Category: The Wealth Counselor

What Is a Dynasty Trust and Which Clients Should Consider Them?

Advising your clients on the best ways to protect their family and wealth requires considerable financial and estate planning knowledge. Armed with this knowledge, you can help your clients explore all options available to protect their legacy. Depending on a client’s situation, a dynasty trust may be one of the options you present. 

Who Could Benefit from a Dynasty Trust?

An ideal client for a dynasty trust is typically someone with substantial wealth and a desire to create a lasting financial legacy for their family that spans multiple generations. These clients are often concerned about preserving their wealth from erosion due to taxes, potential creditors, lawsuits, or other financial risks while ensuring responsible management and distribution of their money and property. 

High-net-worth individuals may need complex estate planning strategies to achieve these goals. A successful estate plan is not just about transferring wealth to the next generation. It is about sharing their vision for their family’s financial future along with setting certain guideposts for the management and distribution of wealth to ensure responsible financial stewardship.

How a Dynasty Trust Works

Creating and funding a dynasty trust should be done by an experienced estate planning attorney along with other trusted advisors. In working together as a team, these professionals can guide the client in deciding which cash, real estate, investments, or other valuable property should be transferred to the trust. The client may be able to use their lifetime gift tax exemption to successfully transfer these items while minimizing tax consequences for themselves and their heirs in the future. Tax-efficient growth creates an even greater legacy for successive generations.

A dynasty trust is designed to be perpetual or of long duration. Unlike some other trusts that have a limited or fixed termination date, a dynasty trust will likely last for multiple generations and continue to accumulate and grow wealth over time.

A dynasty trust often involves appointing a professional trustee, such as a bank or trust company, to oversee the management and administration of the trust. They must follow specific terms and guidelines, ensuring responsible governance and distribution of resources according to your client’s wishes. These terms may include flexible distribution provisions to provide income to beneficiaries, an option for the trustee to make discretionary decisions based on specified criteria, or permitting the trustee to adjust distributions in response to changing family circumstances.

Why Would Your Client Want a Dynasty Trust?

By placing money and property in a well-structured dynasty trust, your client ensures that the wealth they have worked hard to accumulate remains protected within the family.

Life is unpredictable, and unforeseen circumstances such as lawsuits, creditors, or even divorces can pose threats to the financial stability of your client’s family. Since money and property are legally owned by the dynasty trust rather than any individual family member, they can be safeguarded from creditor claims and legal judgments in many cases. 

Estate taxes can significantly erode the wealth passed down to heirs. Dynasty trusts are structured to minimize the impact of estate taxes over multiple generations. Additionally, the appreciation in value of trust resources while the client is alive will occur outside your client’s taxable estate, allowing for potential growth free from estate tax implications. 

Customized provisions in a dynasty trust can govern how money and property in the trust are managed and distributed. This level of control is particularly beneficial when there are concerns about the financial acumen or spending habits of future generations. Your client can ensure that their wealth is managed responsibly while still providing for their heirs. 

If you have high-net-worth clients seeking to create a lasting financial legacy for their families, help them discover sophisticated planning tools like the dynasty trust. By leveraging the benefits of perpetual duration, tax-efficient growth, asset protection, and responsible governance, your clients can address the unique needs and goals of their families over multiple generations. If you are interested in learning more about dynasty trusts and how we can work together to serve your high-net-worth clients, call to schedule an appointment.

We Can Do Great Things When We Work Together

February is known as International Networking Month. During this month, we can celebrate our professional relationships by building and strengthening our networks. When we work together, we can provide unique solutions for our clients, like our hypothetical couple John and Jane.

Meet John and Jane  

John and Jane are beginning a comprehensive estate planning journey and need your help. John is a 45-year-old software engineer with an annual income of $150,000, and Jane is a 42-year-old marketing manager who makes $120,000 per year. 

Together, they have joint ownership of their primary residence with a current value of $600,000 and a mortgage of $300,000. John has $500,000 invested in a 401(k), $200,000 in various stocks and mutual funds, $50,000 in savings, and about $20,000 in credit card debt. Jane has $300,000 in her 401(k), $150,000 in investment accounts, and $30,000 in savings, with no significant debt. 

John and Jane have a strong financial foundation, but they are aware of the importance of planning for the future of their growing family. They have two young children, Danny (age 11) and Jenny (age 8), and want to ensure their wellbeing in the event of unforeseen circumstances. 

