Estate planning is what an individual does in order to ensure that their property is distributed to their family, friends, and loved ones as they wish after they pass away. An individual’s estate consists of all of their property, including:
- Personal items;
- Bank accounts;
- Real estate;
- Stocks and securities; and
- Any other assets.
When an individual passes away, their estate plan will dictate how their property will be managed and distributed. Although many individuals associate estate planning with elderly or wealthy individuals, almost everyone may benefit from having a comprehensive estate plan.
A well-drafted estate plan may have many benefits for individuals. For example, a clear plan may minimize tax burdens for the individuals who inherit property as well as the need for probate court proceedings.
Although most individuals associate estate planning with things such as wills and trusts, it may also address other issues, including:
- How an individual is to receive medical treatment;
- Organ donation;
- Who will make legal and financial decisions on an individual’s behalf if they are incapacitated;
- Who will care for the individual’s minor children;
- Who will take over an individual’s business interests; and
- The individual’s funeral arrangements.
If an individual does not create an estate plan form themselves, their estate will be distributed according to their state’s intestate succession laws. Intestate laws vary by state and may sometimes result in property distributions who are not exactly in accordance with the decedent’s wishes.
Because of this, it is important for every individual to have an estate plan. It is also important for individuals to consider taking care of their pets after they pass away.
What is a Pet Trust?
Trusts are specific types of legal structures which permit an individual to transfer property to another individual. The creator of the trust, who is called a settlor, chooses an individual who receives the property.
The individual who receives the property is called a beneficiary. Instead of transferring the property directly to the beneficiary, the trust property is first transferred to another individual, called a trustee.
A trustee holds and manages the property in the trust until the time comes to transfer the property to the beneficiary. In some cases, the property transfer may be dependent upon certain conditions being met, such as the beneficiary reaching a certain age, graduating college, or some other condition.
Pet trusts are trusts which are created specifically for the continued care and maintenance of an animal or animals. Trusts are typically funded by property or money from the settlor.
Trusts also have designated trustees who are assigned to administer the trusts. In the past, estate laws were reluctant to permit individuals to leave assets to their pets.
Today, however, many states recognize pet trusts. These pet trusts provide options for pet owners to ensure that their pets receive proper care when their owner has passed away.
What are Some Common Issues with Pet Trusts?
When drafting the terms of the pet trust, there are numerous potential obstacles an individual may face regarding the fulfillment of its terms, including:
- Different states having different laws and regulations regarding pet trusts;
- The rule against perpetuities;
- The mental capacity of the drafter of the trust may be questioned or challenged; and
- The selection of the trustee.
The state in which a pet trust is to be administered may not be the same state in which the pet trust was drafted. Some states may not have laws which recognize the validity of a pet trust. In addition, because this is a newer area of law, the laws governing these issues may be subject to change.
Because of the rule against perpetuities, in some states, a pet trust may only be valid for a certain number of years. This is typically around 21 years, which may not be sufficient for some pets, including horses and tortoises.
Having a pet trust may raise questions regarding the mental capacity of the individual creating the trust because the choices and directions of the pet owner may seem outrageous to someone else. This is especially true in cases where the trust has more than ample assets to care for the pet or if the trust directs that the pet is to live in a certain level of luxury.
There may also be disputes or disagreements which arise related to the selection of the trustee. A pet trust is unique because the trustee of a pet trust is sometimes required to have special knowledge about the animal, especially if it is rare or unique. Trustees may sometimes be removed from their positions if they are inadequate for their role.
How are Pet Trusts Affected by Taxes?
With a pet trust arrangement, the Internal Revenue Service (IRS), in general, cannot tax the trustee or the pet. The IRS provides that, in states where a pet trust is legally recognized, the trust can be taxed at a rate which is lower than the average trust tax rate.
It is important to remember that these types of details may be subject to change because this is a relatively newer field of law. The number of individuals who own pets is increasing.
This means that the law will need to reflect the growing concern for the care of individual’s pets after they pass away. As more states begin enacting laws regarding pet trusts, the laws may change and evolve in order to meet the needs and demands of pet owners.
Are There Any Alternatives to Pet Trusts?
Although the options for the care of an individual’s pet after they pass away may be limited, there may be some alternatives available other than pet trusts. For example, instead of a pet trust, a conditional gift may be given to an individual with the condition or requirement that the money be used for the care and maintenance of a pet.
Conditional gifts, however, may not be favored in all states. Because of this, a court may declare a gift invalid or may void the gift. In these types of cases, the gift may be invalidated altogether.
In certain states, an individual may create a pet trust using less formal methods. For example, an individual may create a pet trust by giving their pet to another individual along with the funds to care for the pet.
It is important to note, however, that not all states will recognize this as a pet trust. Because of this, the recipient may be taxed based on the value of the animal as well as the money provided for the care of the animal.
It is important to remember that a trust is not for the benefit of a pet. In other words, a pet cannot be the beneficiary or the recipient of the gift of property directly from the trust. Instead, the pet trust is created so that the trustee can manage the funds which are intended to care for the pet.
Therefore, an individual would not likely be permitted to leave their home to their pet. However, a court may permit a pet trust to be created for the future care of the pet.
Should I Consult an Attorney for Help with Estate Planning Involving Pets?
It is essential to have the assistance of an estate attorney for estate planning which involves pets. A pet trust is a novel idea and, as noted above, the laws may be confusing or different between the states.
Your attorney can advise you regarding the pet trust laws in your state and ensure that your pet trust will be valid and enforceable in the state where you live. They will help you draft the pet trust and make sure it follows the requirements of your state.