Tax Issues With Pet Trusts
Are there any tax concerns to address with estate planning for animal owners?
Dottie Piqua, Ohio
Dottie, indeed there are…
We always recommend that you involve your CPA or tax adviser when you are planning for your pets.
Depending upon the type of trust or will clause that you use and the state where you reside, there may be gift, income, inheritance or estate tax consequences involved with this estate planning.
These various taxes may be assessed against either the Settlor of the Trust, the Trustee, the Caregiver or the Estate, via the Executor.
Careful tax planning is essential with any form of estate planning.
Connecticut Is The Latest State to Propose a Statutory Pet Trust
Just recently, I wrote that Maryland was the latest state attempting to pass legislation for a statutory pet trust
Now, it seems, that Connecticut may follow that trend.
Connecticut Senator Toni Boucher has proposed a bill that provides for the creation of trusts for the care of domestic animals. The bill would allow pet owners to create a trust that terminates when the last animal named dies or 90 years after its creation.
"The question of who cares for a pet after the death of its owner is troubling to many people," said Boucher in a press release.
"Some pets, like parrots, can live for 40 to 80 years," she said. "If a pet owner becomes ill, incapacitated or dies, it makes sense to have already decided ahead of time how to provide one's beloved pets with food, shelter, veterinary care and companionship."
A draft of the proposed legislation is below:
AN ACT CONCERNING THE CREATION OF TRUSTS FOR THE CARE OF DOMESTIC ANIMALS.
Be it enacted by the Senate and House of Representatives in General Assembly convened:
Section 1. (NEW) (Effective October 1, 2009) (a) A testamentary or inter vivos trust may be created to provide for the care of a domestic animal alive during the settlor's lifetime. Such trust shall terminate upon the earlier of (1) the death of the domestic animal or, if the trust was created to provide for the care of more than one domestic animal alive during the settlor's lifetime, the death of the last surviving domestic animal, or (2) ninety years after its creation.
(b) A trust authorized by this section may be enforced by a person appointed in the terms of the trust instrument or, if no person is so appointed, by a person appointed by the Probate Court. Any person having an interest in the welfare of the domestic animal may petition the court to appoint a person to enforce the trust or to remove a person so appointed.
(c) Property of a trust authorized by this section may be applied only to its intended use for the care of the domestic animal, except to the extent the Probate Court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust instrument, property not required for the intended use shall be distributed to the settlor, if then living, otherwise to the settlor's successors in interest.
(d) Any person designated pursuant to the terms of the trust instrument may act as trustee of a trust authorized by this section. Any such trustee may also be designated as a remainder beneficiary of such trust pursuant to the terms of the trust instrument. For the purposes of this subsection: (1) "Person" means a natural person, corporation, limited liability company, trust, partnership, incorporated or unincorporated association or any other legal entity; and (2) "remainder beneficiary" has the same meaning as provided in section 45a-542a of the general statutes.
We will keep you advised as this bill winds through the legislative corridors.
Pet Trusts in Kansas
I live in the Jayhawk state of Kansas, the home of the 2008 National NCAA Basketball Champions. Any information on a pet trust for my cockatoo, Benke?
Laurie, Agra, Kansas
Laurie, the State of Kansas has a Pet Trust statute that was enacted in 2003. The trust language is very short:
"(a) A trust may be created to provide for the care of an animal alive during the settlor's lifetime. The trust terminates upon the death of the animal or, if the trust was created to provide for the care of more than one animal alive during the settlor's lifetime, upon the death of the last surviving animal.
(b) A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court. A person having an interest in the welfare of the animal may request the court to appoint a person to enforce the trust or to remove a person appointed.
(c) Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use may be distributed to the settlor, if then living, otherwise to the settlor's successors in interest."
It is interesting, in that the statute states, that a trust can be created for an animal and does not specifically refer to a “pet” or “companion animal.”
Anyone for an elephant trust?