Serve as Their Financial Advisor

John and Jane need professional advice to address retirement savings and investment goals. If their investments are optimized, their estate can grow. A financial advisor can help them develop a strategy to 

• maximize their investment portfolios, ensuring their funds grow efficiently and can fund their long-term goals;
• create a comprehensive retirement plan, ensuring they are saving enough so they can maintain their lifestyle once they retire; 
• assess and mitigate potential risks, providing a financial safety net for major life events; and
• help ensure their investments are funded into their trust, if a trust is part of their estate plan.

Meet With a Tax Professional

A tax advisor can ensure that John and Jane’s estate plan is tax-efficient, preserving more of their wealth for future generations by

• ensuring John and Jane are aware of available exemptions, deductions, and credits that can minimize potential tax liabilities during their lifetime;
• discussing tax consequences when gifting money and property to their children or other loved ones;
• evaluating real estate, potentially reducing capital gains taxes for heirs upon the sale of inherited property; and
• keeping John and Jane informed about tax law changes. 

Contact an Insurance Agent

A professional insurance agent can advise John and Jane on the right amount of insurance coverage to provide liquidity in an emergency. Integrating risk management strategies into their estate plan provides a safety net for their family by

• ensuring life insurance death benefits are sufficient to cover outstanding debts, ongoing living expenses, and the future needs of the surviving spouse and children;
• choosing term life, whole life, or universal life policies for different situations;
• considering long-term care insurance so John and Jane can access quality healthcare in an emergency; and
• reviewing policies and beneficiary designations as needs change.

Reach Out to a Spiritual Leader

John and Jane may also consider advice from their spiritual leader about the legacy they want to leave their children and future grandchildren. Discussing the important lessons that they want to impart to Danny and Jenny and their future children can allow John and Jane to 

• reflect on the legacy they want to leave to their children, not just in terms of money or property but shared principles, traditions, and giving back to the community; and
• consider their end-of-life wishes to ensure that their spiritual and cultural beliefs are respected, from their desired treatment and care to funeral or memorial arrangements.

Take Valuable Advice to an Estate Planning Attorney

Advisors’ contributions paint a complete picture for John’s and Jane’s estate planning attorney, whose job is to prepare a strategy that aligns with their goals and needs.

An estate planning attorney can guide John and Jane through hypothetical scenarios based on their current situation to determine what would happen if they could not make their own decisions due to incapacity or death. They will need to

• name trusted decision-makers in their powers of attorney for financial and medical emergencies; 
• decide and document their wishes regarding life-sustaining treatments, organ donation, and funeral arrangements in their healthcare directives;
• choose a guardian and backup guardians to care for Danny and Jenny in the event of their incapacity or passing;
• create a plan to distribute and protect their wealth with a will or trust;
• identify beneficiaries;
• discuss any specific bequests or charitable intentions; and
• explore strategies to preserve money and property for their loved ones.

Share the Love Through Networking

A team of advisors can provide expertise in various ways, resulting in a comprehensive estate plan that is legally sound but also deeply rooted in John’s and Jane’s values and preferences. From developing trusts that protect their life savings to transferring property and personal belongings equitably to both children, John and Jane will have peace of mind that their children will not suffer unnecessary tax consequences, issues with creditors, or complications when the time comes. Let’s work together to help ensure that all of our clients will have a successful and comprehensive plan like John and Jane.

As a trusted advisor, you provide expert guidance to your clients regarding many financial planning matters. It makes sense that you will come across clients who ask about estate planning. Even if they do not ask, you can start the conversation by inquiring if they have thought about what would happen to their money and property if something were to happen to them. 

You do not need to be an expert in estate planning to help a client get started. However, you should refer them to an attorney after your initial discussion and encourage them to develop a comprehensive plan that contains the right legal tools to meet their goals. You can lay the groundwork by explaining how important it is to have a comprehensive estate plan.

Clients who already have an estate planning attorney may only see them once every few years to review their plans, while others may not have spoken to their estate planning attorney since they first created their estate plan many years ago. You may see the client more often and know of changes in their life, investments, and beneficiaries that can greatly affect their estate and long-term goals. You can remind your clients that they may need to visit their estate planning attorney due to changes you have discovered or discussed.

1. Does your client currently have a will or trust?

Many people procrastinate about creating a will or trust, often thinking they do not own enough to need an estate plan or wanting to avoid what they think will be a complex, expensive process. You can address these misconceptions so they can move forward with protecting themselves and their loved ones. 

