Estate Planning for Fluffy and Fido - Is a Pet Trust Right For You?
Did your jaw drop when you heard that Leona Helmsley left $12 million to her Maltese, Trouble? Were you surprised to hear that tobacco heiress Doris Duke left $100,000 in trust to her dog? While these bequests may be excessive for a typical estate, you do not need to be wealthy to plan ahead for Fido or Fluffy in the event you are no longer able to provide for your pet. There are a variety of ways to plan for your beloved pet:
Outright Gift. The most common approach is to simply include a provision in your existing will or revocable living trust in which you designate a caretaker to take care of the pet if you pass away. You may also provide for an outright cash gift to the caretaker to help defray the costs associated with the pet’s care, provided the caretaker agrees to care for the pet during the pet’s lifetime. If you opt for this informal approach, and many pet owners do, you should be aware that you cannot guarantee that the cash gift will be used for the pet’s benefit, as there is no practical enforcement mechanism beyond the caretaker’s initial promise. If you would prefer to retain control and guarantee that the gift is used for your pet’s care, then a pet trust is worth considering.
What is a pet trust? A pet trust is a trust that provides for the care of one or more animals that were alive during the trustor’s (trust creator) lifetime. Historically, courts were reluctant to enforce pet trusts (if state law allowed them at all), which meant that if a trustee violated the terms of a trust, there was limited recourse. A recently adopted Oregon statute, however, specifically authorizes pet trusts to provide for lifetime care of a pet. Under Oregon law, a pet trust must terminate upon the death of the pet or pets, at which time any remaining trust property must be distributed as directed in the trust.
What to consider when creating a pet trust. You must first consider whether to create an inter vivos or testamentary pet trust. An inter vivos trust is one that is created and funded during your lifetime. It may be a separate, stand-alone document from your existing estate planning documents, or it may be a provision in your revocable living trust that provides for a pet in the event of your incapacity or death. A testamentary trust, on the other hand, is a trust that is created upon your death according to your existing estate planning documents – will or revocable living trust. The benefit of using an inter vivos trust provision is that if you become ill or incapacitated, the trust provisions can provide for the on-going care and maintenance of the pet, whereas the testamentary trust provisions are only triggered upon your death.
Regardless of whether you choose to create an inter vivos or testamentary trust for a pet, you must first consider who will serve as the trustee of the trust. The trustee is the individual responsible for managing the assets held in trust for a pet’s benefit and in all likelihood, is also nominated to serve as the pet’s caretaker. As the title itself implies, your trustee must be trustworthy. There are horror stories of trustees padding their own pockets with trust assets, or even worse, finding a replacement pet when the original pet dies so as to continue being responsible for the “management” of the trust assets.
After selecting a trustee, you must consider how frequently and for what purposes distributions will be made for the benefit of a pet. For example, the trust may provide the trustee with discretion to make distributions for the pet’s health and support, or so that the pet may continue to live in the manner to which it was accustomed during your lifetime. You also need to consider the appropriate “funding” for the trust – the trust will do little good if it contains inadequate resources; on the other hand, over funding can have adverse tax consequences and other practical problems.
The final consideration is how the trust will terminate. It is important to limit the duration of the trust to the pet’s life to avoid invalidation of the trust. With respect to the assets remaining in the trust upon termination, you may choose to have the assets distributed to a local animal shelter or another favorite charity, or to an individual or individuals of your choosing.
Erin MacDonald is an estate planning attorney at Karnopp Petersen LLP. Anne Arathoon is an attorney in the business department at Karnopp Petersen LLP and is a member of the board of the directors of the Humane Society of Central Oregon. More information online at www.karnopp.com.