusts. Clients with larger estates or complex needs might be better served with a purpose trust.

Let's say a couple owns a chalet on Lake George in New York. They want the family to continue to enjoy the property for generations to come. To make it easier, they have a purpose trust drawn up, specifically to deal with their wishes regarding the property.

Not only will a purpose trust spell out their desires for the chalet on Lake George, a purpose trust is a tax-advantaged planning instrument. That means that future generations can continue to enjoy the lake house. Depending on how it's set up, it's possible that the need for future property appraisals are eliminated and the family's tax burden is minimized.

When a purpose trust is set up to care for pets, it is typically limited to the lifetime of the animals. That means there needs to be a "Plan B." The pet owner must decide where they would like any funds remaining in the trust directed after the last of their pets dies.

What you can do

If you're concerned about what will happen to your pets after you're gone, speak with an estate attorney about whether you can address the concerns through an update to your will or if your case is complex enough to require a purpose trust.

There's no doubt that you love your pet and want to provide for them. Estate planning is one of the best ways to make sure they're okay, no matter what happens.