Contact an attorney and your financial advisers and begin your estate planning for Benke
Delaware Passes New Pet Trust Legislation
In May of this year, I wrote here that Delaware had no statutory Pet Trust, but that there were other options available for estate planning for pet owners, including the traditional pet trust
Now, Delaware has joined the ever growing list of states with a Statutory Pet Trust.
Professor Gerry W. Beyer is a faculty member of the Texas Tech University School of Law. Professor Beyer summarized the new legislation as follows:
o A trust for the care of one or more specific animals living at the settlor’s death is valid.
o The trust ends upon the death of all animals living at the settlor’s death which are benefit by the trust.
o The settlor may name a trust enforcer.
o If the settlor did not name an enforcer (or if the named enforcer is unwilling or unable to serve), the Court of Chancery may appoint an enforcer.
o A person with an interest in the animals may petition for the appointment or removal of an enforcer. This interest cannot be merely a general public interest; the petitioner must have an actual interest in the specific animals covered by the trust.
o Trust property may be used only for its intended use.
o When the trust ends, any remaining property passes according to the terms of the trust.
o The settlor (or other owner of the benefited animal) may transfer ownership of the animal to the trustee upon trust creation or thereafter.
o If the intended owner disclaims, the trustee becomes the owner unless the trust provides otherwise.
o The trustee must provide the animal with the care the settlor directs in the trust or, if the settlor did not provide instructions, the care that is reasonable under the circumstances.
o The trustee may employ agents to provide care to the animal and pay for the care from the trust property.
o The term “animal” is broadly defined to be “any nonhuman member of the animal kingdom.”
Interestingly the statute also states that "Plants and inanimate objects are not included. "
The entire statute can be found here.
Pet owners in Delaware now have more options than ever to plan for the future care and well being of their pets.
Use the tools that are available to you.
Too Much Legalese for Your Pets?
I had a long conversation Friday afternoon with Kathleen Pender.
Ms. Pender is a well written and well respected writer for the San Francisco Chronicle.
She regularly reports on local, national and international economic and business events.
Recent stories have covered the failure of IndyMac Bank, the influx on foreign money and investment inroads into the United States, the still declining housing market, how the downgrading of bond insurers has a direct effect on the sock market and the basics of heath savings plans.
Our conversation was a little less complicated, as we discussed the newly passed California Pet Trust Statute.
As we talked about pet ownership, estate planning and the role of the Trustee and the Caretakers, she posed an interesting question.
Why, she queried, should the courts take up valuable time dealing with pet trusts, statutes, Trustees, estate issues with probate, emotional distress trials for pet owners, custodial disputes and other pet issues.
Surely there were more important items for the judges and courts to entertain.
My only response was that the courts are currently reviewing more and more of these issues, whether we like this change or not.
More households have pets than have children.
If pet owners did not have the passion and concern for their pets, they would not seek help from the courts.
If these cases were not brought in to the legal arena, they would not have the same import and legislators would not feel the need to enact more laws as the behest of their voters.
The Courts interpret the laws.
Legislators write the laws.
Laws that they deem necessary; to please their constituents.
The voters.
The role of pets in our lives will only increase as time passes.
California Enacts New Pet Trust Legislation
It has been said many times, that as California goes…so goes the country.
Well, in the area of estate planning for pets, California has not been a leader, but recently joined the enlightened ranks of numerous other states.
We originally wrote about the proposed legislation here
The Legislative Counsel’s Digest ( of California) states the following on the proposed changes;
"Existing law provides that a trust for the care of a designated domestic or pet animal may be performed by the trustee for the life of the animal, whether or not there is a beneficiary who can seek enforcement or termination of the trust and whether or not the terms of the trust contemplate a longer duration. ..
"This bill would repeal the provisions regarding domestic or pet animal trusts and would provide instead that a trust for the care of a designated domestic or pet animal is for a lawful noncharitable purpose and terminates when no…designated animal is living on the date of the…settlor’s death…unless otherwise provided in the trust …The bill would require a court to liberally construe a pet trust to bring it within the bill's provisions, to presume against an interpretation that would render the disposition a mere request or an attempt to honor the pet, and to carry out the general intent of the trust. The bill would provide an order of disposition of trust property upon termination of the trust and would provide authority for the court to name a trustee and to transfer trust property, as specified. This bill would permit…any person interested in the welfare of the pet animal or any nonprofit charitable organization…that has as its principal activity…the care of animals to… petition the court regarding the trust, as specified…"
We are now pleased to inform you that as of July 22, the proposed legislation has been passed and assigned by Governor Schwarzenegger.
