By: Margaret R. Hoyt and Sarah S. AuMiller
People love their pets. More than 62 percent of Americans have a pet. Among pet owners, 69 percent have a dog, 51 percent have a cat, 11 percent have a fish, 7 percent have birds, and 8 percent have other pets, such as horses, rodents, and reptiles.1 Approximately 90 percent of owners consider their pets to be part of the family.2 In fact, for some people, their pets are their only family. When considering a plan for your family’s future, have you included your pet? What will happen to your pet if something happens to you? Given the integral role pets play in a family’s or an individual’s life, pets must be considered during the estate planning process in order for an estate plan to be complete.
Many individuals like to believe they will always be present to care for their pets or that they will outlive their pets; far too often, this is not the case. If, as a result of illness or injury, a person must move from his or her home to an alternate or permanent care facility, such as a nursing home, rehab center, or hospital, or if the individual becomes incapacitated or dies without addressing the ongoing care of his or her pet, the outlook for the pet might be grim. Frequently, a decedent’s estate plan does not address the placement of pets or provide for their financial support. This doesn’t have to happen. To prevent such an unnecessary occurrence, attorneys should work with their clients to develop a written plan for the protection of the client’s pets when they are no longer able to care for them.
Attorneys should discuss the various alternative ways people can address the long term care of their pets. One avenue is to include provisions for the benefit of pets in a durable power of attorney, last will and testament, or revocable living trust. Wills and trusts can include specific instructions for the care of a pet along with a dollar amount to be devised to the person designated to care for the pet. However, some people may not feel an outright distribution of their pet along with a distribution of resources for the pet’s care is sufficient. Instead, they may want to leave detailed instructions and resources that are more than enough for the pet’s lifetime care. Additionally, they may want to ensure they have alternate caregivers, separate the function of pet care and management of the resources, and incorporate a check and balance system to guarantee a happy, healthy life for their pet. These individuals are the perfect candidates for a pet trust.
Traditional Legal Obstacles to Pet Trust Planning
Originally, a legal obstacle to pet planning was the common law. As a general rule, a pet cannot inherit money, property, or an estate. Today, however, attorneys can use legacy planning tools designed to provide for a pet in the event of a pet owner’s emergency, disability, or death. Pets can be included in their owner’s will as an outright gift, either with or without resources for the pets’ care. However, because a will is only effective at death, it does nothing to protect the pet in the event of the owner’s disability or a natural disaster. Thus, it is important to plan for the short-term care of the pet in the event of an emergency or the owner’s incapacity or hospitalization, or that time period between the owner’s death and the administration of his or her estate. This is best accomplished through a pet trust.
Historically, a pet could not be the true beneficiary of a trust. In the event a person wanted to leave money in a trust for the benefit of his or her pet, the devise would have to be accomplished through an intermediary, a human beneficiary. Unfortunately, when the named beneficiary of the trust was a person and not the pet, Florida courts were powerless to enforce the provisions of the trust to ensure that the needs of the pets were protected and that the monies were used for the benefit of the pet and not the human beneficiary.3
Another legal obstacle for pet trusts is the rule against perpetuities, which generally provides that an interest in property must vest, if at all, not later than 21 years after the death of someone alive when the interest was created (a measuring life).4 The measuring life needs to be human, and if the measuring life in a pet trust is that of a pet, such trusts violated the rule against perpetuities and were deemed void.5 The 1932 New York case of In re Howells’ Estate, 260 N.Y.S. 598 (Sur. Ct. 1932), modified, 261 N.Y.S. 859 (1933), discusses this issue. Essentially, the rule against perpetuities prevents a trust from having an unlimited life; the interest must vest at some point in time and cannot continue indefinitely. Today, however, many states have abolished or amended their rule against perpetuities and many dynasty type trusts can last for generations.
Recent changes in the law have enabled pet trusts through the Uniform Probate Code (UPC) and the abolition of the rule against perpetuities. In 1990, the National Conference of Commissioners on Uniform State Laws changed the UPC to allow for the creation of pet trusts.6 Some states, including Florida, have adopted the UPC, or a modified version, and have made pet trusts valid for the lifetime of the pet. The UPC does not eliminate the rule against perpetuities; it simply creates an exception to the rule.
Statutory Pet Trusts
In response to the perceived deficiencies in leaving assets in trust for the benefit of a human beneficiary rather than a pet beneficiary, nearly all states, including Florida, have adopted pet trust statutes.7 These statutes specifically authorize the creation of a trust when the pet is the beneficiary, not a human. The pet trust statutes fill in the gaps for the pet trusts. The statutes provide mechanisms to identify the protected pets, enforce the trust, determine the reasonableness of resources, and establish a means to terminate the pet trust. Florida authorized the creation of a trust for pets in 2002, now codified as F.S. §736.0408,8 under which, a trust may be established for the pet’s lifetime to provide for the care and maintenance of the animal. If the trust has been established to care for more than one animal, the trust will remain in effect until the death of the last animal.9 The pet trust trustee can be designated in the trust document itself or, in the absence of an appointed trustee, the trustee can be designated by the court.10 Further, a trust protector may be appointed to enforce the terms of the trust or to remove a trustee who is not following the terms of the trust.11 Numerous additional factors need to be considered when establishing a pet trust, such as provisions for alternate caregivers, the day-to-day care requirements for the pets, including emergency or extraordinary care, and, ultimately, the final disposition of the pet. The current Florida statute addresses only a few of these considerations.