If your client has not done an estate plan, remind them that the state has an estate plan for them—the intestate law for those who die without a will or trust—and that plan may not be what they want, especially if they have a blended family. There is a hierarchy that the state follows when determining which family members receive a person’s money and property and how much they will receive. In most cases, these laws do not account for stepchildren or unmarried partners. If the client wants to determine who will receive their money and property, they need to proactively plan with the assistance of an experienced estate planning attorney. 

If your client already has a will or trust, ask when it was last reviewed or updated. Explain why estate planning is not a one-and-done project. Changes in family dynamics and life events will affect their estate plan. Over time, people change their minds, get married or divorced, have children and grandchildren, and buy and sell investments and property. These changes can impact who the client chooses as their trusted decision-makers, who they want to receive their money and property, and how much they want certain people or charities to receive. The client’s estate plan needs to evolve with the client to ensure that their wishes are carried out.

2. Does your client have people they trust to make financial or medical decisions for them in emergencies?

If your client has not chosen people to make financial and medical decisions for them, if they are unable to make their own decisions, they need to think about who they would want to do so. When choosing trusted decision-makers to serve as agents under a financial or medical power of attorney, your client must consider whether a person has the necessary qualities and skills to handle the role, whether they are willing to accept the role, and whether they understand their responsibilities. 

If your client has chosen people to serve as decision-makers, it is important that these people understand your client’s wishes should they need to step in and act. Your client can communicate their wishes by having a conversation with the decision-makers, providing their wishes in writing, or stating their wishes in a video. Your client should also periodically evaluate whether the people they have chosen are still the right people for the job. 

If your client is unable to make decisions for themselves and they have not properly named someone to act for them under financial and medical powers of attorney, a judge will have to decide who will make the financial and medical decisions on the client’s behalf. It can be time-consuming and costly for family members, as well as emotionally overwhelming, particularly in a medical emergency. In addition, the judge may appoint someone whom the client would not have chosen.

3. Does your client have minor children?

If your client has minor children, the client must nominate temporary and permanent guardians to care for them in the event the client and the other parent are unable to care for them. If the client has already nominated someone to serve as a guardian, they should review this selection and make sure the person is still able and willing to care for the children should something happen. If your client does not nominate someone, the state will choose a person to care for the children. If no family members are available, it could be a professional guardian who is a stranger. 

Starting your client on their estate planning journey offers them the incredible opportunity to preserve their legacy and protect their loved ones. Reminding your clients to review their existing estate plan ensures that their loved ones and legacy will continue to be protected. We are happy to work with any of your clients who have questions about creating or updating their estate plans.

Attorneys are bound by many different sets of rules regarding how they interact with clients, prospects, and referral sources. To properly represent a client, an attorney may need to refer the client to another attorney or advisor for their specialized expertise, such as a financial professional, tax advisor, or insurance agent.

To ensure that all parties have a mutually beneficial relationship, the following are some American Bar Association model rules that attorneys must adhere to when working with other professionals.

American Bar Association Model Code of Professional Conduct Rule 7.2: Communications Concerning a Lawyer’s Services

The American Bar Association’s rules of conduct protect attorneys, clients, and referral sources. Lawyers can establish reciprocal referral relationships with other attorneys and nonlawyer professionals as long as those referral relationships are not exclusive. For example, if our estate planning client needs assistance from a financial advisor, we must recommend a few different advisors. In selecting who to refer to the client, we must also ensure that our recommendations do not interfere with our professional judgment and the client knows about the arrangement. This ensures transparency and allows the client to make informed decisions when looking for other professionals. 

As a matter of ethics and integrity, lawyers cannot receive financial incentives or compensation in exchange for referrals. However, referrals can express appreciation through nominal gifts of little monetary value as a gesture of gratitude. This rule prevents conflicts of interest that may arise from financial arrangements between attorneys and other professionals.

American Bar Association Model Code of Professional Conduct Rule 1.6: Consent for Involvement of Non-Clients

Attorney-client privilege protects confidential communications between a lawyer and their client. Rule 1.6 protects this privilege and the client’s privacy. Clients must consent before an attorney can share privileged information with referral sources, other professionals, or the client’s family members. Your clients may want their advisors involved in the estate planning process because they have relevant information to share (e.g., bank account balances, policy information, prior tax filings) and can offer helpful insight. 

We welcome the opportunity to work with you to better serve our mutual clients. To make sure that we fulfill our ethical obligations, we may have the client sign a third-party waiver form that grants us permission to share relevant information with you or to have you be part of the planning session we have with the client.