The full legislation can be found here.
Welcome California, to the new millennium.
Put the new statute to use for you and your pets.
Rhode Island Pet Trusts
Can you provide any additional information for Estate Planning for Pets in my state?
Peggy Scituate, Rhode Island
Peggy, Rhode Island has had a statutory Pet Trust since 2005.
Animallawinfo.com, provides a summary of the law:
"This law represents the state's pet trust law. The law provides that a trust may be created to provide for the care of an animal alive during the settlor's lifetime. The trust terminates upon the death of the animal, or if the trust was created to provided for the care of more than one animal alive during the settlor's lifetime upon the death of the last surviving animal. The statute lists a distribution schedule for any remaining trust property and also states that such trusts are to be liberally construed to carry out the transferor's intent."
The Rhode Island State statute reads in full as follows:
(a) A trust may be created to provide for the care of an animal alive during the settlor's lifetime. The trust terminates upon the death of the animal, or if the trust was created to provided for the care of more than one animal alive during the settlor's lifetime upon the death of the last surviving animal.
(b) Except as provided in this section, the provisions of the general laws which govern the creation and administration of express trusts applies to the trust for the care of an animal.
(c) A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court. A person having interest in the welfare of the animal may request the court to appoint a person to enforce the trust or to remove the appointed person. The appointed person shall have the rights of a trust beneficiary for the purpose of enforcing the trust, including receiving accountings, notices, and other information from the trustee and providing consents.
(d) Property of a trust appointed by this person may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Property not required for the intended use, including the trust property remaining upon its termination, shall be distributed in the following order of priority:
1) As directed by the terms of the trust;
(2) To the settlor, if then living;
(3) Pursuant to the residuary clause of the settlor's will;
(4) To the settlor's heirs in accordance with the Rhode Island general laws on descent and distribution.
(e) A governing instrument shall be liberally construed in order to presume against the merely precatory or honorary nature of the disposition and to carry out the general intent of the transferor. Extrinsic evidence is admissible in determining the transferor's intent.
(f) If a trustee is not designated or designated trustee is not willing or able to serve, the probate court shall name a trustee; a court may order the transfer of the property to another trustee, if the court makes a factual finding that it is necessary to assure the intended use is carried out and if a successor trustee is not designated in the trust instrument or if a designated trustee does not agree to serve or is unable to serve.
The Rhode Island format follows the majority of States with pet trusts.
Discuss this with your team of professional advisors, take advantage of this statute and prepare to plan for you and your pets.
Pet Trusts Are Available In Iowa
We recently received a phone message from an unidentified caller that asked about the availability of a Pet Trust for the state of Iowa.
Since 2000, Iowa has had a Statutory Trust available for use by pet owners.
The Iowa Code provides as follows:
633A.2105 Honorary trusts — trusts for pets.
1. A trust for a lawful noncharitable purpose for which there is no definite or definitely ascertainable beneficiary is valid but may be performed by the trustee for only twenty–one years, whether or not the terms of the trust contemplate a longer duration.
2. A trust for the care of an animal living at the settlor’s death is valid. The trust terminates when no living animal is covered by its terms.
3. A portion of the property of a trust authorized by this section shall not be converted to any use other than its intended use unless the terms of the trust so provide or the court determines that the value of the trust property substantially exceeds the amount required.
4. The intended use of a trust authorized by this section may be enforced by a person designated for that purpose in the terms of the trust or, if none, by a person appointed by the court.
The law is fairly simple and straight forward.
Contact you professional team for more assistance.
Hawkeyes have tools at their disposal for estate planning for their pets.
