CLE presented to lawyers nationwide by teleconference in February 2011 by Richard Mayberry Pet Estate Planning Legal and Practical Aspects Pets provide companionship and enjoyment to individuals living alone as well as to families. In addition, companion pets can “open the lines of communication with older adults, diminish their isolation, and even improve physical conditions.”[2] “Cats and other animals can be used as therapy for high blood pressure, as well as other mental, emotional and physical conditions. Some trained dogs and cats enter nursing homes and interact with the patients, not only lowering blood pressure, but lessening anxiety and depression. Even better therapy, pet ownership increases the life expectancy of terminally ill patients.”[3] According to the latest National Pet Owners Survey for 2009-2010, 62% of U.S. households own a pet., which equates to 71.4 millions homes. Over forty-five million [45.6 million] households own a dog and 38.2 million households own a cat. The pet census shows 93.6 million cats and 77.5 million dogs in our country.[4] In 2010 pet owners spent an estimated $47.7 billion on their pets.[5] Pets may outlive their owner for an extended period of time. Dogs and cats can live up to 15-20 years, snakes up to 40 years, and larger parrots, such as Macaws, up to 80 years. Since most pet owners consider their pets as family members, they often make a bequest to a caregiver which varies from $10,000 to $25,000. Unfortunately, the law generally treats pets as tangible personal property; unable to receive a testamentary gift. A significant number of pet owners are planning for the care of their pets for the following situations: emergency situations, incapacity of the owner, and death of the owner. Leona Helmsley left one of the more interesting celebrity estate plan stories. She bequeathed $12 million to her dog, Trouble, in a trust. Even though the trust funding was a small percent of the rest of Helmsley’s estate, when challenged, a Court accepted reduced the bequest to $2 million. The dog’s caretaker submitted an affidavit to justify the $2 million principal, including expenses like a $60,000/year guardian’s fee and $8,000 in grooming fees, as well as the mundane expenses of food and veterinary care. The dog Trouble lived a trouble free remainder of his natural life. Trouble’s funeral instructions instructed that the dog at death be interred with her at the Helmsley mausoleum at Sleepy Hollow Cemetery. State law forbids animal remains to be buried in human graveyards; the instructions were null and void. Over time animal cemeteries have started to be a growing industry. The writer is not aware of a law that forbids human remains to be buried in animal graveyards. The Helmsley mausoleum, if located at a animal cemetery would have been lawful. The Helmsley case and prolific growth in the animal loving public has lead state legislatures to pass laws contemplating estate planning for animals. In 2008 the Commonwealth of Virginia allows the creation of trusts for pets in its passage of the Virginia Uniform Trust Code. We will first look at the legislative updates, and then we will discuss planning for emergency and incapacity. Finally, we will study the planning for long-term care; pet trusts. Legislative Update
As previously mentioned the common law treats pets as tangible personal property. In absence of specific provisions, beneficiaries of the decedent’s tangible property will inherit the pets. This surprise to beneficiaries will often lead to the pet being transferred to an animal shelter. Many pet owners set informal arrangements. However, this arrangement has no legal force and often no money is left for the person to take care of the animal. Despite good intentions verbal agreements for pet care made prior to death with non-pet owners often fail as the toleration for pet care wanes with time. The owner cannot bequeath directly to the pet because the pet is considered tangible personal property Some scribners boldly name in the will or trust an individual as a guardian of the pet to please the pet owner client. The pet is not a minor child; the guardianship provisions of state statutes are not applicable or considered relevant parallel legal authority for such an arrangement. Another alternative is to gift a lump sum to a caretaker with the provision that the funds are to be used exclusively for the living expenses of the deceased’s pet. This provision usually works very well when the caretaker is trustworthy, the lump sum bequeathed is relatively small, and it is highly unlikely that the pet will outlive the caretaker. However this provision is not enforceable. The larger the gift, such as to care for larger animals such as horses, the greater the probability that heirs at law will mount a legal challenge. In the absence of such a lawsuit, the caretaker can pocket the money and abandon the pet without fear of legal reprisals. In addition, if the pet has a long life expectancy there is no provision for a successor caretaker. Creatively, the pet owner may gift the cost of pet care to an organization which is committed to find a home for the pet rather than an individual. Purdue University’s School of Veterinary Medicine has established a program called “Peace of Mind.” In return of a minimum bequest of $25,000, the university will find a home for the surviving pet. Stevenson Companion Animal Life-Care Center located in Texas is a residence for pets. A pet owner pays for the pet’s care with a minimum endowment between $50,000 and $100,000 which varies depending on the age of the owner, the age of the pet, and its size. b. Adoption by 40 states Because of the growing interest in having a legally enforceable trust for pets, approximately 40 states have recognized a form of pet trust, including the Commonwealth of Virginia. Virginia Statutory Provisions Provisions in the Virginia code for pet trust are set in Section 55-544.02, 55-544.08 and 55-541.10. Section 55-544.02(A) (3)(a) authorizes the creation of a pet trust. Section 55-541.10 (C) provides the trustee of a pet trust with the rights of a qualified beneficiary. Finally, Section 55-544.08 lays the provisions for a pet trust. Since the enactment of the Code, Emergency and Incapacity: Emergency Cards Include in the emergency card the following information:
