Leaving your estate to a pet - is it possible in Canada?

I recently came across this post from http://yourestatemattersblog.ca about leaving your estate to your pets. I often see that topic online, but rarely is the post from a Canadian law firm, as this one is. So if you have ever wondered about leaving money to look after a pet, click here to read this article.

More inheritances going to the dogs

Have you ever wondered whether all of those million-dollar inheritances going to the pets of Americans would work the same way here in Canada. As I've mentioned before, they would not. Click here to read an article in the National Post that explains more about the difference, and gives some ideas about how we Canadians can look after our pets in our wills.
(Photo of Leona Helmsley's extremely rich dog is from Getty Images, from the National Post article).

How much should you pay a pet trustee?

Plenty of clients are thinking about how they can protect their pets in the event that the owner passes away. If you are considering setting up a trust for the care of your animals, click here to read a post about that by Danny Meek, an American lawyer who writes about pets and estate planning. In Canada, you would likely use what's called a purpose trust, but the comments about paying the trustee will apply.

Should you set up a trust in your Will?

When talking about estate planning and tax planning, there is always quite a bit of discussion of trusts. Many people assume that because their lives and their assets are pretty simple, there is no need of using a trust. However, there are plenty of every-day situations where a trust could be just the right tool to bring about the outcome they want. The following is a brief list of some of the main reasons people use trusts. You just might see yourself or a family member in one of them

Hold for minors - A child can't inherit until he or she has reached legal age, so a child's inheritance must be held in trust until then. But it's also possible to hold a child's share past the age of majority if you feel that age is too young to handle money.

Protect from children's spouses - A parent who will be leaving quite a bit of money to a young person might want to hold the money in a trust to a certain age, to avoid having the money vest in the young person and be available to an unscrupulous spouse.

Protect from spendthrifts or addicts - Sometimes individuals need help managing their money to make the most of it, due to problems that may or may not be resolved in the future. For example, a child with a drug addiction probably should not be given a large sum of money. The child's parent can help protect the child by setting up a trust that pays the child's rent but not for the habit.

Hold a particular asset - A family asset such as a lake cottage may be held in a trust for a set period of time so that all of the family members can use it. The trust should ideally also hold enough money to pay for taxes, insurance and repairs of the asset.

Control ultimate destination of funds - Putting money in trust for individuals, as opposed to simply giving the money to the same individuals, means that if not all of the funds get used up, you can control where they end up. For example, you could set up a trust leaving money for use by your elderly parents, but if the parents don't use it up, you could direct that any money left over goes back to your estate.

Defer taxes - It might be a smart idea to put certain assets, say the shares of a privately-owned business, into a trust for a spouse so that the capital gains tax that would otherwise arise will not arise until the spouse passes away (or disposes of the shares).

Split income - If a parent is paying significant taxes on financial assets, he or she might want to put some assets into a trust, such as a family trust, so that the tax burden is shared with others in the family, or paid by the trust itself.

Achieve a purpose - Trusts can be set up to fund trusts that are not for an individual person but are intended to meet some purpose. An example would be setting aside some money in your Will for the care of your pets or animals after you pass away.

These are very general descriptions, and of course there are other types of trusts as well, but this list is intended to give you some ideas about how readily trusts can be used to achieve certain estate-planning goals. As a word of caution, please do not try to draft a trust without help from an experienced lawyer, as the wording is absolutely critical.

My pets are my children - how can I look after them in my Will?

I notice that often when clients want to talk about looking after their pets in their Wills, they start off by saying, "I know this sounds kind of silly but I want to do something in my Will about my pet." I don't think it's silly at all, since those of us with pets feel true affection for them as well as a responsibility to ensure they will not be abandoned should we pass away. This kind of request is very common.

Generally a pet owner's foremost concern is finding a good home for the animal. The second concern is making sure there is enough money to look after the animal, particularly if it is a large animal like a horse.

There are two general approaches to this situation. Both involve choosing a person you trust and providing that person with some money to look after the pet.

In the most common scenario, you would, in your Will, give your pet to a specific person. You would also give that person a sum of money if they receive your pet. If the pet dies before you do, or the person refuses to take the animal, then the person does not get the money. You would leave instructions that the money is to be used for veterinary bills, food, shots, shelter etc. Many pet owners like to include an instruction that the animal not be euthanized unless medically necessary.

The sum of money does not increase if the animal lives longer. It is a one-time payment. The person who receives the money doesn't have to account to anyone for how the money is spent.

The second approach involves giving the pet to a trusted person in the Will, and then setting up a trust. The trust would not take effect until you have passed away as it is created by your Will. Note that this does not mean that you set up a trust for a pet, because that is not legally possible in Canada. You are setting up what is known as a purpose trust. This means it is a trust set up for a specific purpose, i.e. looking after your pet.

When you set up a trust, the money you have specified is not given directly in a lump sum to the person who receives your pet. It is held in a trust by your executor and money is given out to the person who receives your pet on an as-needed basis. Normally the trust would be in place for the lifetime of the animal. When the animal passes away, any money left over would be paid to a beneficairy. Many pet owners will name an animal shelter as the beneficiary.

One of the main reasons that purpose trusts for pets are not used very often is that the sum of money set aside is not usually very large. There are costs associated with setting up and maintaining trusts, which might quickly deplete a small sum of money.

If you have a pet - or several - that you want to look after in the event of your death, talk to your estate planning lawyer to see which solution might be right for you.