Put them to use…
Oklahoma is Not Okay for Pet Trusts
Although previous attempts for a Statutory Pet Trust have been tried in the Oklahoma legislature, to date they have been unsuccessful.
This is the text of the previously proposed bill.
"TRUST FOR CARE OF ANIMAL
A. A trust may be created to provide for the care of an animal alive during the settlor’s lifetime. The trust terminates upon the death of the animal or, if the trust was created to provide for the care of more than one animal alive during the settlor’s lifetime, upon the death of the last surviving animal.
B. A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court. A person having an interest in the welfare of the animals may request the court to appoint a person to enforce the trust or to remove a person appointed.
C. Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use, considering the current and future needs of the animals. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor, if then living, otherwise to the settlor’s successors in interest. Notwithstanding the foregoing, the settlor may specifically override this provision by specific reference and prevent the distribution of property in excess of the intended use until all the animals are deceased or as otherwise provided for by the terms of the trust."
Because there is no Statutory Pet Trust, a trust that is set up for a pet in Oklahoma would probably violate the Rule Against Perpetuities (RAP).
This arcane law is as convoluted as any laymen or attorney can imagine. But, essentially it was established to prohibit property from being held perpetually in trust. So, with some twists and variations, RAP voids any agreement which does not end twenty-one years after a life in being, or one generation from lives presently in being plus twenty-one years.
Still confused? Don’t worry thousands of pages of legal arguments and interpretations have been written on this rule.
Currently under Oklahoma law, as in most states, domestic animals and tamed wild animals are personal property Therefore, the animals are unable to own other property or become a beneficiary under a will.
We are unaware of any court cases on the Appellate level in Oklahoma that have directly ruled on these issues.
Although given the current trend throughout the country, one could assume that the Court would try to lend credence and legal standing to this estate planning documentation.
However, they would still have to deal with the time issue of the RAP period and the court would likely limit the trust's duration to the twenty-one-year perpetuities period.
The simple solution is for Oklahoma to get on board with the majority of the country and pass a Statutory Pet Trust.
Changes Coming to California Pet Trust?
Although California has recognized some form of a Pet Trust since 1991, the enforceability has been minimal and it has been an “honorary trust.”
That may soon change.
A recently proposed amendment is moving forward in the California legislature to amend Section 15212 of the Probate Code
The Legislative Counsel’s Digest states the following on the proposed changes;
"Existing law provides that a trust for the care of a designated domestic or pet animal may be performed by the trustee for the life of the animal, whether or not there is a beneficiary who can seek enforcement or termination of the trust and whether or not the terms of the trust contemplate a longer duration. ..
"This bill would repeal the provisions regarding domestic or pet animal trusts and would provide instead that a trust for the care of a designated domestic or pet animal is for a lawful noncharitable purpose and terminates when no…designated animal is living on the date of the…settlor’s death…unless otherwise provided in the trust …The bill would require a court to liberally construe a pet trust to bring it within the bill's provisions, to presume against an interpretation that would render the disposition a mere request or an attempt to honor the pet, and to carry out the general intent of the trust. The bill would provide an order of disposition of trust property upon termination of the trust and would provide authority for the court to name a trustee and to transfer trust property, as specified. This bill would permit…any person interested in the welfare of the pet animal or any nonprofit charitable organization…that has as its principal activity…the care of animals to… petition the court regarding the trust, as specified…"
In addition, the bill would provide a process for an accounting of the trust, to be waived if the value of the trust assets do not exceed $40,000.00.
These are major changes in a state with a huge population and clearly show the continuing trend in recognizing the wants and needs of pet owners.
We will keep you advised as these matters move forward through the grinding legal process.
No Pet Trusts in Connecticut
I live in Barkhamsted, Connecticut and have a two year old Otterhound named Oscar. Can you tell me if my state recognizes pet trusts?
Kacey
Kacey, we went straight to the source on this one.
According to Sandra Norman-Eady, Chief Attorney, during the 2005 regular session of the Connecticut General Assembly, an Act Concerning the Creation of Trusts for the Care of Domestic Animals, was introduced to the legislature.
