When pet owners in the Colorado Springs or Centennial, Colorado area come talk to us about creating a pet plan, they sometimes ask if they can use their life insurance to leave the pets money. While this is a possibility, there are some specific steps you will need to take in order to ensure your pet will be properly protected. To help explain how you might be able to use life insurance with your pet plan, here are several questions you will want to review.
Question 1: Who can I choose as my life insurance policy beneficiary?
Even though every life insurance policy differs slightly, they all work on the same basic principle. When you buy a life insurance policy you agree to pay the life insurance company a regular premium. In return for your payments, the company agrees to make a lump sum payment when you die. The person who receives this payout is known as your beneficiary.
Question 2: Can my pet receive my life insurance payout?
No. Under the law, a pet is not a person and cannot legally owned property. Even though you might purchase things on behalf of your pet, you are still the legal owner of all the things you buy. If you, for example, leave your pet an inheritance under the terms of your last will and testament, that inheritance choice will not be valid, and will pass to someone else depending on either the terms of your will or the laws of the state of Colorado. This is also why a pet cannot be your life insurance policy beneficiary.
Question 3: If I can’t select my pet as my beneficiary, is there anyway I can use a life insurance policy to care for my pet after I die?
Yes. Though your pet cannot legally own property, you can create a type of trust that can, known as a pet trust. Like a corporation, the law recognizes a trust’s ability to own property separate from the people, or the person, who created it. Further, pet trusts can continue to exist even after you die.
When you create a pet trust you set aside some of your money or property so that the trust uses that property to care for your pet after you die. A person called a trustee will manage the trust property, while a caregiver will actually care for the pet. The caregiver has the responsibility to care for the pets day-to-day needs, while the trustee will be responsible for compensating the caregiver for any expenses incurred while providing the appropriate amount of care.
If you want to fund your pet trust with your insurance policy, you can name the trust as the policy beneficiary because the trust is legally entitled to own or inherit property. However, there are some significant considerations you need to make whenever you create and use a pet trust. If you’re considering doing this, contact us as soon as possible.