To help ensure that our clients have a comprehensive estate plan, we sometimes need to assemble a team of trusted professionals who can contribute their expertise to achieve incredible client outcomes. We appreciate working with you and look forward to working with you more in the future. 

You want to ensure the efficient financial management and transfer of your clients’ wealth from one generation to the next. For people with significant wealth, successful strategies include minimizing the impact of estate taxes. The Tax Cuts and Jobs Act (TCJA), passed in 2017, introduced considerable changes to the estate tax law. Many of these changes will sunset at the end of 2025, potentially reversing the estate tax exemption of $13.61 million to somewhere between an estimated $6.4 and $7 million. This means that more people will likely be subject to the federal estate tax.

Certain clients, including business owners, farmers, and those with large investment portfolios, may need to reevaluate their estate plans this year.

Estate Tax Planning for Business Owners

Business owners should be acutely aware of the impending sunset of the TCJA tax exemption provisions. Many family-owned businesses may not be subject to federal estate tax at the current exemption amount. However, if these exemptions revert in January 2026, it may become necessary to revisit business succession planning strategies. If your client is not prepared, a significant estate tax bill may require a payment plan with the Internal Revenue Service (IRS). It could also result in liquidating or selling the business, leading to income loss for the owner and job loss for family employees and others.   

Start by reevaluating the business and property, including equipment, inventory, liabilities, earnings, and projected earnings. Encourage your business owners to consider options such as gifting or using family limited partnerships to minimize their business and estate for tax purposes.

Estate Tax Planning for Farmers

Farmers often have much of their wealth tied up in land, and the sunset of the TCJA tax exemption provision can significantly affect their estate planning. While the increased exemption limits currently protect many farmers from federal estate tax, the sunsetting of the high exemption amount in January 2026 may change this. Like with other business owners, it may be necessary to reevaluate their succession plan. Planning ahead could help the farmer’s loved ones avoid being hit with a monstrous estate tax bill, requiring an IRS payment plan, potential sale of the farm, and lost jobs. 

Work with your high-net-worth farmers to explore options like land valuations, gifting strategies, and structuring irrevocable trusts to protect their farmland, crops, equipment, equity, and retirement funds. As with other businesses, entity formation such as family limited partnerships or limited liability companies could also be beneficial in mitigating estate taxes, depending on the circumstances. 

If your client is getting ready to sell their farm, talk to them about deferring capital gains by structuring an installment sale or creating a related-party trust for the benefit of kids or grandkids. 

Estate Tax Planning for Clients with Large Investment Portfolios

In preparation for the potential sunset of the TCJA provisions, clients with large investment portfolios should revisit their allocation of stocks, bonds, and other investments. They should take a closer look at basis planning and ways to minimize capital gains tax liabilities for heirs.

Clients with substantial investment portfolios should consider revising their gifting strategies. While the higher exemption limits are in place, they can gift items to loved ones or create trusts to shelter money and property from estate taxes. The 2024 gift tax limit is $18,000 per individual.

One of the most common and effective strategies for high-net-worth estate planning is establishing trusts for complex situations, such as protecting savings for future generations. If your clients are relying on their portfolio to support their loved ones after the clients’ death, you may need to evaluate how quickly items in their portfolio can be transferred or liquidated in case of an emergency. 

Charitable giving can be another effective way to reduce estate tax liability. Help your clients explore options like charitable remainder trusts (CRTs) or charitable lead trusts (CLTs) to support both charitable causes and estate planning goals.

Educating Your Clients

As the sunset of the TCJA at the end of 2025 approaches, you should proactively guide your clients through options for changing estate tax strategies with the worst-case scenario in mind—reduction of the exemption amount. Business owners, farmers, investors, and high-net-worth professionals all need to reassess their estate planning strategies and investigate the tax implications for heirs when redistributing property.

Many clients who are currently exempt from federal estate taxes may face significant tax liabilities in the future. The key to successful estate planning is flexibility, adaptability, and staying ahead of regulatory changes to achieve your clients’ goals effectively.

Your clients and their loved ones may be exposed to future estate tax burdens, and the time to act on the sunsetting Tax and Jobs Act is now—not in 2025. Developing and implementing the right estate planning and tax strategies takes time, so you are sure to be busy as the deadline approaches. 

Which Clients Should You Reach Out To?