“The bill authorized trusts for the care of domestic animals that are alive when the person who created the trust dies. It allowed a natural person, corporation, limited liability company, trust, partnership, incorporated or unincorporated association, or any other legal entity to be selected as trustee.
Under the bill, the trust would have terminated on the earlier of the following occurrences: (1) when the animal died, or if the trust was created to provide for the care of more than one animal, when the last surviving animal died; or (2) 90 years after its creation.
A person appointed in the trust could enforce it. If no one was named, the bill allowed a court to appoint someone to enforce it. It allowed a person having an interest in the animal's welfare to ask the court to appoint a person to enforce the trust or to remove a person appointed.
The bill specified that trust property authorized to care for an animal could be applied only for its intended use, except to the extent the court determined that the trust's value exceeded the amount required for the intended use. Except as otherwise provided in the trust, property not required for the intended use had to be distributed to the settlor, if living. (A settlor is the person who creates a trust and transfers property to it. ) Otherwise, it had to be distributed to the settlor's successors in interest. The bill permitted a trustee to be designated as the person who received the trust assets when the animal the trust benefits died.
The bill was referred to and voted out of the Judiciary Committee. However, it ultimately died in the Judiciary Committee upon recommitment by the Senate.”
No additional legislation has been passed in this area.
Therefore, Connecticut remains in the minority as one of only eleven states that does not recognize a statutory pet trust.
We have written before however, here , that you can still provide for your pet's future with an inter vivos trust or with a will provision in your current estate plan.
Contact your legislators if your want Connecticut to join the main stream of thought in this area.
With or without a statutory pet trust, you can do estate planning for your pets.
It is the responsible thing to do.
Yes Virginia, there is a state Pet Trust
Does Virginia have pet a trust law? I am concerned about my little dog, Alice, who is an Affenpinscher.
Maybelle, Manassas, Virginia
Yes, Virginia…sorry I could not resist…yes, Maybelle, Virginia does have a Pet Trust Statute. However, I have to admit that I knew that, but I had no idea what an Affenpinscher was until I looked it up.
The Animal Welfare League of Arlington Virginia reported that in 2006,
“Virginia proudly joined 37 other states with a pet trust statute. This means that Virginia is also a little late to the game, but at least now Virginians can rest assured that their furry friends will be taken care of in case something ever happens to the pet's guardian. Pet owners may now designate a caretaker for their pet(s) and a trustee who ensures that the money is spent on the pet. Previously, if a pet's guardian passed away and left money in their will to take care of the pet, anyone could contest the provision and the pet could find himself in the shelter -- no cash, no home, no guardian. This statute puts an end to this injustice."
In its 2005 Session, the Virginia General Assembly enacted Senate Bill 891, the Uniform Trust Code (“UTC”), with modifications.
It provides that a trust may be created to provide for the care of an animal alive during the settlor's lifetime. The trust terminates upon the death of the animal or, if the trust was created to provide for the care of more than one animal alive during the settlor's lifetime, upon the death of the last surviving animal.
The instrument creating the trust shall be liberally construed to bring the transfer within the scope of trusts governed by this section, to presume against the merely precatory or honorary nature of the disposition, and to carry out the general intent of the transferor.
A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court.
Except as ordered by a court or required by the trust instrument, no filing, report, registration, periodic accounting, separate maintenance of funds, appointment, or surety bond shall be required by reason of the existence of the fiduciary relationship of the trustee.
Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use.
Except as otherwise provided in the terms of the trust, property not required for the intended use shall be distributed to the settlor, if then living. If the settlor is deceased, such property shall be distributed pursuant to the residuary clause of the settlor's will if the trust for the animal was created in a preresiduary clause in the will or pursuant to the residuary provisions of the inter vivos trust if the trust for the animal was created in a preresiduary clause in the trust instrument; otherwise, such property shall be distributed to the settlor's successors in interest.
Those of you that are regular readers of this Blog will certainly note that the Virginia Pet Statute outline is very similar if not identical to other state Pet Statutes.
