Pet Trusts
Pet trusts are an important tool for animal owners who want the best for their charges. Because I am an animal lover, it makes me uncomfortable to tell my clients that the law treats our non-people friends as “personal property,” like the couch and table. Because pets are legally treated as personal property, pets do not have the right to directly inherent money or other property.
Legislation in Massachusetts permits pet trusts. Before such legislation, the testator (person who signs the will) had to leave the funds earmarked for a pet’s care to a person the testator trusted to handle the pet’s money. Unfortunately, if the named person turned out to be untrustworthy, the pet was out of luck, so to speak, when the human pocketed the money for him or herself.
Through the use of a pet trust, the grantor (person who signs the trust) clearly names and specifically identifies all pets/animals to be benefited by the funds placed into the trust for each pet’s lifetime care. Upon the death of the pet to which funds were allocated, the named beneficiaries (called the “remaindermen”) are given the remaining funds, if any. Until the pet dies, the pet’s funds are protected almost to the same extent as they would be for a human.
I say “almost” because even with a pet trust in place, a challenge can be made by one or more of the remaindermen or other interested parties, such as heirs and creditors, claiming that the funds set aside for the pet are “excessive.” Whenever the court is presented with such a challenge, the judge is permitted to reduce the funds in the pet trust if the judge agrees. This is the principal difference between trusts benefiting people and those for pets. With good legal advice, a properly drafted pet trust with supporting documentation can virtually avoid the success of this type of attack. Note: it is only animals, not people, that can lose their inheritance through the use of this challenge.
I recommend that for each pet a veterinarian and the grantor develop a life care plan for the maximum life expectancy of the pet. From this plan, create a generous budget, but, as a rule of thumb, do not exceed five times the anticipated total cost of the pet’s lifetime care and maintenance. This is because of the risk that someone may challenge the pet’s trust fund as “excessive.” It is helpful to have a section regarding euthanasia decisions and to address any and all other important care issues. That is the documentation.
In addition to the documentation for the pet’s life care plan, a properly drafted pet trust should include language further discouraging a remainderman or an interested party (like a creditor) from attacking the trust as “excessive.”
To explain the “excessive” argument, I give you this extreme example. Say, Sally sets up a pet trust for her newborn kitten, Buddy. She deposits 15 million dollars into the trust for Buddy’s care for his lifetime. Sally names her brother Tom to receive any remaining funds when Buddy dies. Tom is called the remainderman because he does not receive his inheritance until after Sally and Buddy both have died, whenever that will occur. Tom will only receive what is left of the $15 million, if anything. After Sally dies, if Buddy is still alive, Tom could very well be disturbed by the “over the top” money set aside for one cat. Tom might choose to file a petition in probate court claiming that $15 million is an excessive amount for the care of a cat with an average life expectancy of 15 years. Is it possible for a cat’s care to ever cost $1 million per year?
I use this extreme example to show Sally’s risk in depositing so much money into Buddy’s trust. The judge may very well determine that $15 million is excessive and, after testimony from veterinarians and other experts, decide that $5 million is more than enough for Buddy’s super-duper care for his life. The judge could thus order that the amount over the $5 million level shall be given to Tom now. Tom will still have to wait until Buddy dies to receive the balance remaining from the $5 million, if any, but Tom gets his $10 million now.
In the more typical situation, I help Sally develop a care plan that will take care of her pet for life. To avoid any possible “excessive” challenge, I advise her to fund the pet trust within five times the anticipated amount of money likely needed. In addition, I recommend that language be placed in the pet trust stating clearly that it is the her (the grantor’s) intention to delay distribution to the remaindermen and that the extra funds are meant to allow the trustee to invest for higher total returns rather than for income.
These trust statements are important to the judge who is charged with the job of determining the grantor’s intention for the use and timing of the ultimate distribution of the trust funds. In other words, if Tom argues “I need my money now; it’s not fair to keep me waiting,” Buddy’s attorney could point to the trust language basically requiring Tom to wait for his money—i.e., that Sally had intended Tom to wait 15 years or so for his inheritance so the money could grow. And so that Buddy the cat will be taken care of for his entire life. These trust statements tell the judge that the grantor intended to delay the ultimate distribution to the remaindermen. This is referred to as a “non-acceleration clause.”
The pet trust identifies the caretaker, the person who will provide the pet’s daily care; the trustee, the person who manages the funds; and the monitor, the person who checks on the caretaker and trustee periodically. All parties must follow the pet’s life care plan to the extent possible. For all three of these jobs, the trustee is permitted to pay, from the trust fund, each agent reasonable fees for services provided and to reimburse his/her costs. An easy way to determine whether or not the fees are reasonable is to see what a third party would charge for the same services. The budget established for each pet should have a line item for the cost of services provided by each agent.
The same person is permitted to do more than one job. For example, the grantor may trust the caretaker so completely with the care of the pet and with the handling of the pet’s money that s/he might name that person to perform all three jobs. However, if that person becomes unable to do one or more of these jobs, the successors named for the different jobs might be different people.
The grantor must be advised that the person handling the pet’s money—the trustee—has a conflict of interest if the trustee is also a remainderman. A remainderman inherits all funds remaining, if any, upon the death of the pet. The grantor wants to be careful not to name a trustee who may not pay the necessary money for the pet’s care just so s/he can inherit more money when the pet dies.
As with all trusts, a successor for each job must be named, as well as a method to choose a successor, stated in the terms of the trust, in case the primary-named representative becomes unable or unwilling to do his/her job during the pet’s life. The directive could be, for example, that the pet’s veterinarian or a charitable organization becomes involved in choosing the right person for the job.
The pet trust can be made a part of the will as a separate section, to be activated upon the testator’s death. This is called a testamentary trust because it only “springs alive” upon the death of the testator. However, I recommend that the pet trust be a “stand-alone” trust, meaning a document separate from the will. I make this recommendation because multiple parties may review the pet trust post-death and, frankly, the non-pet terms of the will are none of their business.
The stand-alone trust can be funded while the grantor is alive or upon the grantor’s death through the use of a “pour-over” will. In the pour-over will, the will states that upon the death of the testator, a certain dollar amount or percentage of the assets shall “pour” into the stand-alone pet trust. Each case is different, but generally speaking, I usually recommend that the pet trust be at least partially funded during the life of the grantor in the event s/he becomes unable, while alive, to care for the pet.
A pet trust can be revocable or irrevocable depending on the grantor’s goals. It is usually revocable and similar in most respects to other revocable trusts.