eNewsletter Alert

Estate planning is the process of planning the distribution of one's assets to heirs, or beneficiaries, effective at the time of one's death. Many of you may instantly associate "heirs or beneficiaries" with human beings, but this is not always the case. It has become increasingly popular for people to assign assets to another designated party, namely Fido or Fluffy.

Some people adore their pets so much that they consider them family members, and they want to make certain that their pets are properly cared for in the event that they become incapacitated or pass away.  Fortunately, there are several options that we incorporate here at Amaral & Associates, P.C. for pet owners who wish to add pets into their estate plan.

WILLS

Although wills are usually the most common tool in estate planning, they present some considerable disadvantages in planning for pets. Unlike people, pets cannot care for themselves during the time before a will takes effect. Pets must be taken care of in order to live, and could very likely be endangered if left neglected for even a short period of time. Also, a will is ambulatory and only becomes effective upon the death, not incapacity, of the owner.

TRUSTS

As estate planning for pets has become more and more common, some states have adopted laws regarding the same. States differ in specific terms pertaining to pets in trusts and the overall idea of designating a pet as beneficiary in a trust raises some concerns.

The majority of laws treat pets as property and one cannot leave property or money to another property. In addition, a traditional trust that assigns a pet as beneficiary would most likely fail because it lacks a standard for measuring life, as trusts cannot last forever and require a measuring life, which is typically that of a person. Since a pet is not a person, the measuring clock of the trust cannot start and, as a result, the trust cannot take effect. However, specific long-term trust planning vehicles are available to pets.

HONORARY TRUST

Before the 1990's, honorary trusts were the only trusts used for the long term care of a pet. Initially, this type of trust was created in honor of a pet in hopes that the courts would approve it. Unfortunately, insensitive attorneys, judges, and family members may deem these trusts null and void if they choose not to carry out the wishes of the pet owner. There are also limits that determine when and where this trust can be established. If the pet owner establishes the honorary trust in a state that does not recognize it as legal, the money will go back to the original estate, defeating the purpose of the trust all together.

CAREGIVER TRUST

The best and easiest way to ensure that a pet will receive proper care is to have an enforceable living trust or a testamentary trust prepared. These trusts assign a human beneficiary and cover the pet's expenses.

It is important to note that living and testamentary trusts are not interchangeable. The main difference between the two is that a testamentary trust is enforceable only upon the death of the pet owner, whereas a living trust is enforceable while the owner is still alive but incapable of caring for the pet. A living trust is effective immediately upon the owner's death or disability, avoiding any time lapse between the owner's death and subsequent functioning of the trust. Although there are a few additional start-up costs that coincide with a living trust, the relief of having a thorough plan for your pet is worth it for most people.

WHO'S INVOLVED IN A LIVING TRUST

In a living trust, a trustee is responsible for overseeing the investment and administration of trust assets and a caregiver is responsible for the care of the pet. In many cases, a trust protector or committee is in charge of inspecting the care of the animal. Finally, a remainder man, which can be a person or an entity, ultimately receives the trust assets after the pet's death. Please see Exhibit 1 below.

Exhibit 1

ASSET FLOW OF A PET TRUST

Pet OwneràAssets to Fund Trust to CaregiveràPetàBalance at Death of Pet àRemainder man

Pet owners should carefully select the caregiver, as this person will determine the future well-being of the pet, and may also want to name alternative caregivers in the event that the primary caregiver cannot serve for the duration of the pet's life. It is also important that the pet owner clearly identify the animal to be covered by the trust in order to prevent fraud.

TAX IMPLICATIONS

Similar to any other trust, tax implications arise even with a pet trust that is valid under state law. As the legality of these trusts varies from state to state, owners should consult with their tax advisors when including pets in their estate plans.

PRECAUTIONARY PLANNING

Unlike other assets, pets are living things and require special care. Animals are not humans and cannot speak for themselves or make a decision to leave if their caregivers are not doing a good job. A few precautionary planning tips for pet owners include:

• Inform neighbors and family members of any pets you have in case an emergency;
• Take steps to protect the pet, such as posting "in case of emergency" stickers on windows;
• Designate temporary caregivers to assist in case of an unexpected event. These caregivers can serve informally until the provisions in a trust or will are activated. This will help guarantee that the pet receives the care it needs in a timely fashion.

OTHER PLANNING TECHNIQUES

Some other planning techniques and tips for pets include the following:

• Designate a caregiver in a durable power of attorney to serve in the event of incapacity. The pet owner can select someone else as attorney, in fact or agent, who is then able to make decisions on behalf of the pet owner;
• Make arrangements with a pet retirement home or adoption service to prevent the pet from being euthanized in the future;
• For more information, visit The American Society for the Prevention of Cruelty to Animals website www.aspca.com.