Meet the Andersons, a well-off family living in a state with a high cost of living. Robert Anderson, the father, is a successful entrepreneur who built a thriving business over the years. His wife, Sarah, is an accomplished artist, and together they have accumulated a substantial estate of $8 million each, for a total of $16 million. Their estate is primarily composed of their business assets, valuable artwork, life insurance, a family residence, a vacation home, and other lucrative investments. They have two adult children, James and Emily, both actively involved in the family business.

Their Unique Estate Tax Situation

With the generous federal estate tax exemption set at $10 million adjusted for inflation per individual in 2017, steadily increasing to $13.61 million in 2024, the Andersons have felt relatively secure about avoiding estate taxes. Their primary concern has been preserving the family legacy and ensuring a smooth transition of their assets (business, accounts, and property) to the next generation. They have taken some initial estate planning steps, such as creating a will, discussing the use of a family limited partnership, and exploring gifting strategies to transfer assets to their children gradually.

If the estate tax exemption sunsets to $5 million adjusted for inflation, the Andersons may face several estate tax issues that require professional advice before the end of 2025. The Andersons need to find other ways to protect their money and property.

Business Succession Planning

The family business represents a significant portion of the Andersons’ estate, and the sunsetting exemption could have profound implications for its continued viability. Robert and Sarah need to develop a comprehensive business valuation and succession plan now to minimize the total estate tax burden and ensure a smooth ownership transition to James and Emily later. 

Property and Investments

Given the potential changes in the estate tax landscape, the Andersons need to revisit the valuation of their financial accounts, retirement and life insurance investments, personal property, real estate, and artwork to ensure accurate assessments. Then they need to determine which items will affect the estate tax calculation and any remaining exemption they have left from prior legacy planning. Depending on their assets’ values, these items can easily put them over the potentially soon-to-be lower estate tax exemption, exposing them to a 40 percent tax rate that could cost them millions. 

Lifetime Gifting

With the uncertainty surrounding the estate tax exemption, the Andersons may want to consider accelerated lifetime gifting strategies—including contributions to tax-advantaged accounts like 529 plans for their grandchildren—to reduce the taxable estate while the higher exemption is in place. The Internal Revenue Service declared in 2019 that individuals who take advantage of the increased estate and gift tax exclusion from 2018 to 2025 will not be negatively impacted after 2025 if the exclusion amount drops. Gifting up to $13.6 million in 2024 has a zero tax liability. But gifting over $6.4 million in 2026 could have major consequences.

Life Insurance

Help your client determine how much life insurance they may need to ensure that their loved ones are provided for at their passing. They may want to fund an irrevocable life insurance trust to own the life insurance policy and be the recipient of the death benefit. This removes the value of the policy from the Andersons’ estate and protects the death benefit for their chosen beneficiaries

Marital Deduction Planning

The significant portfolios of high-net-worth and ultra-high-net-worth families may require advanced tax planning techniques, including an AB trust, to optimize each spouse’s estate tax exemption and potentially minimize their estate tax liability. At the client’s death, an amount equal to the current estate tax exemption amount is placed in one trust, which uses the exemption, and the remainder is placed in a second trust for the surviving spouse’s benefit, which qualifies for the unlimited marital deduction. This results in no estate tax being owed at the death of the first spouse.

Portability and the Deceased Spouse Unused Exemption Amount

Spouses are able to give an unlimited amount of money and property to each other without having to worry about estate or gift tax. Because of this, some clients may not have an estate tax issue at the first spouse’s death because everything (or a substantial portion) went to the surviving spouse. Because they are utilizing the unlimited marital deduction, the deceased spouse’s exemption is not needed. However, even if this is the case, it may be advisable to file an estate tax return at the first spouse’s death to document how much of that spouse’s exemption is being used, if any, and that the remainder is going to the surviving spouse. This will allow the surviving spouse to add the deceased spouse’s unused exclusion (DSUE) to the surviving spouse’s own exemption amount and apply that combined amount against their own estate at the time of death. 

Charitable Giving

If the Andersons are philanthropically inclined, another great option would be to engage in charitable giving through the use of a charitable remainder trust. Setting up this type of trust can be time-consuming—sometimes the process is fairly straightforward but often highly complex, requiring advanced planning and consideration.

Your Role as a Trusted Advisor

Clients like the Andersons require your expert guidance to address potential estate tax issues and evaluate the impact a potential sunsetting of the high estate tax exemption amount may have on their estate. After reevaluating a list of their most significant items and investments, you can provide options for protecting, preserving, and passing down valuable property.

Finding the best strategy may require collaboration with other trusted professionals. We welcome the opportunity to collaborate with you to develop a comprehensive plan to protect your clients. 