Emergency pet caregivers should be provided with an instruction list on the pet’s diet, feeding instructions, medication, veterinarian contact information, recreational activities, description of particular habit or reaction to certain situations, and an extra set of keys of the domicile. A simple but clear authorization should be given to the caregiver. Pet Powers of Attorney Living Wills Planning for Planning for Long-Term Care: Pet Trusts 1. Creating Inter Vivos Pet Trust The pet owner can create a stand alone, self-funded or a testamentary pet trust. The inter vivos trust is often preferable when the animals are large and expensive, such as ownership of a number of horses. Otherwise the pet trust is a testamentary sub-trust of a the owner’s living trust. Before the enactment of pet trusts, the drafter faces two main challenges: (i) how to establish a valid and enforceable trust solely for the benefit of a pet while a pet is not a human beneficiary and therefore does not have any standing to enforce the terms of the trust against the trustee; and (ii) who could step into court on behalf of the pets. In addition, drafters had to avoid honorary trust statutes and the rules against perpetuities. A trust is called an honorary trust whenever a gift or bequest of funds is made for a specified purpose, but there is no human beneficiary to enforce the terms against the donee. Many states, including Virginia, have provisions to opt out of the rule against perpetuities. 2. Estimating the Cost of Care The pet owner should estimate the cost of care of the pet. The following expenses should be considered in the estimate: food, medications, grooming, veterinarian services, pet life insurance, boarding, pet-sitting, toys, recreation, entertainment, and compensation to caretaker. The writer’s experience is most pet owners underestimate the cost of the pet when funding their trusts. According to the 2009-2010 APPA National Pet Owners Survey, basic annual expenses for dog and cat owners in dollars include: Dogs Cats Surgical Vet Visits $532 $278 Food $229 $203 Kennel Boarding $273 $255 Routine Vet $225 $203 Groomer/Grooming Aids $66 $22 Vitamins $61 $28 Food Treats $ 64 $37 Toys $40 $19 |    . My wife and our pets The cost of care may increase as the pet is aging. The estimated cost should be multiplied by the life expectancy of the pet which can be gleaned by research by type of pet. At this estimated cost, an annual rate of inflation should be added. It is good to discuss with the veterinarian the average expenses for treatment and medication at the end of a pet’s life of a similar breed. The estimated expenses may be readjusted for the final years of the pet’s life. Finally, the cost with respect to the disposition of pet’s remains needs to be estimated. The method of distribution for the cost of care of the pet should be addressed in the trust document. 3. How to Select the Care Taker and Trustee The pet owner needs to identify the pet(s), to select a trustee, a pet caregiver, successor trustee(s) and caregiver(s), a remainder beneficiary, and possibly a trust protector. The pet owner should ask whether the trustee(s) and pet caregiver(s) will accept such commitment. The pet owner should also discuss his/her concept of care and provide instructions for medical treatments and end of life care of the pet. The trustee will oversee the caretaking and periodically check on the pet and the pet’s premises. The trustee should be given the power to remove the pet caregiver and to name a successor caregiver if none has been selected or available. The trustee should not be allowed to name him/herself as pet caregiver. The remainder beneficiary could be a nonprofit organization dedicated to animals. This will limit family members to challenging the establishment of the trust or its funding amount. In addition, the organizations will not challenge -while other remainder beneficiaries may- the liberal use of the trust funds by the trustee or the caregiver in spoiling the pet. A standard of care should be set as mentioned above for emergency care and end of life instructions should be addressed. Virginia Code Section 55-544.08 (E) allows the Court to determine the value of the trust property which would “exceed the amount required for the intended use.” It is therefore important to keep and document the calculation of the estimated funds for the trust. Tax Challenges The trustee will have to pay tax. The funding of the trust will be subject to either gift or estate tax. The IRS held in Revenue Ruling 87-105, 1978-1 CB 295 that no portion of the amount passing to a valid pet trust for the lifetime benefit of a pet qualifies for the charitable estate tax deduction, even if the remainder beneficiary is a qualifying charity. Therefore, if the funding of the trust is subsequent, the pet owner should stipulate how the taxes attributable to the pet trust should be paid under the federal and state apportionment rules. Revenue Ruling 76-486, 1976-2 CB 192 clarified that a pet trust is also subject to income tax and a fiduciary income tax return is required to be filed if the