THE BLOG
04/04/2013 06:38 pm ET Updated Jun 04, 2013

Pet Trusts: Should You Leave Money to the Family Dog?

Our household includes two fairly spoiled chocolate labs and two overindulged tabby cats, which we love dearly; but at this point, we haven't included them in our will or made any plans to leave them money. That idea may sound a little crazy, but many Americans are asking themselves what will happen to their furry loved ones after they're gone - and some are even beginning to make formal plans for their care.

We are a nation of pet owners. Last year, nearly two-thirds (62 percent) of U.S. households have a pet1, up from 56 percent of households in 1988. Half of Americans will execute a Last Will and Testament or other estate plan - and more than 25 percent of them will now include some provision for the continued care of their pets2.

Making provisions for a pet may seem like a total waste of time and money to some people. But for those who are uncomfortable with any uncertainty, having a legally documented plan for their pet's care in the future may provide peace of mind and a defined direction for the caregivers they've identified. And let's be clear -- while you may want to provide financially for your pet, it's advisable to designate a human being to provide the care and handle the funds rather than leaving it all in your pet's hands... or paws.

So what would happen to Fifi if you were to unexpectedly pass away? Most pets end up with extended family members or friends after their owner dies. But unfortunately, a few dogs and cats enter animal shelters after their owner's death either because no provisions were made for their care or no one was able or willing to provide care.

Legally enforceable documents are the only way to try to ensure that your pet will be cared for according to your wishes. There are essentially three ways you can make provisions for your pet: a will, a pet trust or a pet protection agreement.

A will is valid after death and its main purpose is to distribute property (Fido included). You can easily write a few sentences into your will stating that you'd like your niece to be Fido's guardian and that you're designating some dollars from your estate for this purpose. However, a will is honorary - which means your dog-hating niece could ditch Fido and head to the Caribbean with the cash. Unfortunately, wills can often be tied up in probate court for long periods of time so your wishes may not be carried out immediately.

A pet trust is a legal agreement that specifies how an owner wants his or her pet to be cared for in the event of death or disability. As the person who creates the trust, you can establish whether it can take effect while you're still living (i.e. during an extended disability or nursing home stay), or at death. You may include directions on who will be responsible for your pet and how the care will be paid for. In a pet trust, a trustee distributes the funds and ensures that the person chosen to provide care is following the owner's wishes. Trusts take effect quickly, and unlike wills, can exclude certain assets from the probate process. You can designate a fixed amount of funds or name a percentage to be drawn from a bank account, insurance policy, retirement account or even a portion of home equity.

For complicated issues, multiple pets, or in in which the owner designates significant funds (in excess of $25,000), a trust may provide the most oversight. Depending on the type of trust and complexity, fees may vary, but 45 states now allow for pet trusts.

A Pet Protection Agreement is an affordable, legally-enforceable document. It's also a very simple option - a fill-in-the-blank form easily located online. This designates the guardian for your pet, provides funding for care and may specify use of certain vets, clinics or groomers. There are a number of credible online versions, ranging in cost from about $40 to $400.

Regardless of which option you choose, you should check with your potential guardians, trustees or beneficiaries to see if they are willing and able to accept the responsibilities.

Whether or not you take legal action to provide for your pet is a personal choice. My husband and I are lucky to have animal loving siblings who would likely adopt our pets, but leaving the care of beloved pets undefined is not for everyone.

1 According to the 2011-2012 American Pet Products Association's National Pet Owners Survey http://americanpetproducts.org/press_industrytrends.asp

2 According to Professor Michael T. Flannery of the University of Arkansas's William H. Bowen School of Law