Counting Down to 2026: Will We Keep the $10 Million Estate Tax Exemption?

The year 2026 is fast approaching, and it brings substantial changes to discuss with your clients regarding estate taxes. The Tax Cuts and Jobs Act (TCJA) introduced a significant increase in the federal estate tax exemption, setting it at an impressive $10 million, adjusted for inflation, per individual. However, the countdown has begun for the potential sunset of this generous exemption—what is not taxable today might be taxable tomorrow. 

History of the Estate Tax Exemption

Delving into the history of the estate tax exemption offers insight into arguments for and against its continuation. The federal estate tax was first enacted in 1916 to generate revenue for the government. Over the years, it has undergone various changes in exemption limits and rates.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) gradually increased the estate tax exemption and reduced the tax rate until it reached zero in 2010. However, the estate tax was set to return to the 2001 amounts for deaths occurring in 2011 unless further legislative action was taken. In 2011, the estate tax exemption was restored to $5.0 million.

Legislative Intent

In 2017, the TCJA was developed to stimulate economic growth and job creation. Doubling the estate tax exemption from $5.49 million to nearly $11 million was a key part of this strategy. At $13.61 million in 2024, it continues to adjust for inflation, offering individuals an unprecedented opportunity to pass on substantial wealth tax-free.

The TCJA’s Sunset Provision

A sunset provision was embedded within the TCJA. The increased estate tax exemption, which will reach $13.61 million in 2024, is set to expire on December 31, 2025. Without legislative intervention, it will revert to the 2017 limit of $5 million adjusted for inflation. Adjusting for inflation, the Congressional Budget Office estimates the exemption amount will be $6.4 million in 2026. This may create a potential estate planning crisis for high-net-worth families with larger estates who previously were not subject to the estate planning tax. These individuals must prepare for both scenarios—the sooner, the better.

Why the Current Estate Tax Exemption May Continue

Maintaining the high estate tax exemption could be seen as a move that benefits the wealthy, broadening the tax burden for others. It can also be seen as maintaining the status quo. And the current law ensures that most people will not be subject to federal estate taxes. 

A higher estate tax exemption was intended to foster economic growth and capital investment by allowing wealthier individuals and families to reinvest their wealth in businesses and job creation. Yet the federal government relies on estate tax revenue to fund various programs and initiatives and obviously will not want to reduce a lucrative revenue source. Without the estate tax, other revenue sources would have to foot the bill for these programs and face cuts in the benefits and services provided.

For the estate tax exclusion to remain at the higher amount beyond 2025, Congress will need to take action.

Why the Estate Tax Exemption May Revert Back

The TCJA was part of a short-term tax cut package. Lawmakers had to make room in the budget for the tax cuts introduced by the legislation. They did this by temporarily increasing the estate tax exemption. 

Proponents of sunsetting the estate tax exemption maintain that a lower exemption amount will generate more revenue by increasing the number of people who pay the tax and increasing estate tax exposure to those with net wealth above the current exemption amount. This means that people with estates valued at less than $10 million may once again be impacted by federal estate tax law. Estate tax revenues are projected to increase sharply after 2025 with the drop in the exemption amount. Over the 2021–2031 period, combined estate and gift tax revenues are estimated to be $372 billion. 

Commitment to the Trusted Advisor Role

As we begin 2024, it is crucial to inform your clients about the potential changes in the federal estate tax exemption and help them prepare for possible scenarios. Encourage them to review their estate plans to ensure that their money and property are protected and their financial legacy is preserved. There may be several strategies to navigate potential estate taxes effectively.

Advise your clients to make informed decisions based on the current legal framework before 2025 while keeping a watchful eye on any developments in the future. Preparation offers families new planning opportunities and peace of mind. Whether the exemption is set at $6.4 million or $13.6 million, it still provides protection from estate taxes. 

Pets sometimes outlive their owners. A client’s accident or illness can leave their pet without a caregiver, which, without the proper planning, can result in the pet being sent to an animal rescue or shelter. Compiling a list of common expenses is the first step in protecting a beloved pet’s future. You can assist your client in determining the right amount of funds to set aside for their pet’s continued living arrangements.

Create a Checklist 

There are many online resources to help develop a list of pet expenses. Pet owners should consider the following types of expenses.