net taxable trust income exceeds $100. Under federal law, the pet caregiver is considered the beneficiary of the trust. The care expenses are not deductible because they are not income-producing asset and are not related to the normal business of the administration of the trust. Exhibits-Virginia Law [2005] VA Pet Trusts, Virginia Code §§ 55-544.02, 55-544.08 and 55-541.10 55-544.02. Requirements for creation. A. A trust is created only if: 1. The settlor has capacity to create a trust; 2. The settlor indicates an intention to create the trust; 3. The trust has a definite beneficiary or is: a. A charitable trust; b. A trust for the care of an animal, as provided in § 55-544.08; or c. A trust for a non-charitable purpose, as provided in § 55-544.09; 4. The trustee has duties to perform; and 5. The same person is not the sole trustee and sole beneficiary. B. A beneficiary is definite if the beneficiary can be ascertained now or in the future, subject to any applicable rule against perpetuities. C. A power in a trustee to select a beneficiary from an indefinite class is valid. If the power is not exercised within a reasonable time, the power fails and the property subject to the power passes to the persons who would have taken the property had the power not been conferred. (2005, c. 935.) § 55-544.08. 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. Funds from the trust may be applied to any outstanding expenses of the trust and for burial or other post death expenditures for animal beneficiaries as provided for in the instrument creating the trust. B. 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. Extrinsic evidence is admissible in determining the transferor's intent. 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 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. 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. Reasonable compensation for a person appointed by the court may be paid from the assets of the trust. D. 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. E. 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. § 55-541.10. Others treated as qualified beneficiaries. A. Whenever notice to qualified beneficiaries of a trust is required under this chapter, the trustee shall also give notice to any other beneficiary who has sent the trustee a request for notice. B. A charitable organization expressly designated to receive distributions under the terms of a charitable trust has the rights of a qualified beneficiary under this chapter if the charitable organization, on the date of the charitable organization's qualification is being determined: 1. Is a distributee or permissible distributee of trust income or principal; 2. Would be a distributee or permissible distributee of trust income or principal upon the termination of the interests of other distributees or permissible distributees then receiving or eligible to receive distributions; or 3. Would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date. C. A person appointed to enforce a trust created for the care of an animal or another noncharitable purpose as provided in §55-544.08 or 55-544.09 has the rights of a qualified beneficiary under this chapter. D. The attorney general of the Commonwealth has the rights of a qualified beneficiary with respect to a charitable trust having its principal place of administration in the Commonwealth but need not be given notices or information required under §§ 55-547.05 and 55-548.13 unless otherwise requested. END NOTES [1] Try Pet Airways, a new pet-only airline that will offer cross-country flights for pets only, is using social media to help promote its new brand and to help with animal adoption through a new partnership with pet-focused ad network DogTime Media. The idea behind the partnership is to extend the reach of DogTime Media's DogFinder pet adoption program, a Web site that helps connect pets with owners and encourages consumers to look beyond their local regions for pets available for adoption, because pets now can be flown. Traditionally, consumers look for pets within 50 miles of their homes. http://www.dmnews.com/social-media-rises-in-pet-pushes/article/136931/ [2] See e.g. The Power of Pets: Creating a Connection By Barbara Worthington on the Aging Well website found at http://www.agingwellmag.com/news/exclusive_06.shtml. [3] Cats & Lowering Blood Pressure in Humans byRachel Schwartz, eHow Contributor, updated: March 12, 2010, see http://www.ehow.com/about_6062567_cats-lowering-blood-pressure-humans.html [4] Many households have multiple pets. This conforms with the writer’s observations while teaching “Pet Trusts” in Northern Virginia adult education classes. The statistics cited are gathered from American Pet Products Association’s [“APPA”] 2009/2010 National Pet Owners Survey and can be found at http://www.americanpetproducts.org/press_industrytrends.asp. According to the APPA, “[t]he Survey monitors consumer habits on an ongoing basis in order to identify short and long-term trends in pet ownership, product and service consumption, and lifestyle and media habits. In addition to providing an expanded set of valuable in-depth statistics on current pet owner purchasing habits, this study pinpoints preferences on specific services, retail outlets and dollar amount spent per product category and retail outlet… [The Survey] is a Lifestyle and Media Study which examines pet owners in easily understood consumer segments. The segments are defined in terms of what motivates pet ownership and relationships with pets, along with lifestyle and other demographic criterion. http://www.americanpetproducts.org/pubs_survey.asp [5] APPA statistics, http://www.americanpetproducts.org/press_industrytrends.asp |