The Moritz Estates and Trusts Association - PowerPoint Presentation

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The Moritz Estates and Trusts Association

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How to Include Pets

in an Estate Plan

Visiting Professor Gerry W. BeyerSlide2

Pet Ownership in America Today

71.1 Million households own at least one pet (63% of all households)

Dogs = 43.2 million householdsCats = 37.7 million householdsFish = 14.7 million householdsBirds = 6.4 million households

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Potential Benefits of Pet Ownership

Unconditional loveCompanionship

Lowered blood pressureLessened risk of heart diseaseImproved concentration and mental attitudeShortened recovery time after hospitalization3Slide4

Treatment of Pets

Surveys reveal:79% sleep with pets

70% would rather be stranded on desert island with pet than spouse31% take off work to be with a sick pet68% dress up pets for the holidaysHuge rewards for return of lost pets or locating person who kills pet

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Famous ExamplesLeona Helmsley – Trouble (dog)

Dusty Springfield – catDoris Duke – dog

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Underserved area of estate planning

Vast majority of people do not have wills.Of those with wills, only a small percentage plan for their pets.

What planning is done, is often inadequate.6Slide7

History of Estate Planning

for Pets

In England, the common law courts favored gifts to support animals.United States courts originally unsupportive of provisions to benefit pets.7Slide8

History of Estate Planning for Pets

Traditional Problems in United States

Rule Against PerpetuitiesTrusts can’t have unlimited lifeMeasuring life must be human, not animalIf non-human, rule is violated and gift failsHonorary TrustNo human beneficiary capable of enforcing trustPurpose not considered charitable as not for public benefit

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History of Estate Planning

for Pets

Modern United States Developments:Some judicial opinions approved gifts to benefit pets.Uniform Probate Code (1990) -- § 2-907Uniform Trust Code (2000) -- § 408 [Ohio § 5804.08]Other state legislationAs of April 2012, 46 states and D.C. have enabling legislation.

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Short-Term Care Planning

1. Animal CardCarry in wallet to alert emergency personnel

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FrontSlide11

Short-Term Care Planning

1. Animal CardCarry in wallet to alert emergency personnel

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Short-Term Care Planning2

. Animal Document or NotebookDetailed informationEasy for caregiver to findConsider keeping near food

Include all important information and documents12Slide13

Short-Term Care Planning3. Door Sign

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Short-Term Care Planning4. Durable Power of Attorney

Authorize agent to spend pet owner’s money for pet care.Authorize agent to place pet with caregiver and to pay caregiver’s expenses and/or a fee.

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Long Term Planning Overview

1. Traditional Pet Trust

Effective in all states. Caregiver/Beneficiary receives funds for pet care in accordance with pet owner’s (settlor’s) directions.Comprehensive planAnalog to gift in trust for childrenThe “gold standard” of pet planning

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Long Term Planning Overview

2. Statutory Pet Trust

Authorized in 46 states and D.C.Simple planStatute provides operation and enforcement provisionsAnalog to Uniform Transfers to Minors Act gift for children.The “better than nothing” pet plan.

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Traditional Pet Trusts – Factors to consider

1. Inter Vivos or TestamentaryInter VivosAvoids delay and gap in pet’s care.

Increased lifetime costs and hassles.TestamentaryProbate of will required.De minimus lifetime expense.17Slide18

Traditional Pet Trusts – Factors to consider

2. Designate Caregiver/BeneficiaryInterview carefully.“Test” animal in person’s household.

Name alternates.Never name trustee as destroys checks/balances.Consider animal care panel to select alternate caregivers.18Slide19

Traditional Pet Trusts – Factors to consider

3. Nominate TrusteeIndividual or corporate?Compensation?

Name alternates19Slide20

Traditional Pet Trusts – Factors to consider

4. Transfer animal to trust – “animal funding”

Inter vivos = deliver animal to trustee along with appropriate ownership documents.Testamentary = specific bequest of animal in pet owner’s will to the trustee, in trust.Trust then provides for trustee to deliver custody (not ownership) of animal to the caregiver/beneficiary.20Slide21

Traditional Pet Trusts – Factors to consider

5. Transfer other property to trust

Factors:Type of animalLife expectancyPotential of expensive medical costsFee for trustee and/or caregiverLiability insurance injuries pet causesHealth insurance for petSize of pet owner’s estate

Warning

Do not transfer unreasonably large amount of property as it triggers contests by heirs and beneficiaries.

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Traditional Pet Trusts – Factors to consider

6. Describe pet’s standard of living

Daily careRoutine medical careEmergency careEnd of life plansShould be specific, detailed as to each petCan be documented during lifetime to support long-term care monetary calculations

Should provide for accountability

Should consider changing circumstances

Should not be so rigid as to be inflexible

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Traditional Pet Trusts – Factors to consider

7. Specify distribution method for pet’s careFixed sum

SimpleNot account for change in circumstancesFix sum with trustee discretion to pay additional expenses.Expense reimbursement only23Slide24

Traditional Pet Trusts – Factors to consider

8. Consider additional distributions for caregiver/beneficiaryDistributions may increase quality of care.

Distributions decrease amount available for pet care.24Slide25

Traditional Pet Trusts – Factors to consider

9. Limit duration of trustComply with your state’s version of the Rule Against Perpetuities

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Traditional Pet Trusts – Factors to consider

10. Designate remainder beneficiaryConsider charity which benefits same type of animal.

Do not name caregiver as then caregiver lacks incentive to keep animal alive.26Slide27

Traditional Pet Trusts – Factors to consider

11. Identify animal to prevent fraudSpecial Identifying marks

TattooMicrochipDNA27Slide28

Traditional Pet Trusts – Factors to consider

12. Require trustee to inspect animalRandom unannounced at-home visits.

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Traditional Pet Trusts – Factors to consider

13. Provide instructions for final disposition of pet

Pet cemeteryCremationMemorial site on Internet29Slide30

Statutory pet trusts

“I leave $10,000 in trust to care for Rover.”Statute “fills in the blanks”Person to enforce

Use of moneyWhen trust endsDistribution of remaining propertyExact method depends on state statute30Slide31

Other Planning Options

1. Outright gift of animal and moneyRisky and uncertain, but cheap and easy.

2. Transfer to life care centerGood for hard-to-place animals (exotics, farm animals, etc.).May require significant “endowment.”Quality varies tremendously so due diligence is essential.31Slide32

Questions?

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For more information:

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Gerry W. BeyerBarry Seltzer

http://

www.professorbeyer.com/Articles/Animals.html

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Tax Concerns

1. Income TaxSettlor/Pet Owner – If revocable, settlor responsible for income earned by trust property.Beneficiary/Caregiver – If irrevocable, beneficiary responsible for income tax up to amount of trust’s distributable net income.

Trust – If irrevocable, trust responsible for income tax on trust income retained in trust.Planning Technique – Provide for trustee to invest only in tax-exempt municipal bonds.34Slide35

Tax Concerns

2. Gift TaxRevocable trust – no gift tax consequences.Irrevocable trust – no gift tax if covered by lifetime gift tax exemption (unlikely to qualify for annual exclusion).

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Tax Concerns

3. Estate TaxRevocable trust or testamentary trust – Property included in settlor’s gross estate.Irrevocable trust – Can be structured so none of the property included in settlor’s gross estate.

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