Nutrition 

This is a primary expense for any pet, but larger animals will incur higher food costs. Include the following when calculating how much to budget for:

• Regular pet food purchases 
• Treats 
• Recommended supplements or vitamins 

Veterinary Care 

Healthcare keeps pets feeling their best and able to provide joy, entertainment, and companionship. Routine care can help prevent medical emergencies, but your client should still budget for the unexpected, including the following:

• Routine check-ups and vaccinations
• Preventive medications (flea, tick, heartworm)
• Emergency vet visits
• Dental cleanings and care
• Spaying or neutering

Medications 

Medication is sometimes necessary for illnesses, injuries, and aging. Some animals and breeds of animals are known for having certain health conditions during their lifetime. Most medications are based on weight, so larger pets may also have higher medication expenses. Common medications or preventative treatments include:

• Prescription medications for chronic conditions or illnesses
• Flea, tick, and worming treatments
• Pain relief or anti-inflammatory drugs

Grooming and Hygiene 

Some animals only need occasional grooming to supplement self-grooming techniques, while others require extensive care to maintain their coat, teeth, or nails. It may be a matter of preference and appearance. If you have a show animal that is regularly entered in events or contests, the costs can be significant:

• Shampoo, conditioner, grooming tools
• Nail trimming and filing
• Haircuts or professional grooming services

Pet Insurance 

Insurance helps make certain medical visits affordable when a pet suffers from an unexpected illness or injury. Depending on the type of pet and risks for injury, the cost of insurance can be a few dollars to a few hundred a month for most small animals. Large animals such as horses can have much higher premiums:

• Monthly or annual premiums for pet insurance coverage
• Deductibles and copayments for medical expenses

Pet Supplies

Every type of pet needs certain supplies to provide them with a comfortable environment. Again, the size of the pet usually dictates the initial cost of these items, and many items need replacement over time:

• Bedding or crate
• Leashes, collars, harnesses
• Litter, litter boxes, waste bags
• Toys and enrichment items

Boarding

Due to work schedules and vacations, a pet may need to be boarded, cared for by a petsitter, or attend daycare, for which the following costs must be considered:

• Boarding fees at a kennel or other boarding facility for vacations or trips
• Petsitting services in the home
• Daycare for socialization and exercise during the workday

Travel and Transportation

If you travel a lot, smaller pets can travel with you in cars or planes; larger pets require hauling in trucks and trailers:

• Travel crates or carriers
• Transportation fees (public transportation services)

Identification

To comply with local laws and ensure you can track and identify your animal, different types of identification can be purchased or may be required:

• Microchipping
• Pet tags and collars
• Licensing fees

After a budget is created, your client will have a detailed list of expenses to share with potential pet caregivers and an estimate for how much future pet-related expenses may be. This estimate can act as the basis to determine how much money should be set aside for the pet’s care and where that amount of money will come from in the event of the client’s death.

Next Step

Once your client has a budget in place, the next step is to meet with their planning team (financial advisor, insurance agent, tax preparer, and estate planning attorney) to put a plan in place that protects their pet and provides the funds necessary to care for them in the event the client passes away before their beloved pet. If you are interested in learning more about pet planning and the role you can play, please give us a call.

If your client has a severe illness or accident or passes away, who will look after their pet? There are many ways to ensure that a client’s pet continues to have a loving home, and the process begins with finding the right caregiver.

Guardian of Their Minor Children

If your clients also have minor children, the nominated guardian of their minor children can be a good first choice to take care of the family pet. The guardian is already taking on the large responsibility of caring for the client’s children, so they may also be willing to take care of the client’s pet. In addition, having the beloved family pet stay with the children may comfort them during a difficult time in their lives. It is important that your client discuss this with their nominated guardian to ensure that they are willing to undertake the additional responsibility.

Family or Friends

When selecting a caregiver for their pet, most people look to a trusted family member or friend. This person has probably spent time with the pet and knows their typical routines and behaviors, making them more comfortable taking on the responsibility. This choice may also provide a pet with a familiar environment. However, caring for a pet is a big responsibility that requires clients to consider the following in a potential caregiver:

• Does this person’s lifestyle, home, and comfort level with pets make them a good fit for caregiving? 
• Do they already have other pets? If yes, do the pets get along with each other?
• Do they understand the expectations and level of care that the pet requires? 
• Are there specific instructions or preferences they may not be able to accommodate?
• Can they afford the financial responsibility of supporting a pet?

Animal Welfare Organizations

Sometimes, family and friends are not available to help. Animal welfare organizations such as shelters, rescue groups, sanctuaries, or foundations can take your client’s pet and find a suitable home. They should locate reputable organizations in the area and visit them to assess their cleanliness, staff interactions with animals, and overall environment. Pet owners should select an organization they feel can provide a safe and comfortable space for their pet while waiting to be placed in a loving permanent home. Your client might also consider whether the organization mandates euthanasia if the pet is not adoptable. Creating a comprehensive profile of the pet, including their medical history, behavior, preferences, and any special needs, with photographs and videos, could make the adoption process easier for the organization.

Executor’s or Trustee’s Choice

Depending on the client’s situation, the client may feel more comfortable giving the person who winds down their affairs (the executor or trustee) the authority to choose the most suitable home for their pet animals. Because things can change unexpectedly, providing this level of flexibility can help ensure that the client’s pet goes to a suitable, loving home, even if it is not a home that was initially considered by the client.

Memorialize the Client’s Wishes in Their Estate Plan

Your client must memorialize the caretaker of their pets in their estate plan, typically in a will or trust, and keep this information easily accessible to the designated caretaker. They must also let family members, executors, or trustees know the location of any necessary documentation to care for the pet.

Make sure the client reviews their estate planning documents annually for any changes in your client’s circumstances, their pet’s health, behavior, routines, or preferences. We are available to meet with your clients if they are having trouble selecting the right pet caretaker or want to discuss the best way to protect their pet. Give us a call to schedule a time to discuss ways we can partner together to serve clients with pets.

Help Your Clients Provide Financial Support for Their Pet in Uncertain Times

As of 2023, 66 percent of US households own a pet. A Forbes Advisor survey of more than 5,000 dog owners found that 41 percent of dog owners spend between $500 and $1,999 a year on their dogs and 8 percent spend more than $2,000 annually. In addition to the annual cost of care, there is always the potential for emergency veterinary care, which can be costly. Your clients are likely concerned about what will happen to their pets if they die or are unable to make decisions or care for their pets. Several options are available to your clients to ensure that funds are available so their beloved furry family members continue to receive the same level of care and support they have always received.

Pet owners should evaluate the weekly, monthly, and annual costs associated with their pet’s needs and create a budget. This budget can help clients determine a specific amount of money to be put aside to cover the pet’s anticipated lifetime expenses. There are a few options available to structure the money set aside for the care of a client’s pets.

Lump Sum to the Caregiver

One option to financially provide for a pet is for the client to give a lump sum to the person they choose to care for the pet at their death. This option is the easiest to carry out and does not involve any ongoing oversight or administration costs. However, because the money goes directly to the caregiver, no one will monitor the use of the funds. The client must trust that the funds will be used for the pet’s benefit and must be okay with simply trusting their chosen caregiver.

Pet Trust With the Caretaker as the Trustee 

This approach to planning for a pet is a little more complicated than just handing money to the caregiver. In this scenario, money would be set aside in a trust specifically to care for the pet. There may be administrative requirements that the caretaker, as trustee, must do, such as submitting an accounting of the trust’s income and expenses to a specified person under the trust. Despite these requirements, this approach does have some flexibility because the caregiver and the trustee are the same person, meaning that a third party does not need to be consulted before expenses are paid or the caregiver is reimbursed for out-of-pocket costs. It is important to note that with one person serving in both roles, there is still a risk that funds may not be spent appropriately on the pet without oversight by a third party. 

Pet Trust With Separate Parties Serving as Caretaker and Trustee

The final option provides the maximum protection for the money set aside for the pet. The pet trust will contain funds to care for the pet, but the caretaker will need to work with a separate trustee to gain access to the funds in the trust. The trustee can ensure that the money is being used for the pet. This may be a wise option for clients who have animals that cost a lot to care for such as horses or exotic animals, because the amount necessary to care for them could be more than the client feels comfortable handing over to someone without any oversight.

Keep the Plan Up-to-Date

By proactively planning for their pets, pet owners can ensure that their pet is cared for and supported if they are unable to do so themselves due to incapacity or death. If clients already have an estate plan that provides for their pets, encourage them to schedule an annual review to address any changes in circumstances, such as additional pets, increasing pet needs, the designated caregiver’s situation, or the client’s finances.

As an experienced estate planning attorney, we can help your clients create the appropriate legal documents for the care of their pet within the applicable laws and regulations of their state. Pet owners deserve peace of mind knowing that their pets will transition to a new caregiver smoothly, with as little disruption in care as possible. Taking care of a loved one’s future, including pets, is priceless. If you are interested in collaborating on pet planning for your clients or would like to discuss pet planning further, give us a call.