Federal Obstacles and Tax Implications
Despite state recognition of pet trusts, the Internal Revenue Service refuses to recognize a pet trust. The IRS explains its adverse position regarding pet trusts by referring to the definition of “trust” and “beneficiary.”12 The term “trust,” as used in the Internal Revenue Code, refers to an inter vivos (during life) or testamentary (after death) transfer of property to a trustee on behalf of a beneficiary.13 I.R.C §643(c) defines “beneficiary” to include “heirs, legatees, and devisees.”14 All of these are persons, and that, as defined by I.R.C. §7701(a)(1), “means and includes an individual, a trust, estate, partnership, association, company or corporation.” The result is a pet or animal does not fit within the Internal Revenue Code’s definition of person. Therefore, under the I.R.C., a pet cannot be a beneficiary and, therefore, cannot be taxed. When a trust lacks a beneficiary, that trust is deemed invalid and unenforceable. The IRS does, however, conclude that a pet trust “should nonetheless be classified as a trust for tax purposes under Section 641” whenever such a trust is not invalid under applicable state law.15 Therefore, pursuant to I.R.C. §641, the income of a pet trust would be taxable. To do otherwise, the ruling explains, would be to ignore the effect of local law and to allow the trust’s income to escape taxation altogether.16
Assets passing to a pet trust due to the trustmaker’s death are included in the decedent’s gross taxable estate. Further, under Rev. Rul. 78-105, 1978-1 C.B. 295, the IRS has determined that no portion of the money passing to a valid trust for the lifetime benefit of a pet qualifies for the charitable estate tax deduction, even if the remainder beneficiary is a qualifying charity. There would be a different result if the lifetime beneficiary was a person and the remainder beneficiary was a qualifying charity. Consequently, the client needs to consider how estate taxes attributable to a pet trust will be paid.
Attorneys should emphasize to clients the most important part of the estate plan in terms of a pet trust is the selection of those designated to care for and protect the pets. In addition to the person(s) or organization (as well as their alternates) selected to provide the day-to-day care for the pets, it is critical to select a trusted individual, professional, or corporate fiduciary to administer the assets left for the benefit of the pets. Typically, the pet caregiver and the trustee will not be the same person or entity to remove the possibility of a conflict of interest.
The pet caregiver should be a person or organization willing to provide the day-to-day care of the pet in the event of death or disability of the pet owner. The pet caregiver should be someone willing to provide for the pet’s needs in a manner consistent with the care, love, and affection provided by the owner during the owner’s lifetime. Prior to nominating a pet caregiver, the pet owner should discuss his or her desires with the potential pet caregiver in order to make sure they are willing and able to accept the responsibility. The pet owner also needs to consider whether the potential caregiver has the physical accommodations to provide the desired care for the pet. For example, if the pet owner has two dogs he wants to ensure live together for their lifetimes, does the potential pet caregiver live somewhere that will accommodate both dogs? Successor pet caregivers should always be selected. In some instances, the pet owner may want to consider delegating the authority either to the pet caregiver or the trustee to select a loving, permanent home for the pets in the event the nominated pet caregiver is unable to provide lifetime care for the pets.
In addition to the trustee who has the responsibility for the investment, management, and distribution of the trust assets, F.S. §736.0408 also provides for the appointment of a trust protector. The concept of a trust protector is nothing new, but has primarily been used in irrevocable trust planning. Today, many practitioners are including trust protectors for the purpose of ensuring the intent of the trustmaker is carried out. Generally, the trust protector is someone other than the trustee and the pet caregiver who has the power to enforce the trust and ensure the trust property is properly spent for the benefit of the pets. The trust protector may also have the power to remove the original trustee in the event trust assets are mishandled or the trustee otherwise violates his or her fiduciary duties.17
Some pet owners may want to include an animal care panel, the purpose of which is to empower trusted individuals to oversee the activities of the pet caregiver, the trustee, or both. An animal care panel can be given the responsibility to assist in difficult healthcare decisions related to the pet. The panel might also participate in other decisions, such as the appointment of alternate caregivers or trustees in the event of an unexpected vacancy.
The selection of pet caregiver, trustee, and animal care panel participants is critically important because the selection ensures the success or failure of the pet plan to meet the needs of the pet owner and, ultimately, the pets. The legal advocate’s role in providing counsel and the suggestion of possible resources, including fiduciaries and perpetual care facilities or programs, can be the difference between a plan that might work and a plan that will have the greatest chance of success. The advocate should be well informed about the needs of pets and the resources available to support those needs. This information is best acquired through thoughtful and thorough conversations with the pet owner regarding their wishes, desires, and ability to support the needs of their pets.
The long-term care of a pet requires careful computation of the amount of money necessary to care for the pet and to provide for the expenses, fees, or remuneration for the pet caregiver, animal care panel (if any), and trustee. Many factors will likely determine the amount of money necessary for the long-term care of a pet, such as the type of pet, the pet’s life expectancy, the standard of care desired for the benefit of the pet ( i.e. , food choices, boarding, grooming, veterinary, etc.), and the need for unanticipated, potentially expensive or extensive medical treatment.
One option for leaving money to a pet is an outright distribution (free of trust) – a fixed sum of money sufficient to provide for the pet’s lifetime care.18 This amount would be distributed directly to the caregiver for the benefit of the pet, and a fixed sum is the easiest way to leave such money. Possible disadvantages include the possibility that the amount may be too little or too much, resulting in either a shortfall or a windfall to the pet caregiver, ultimately a detriment to the pet. If there is a shortfall, the pet will have to rely on the generosity of the pet caregiver to make up the difference. If there is a windfall, the decedent needs to be comfortable the pet caregiver or remainder beneficiaries are deserving of the excess.
Another option is to allocate a percentage of the estate to be paid directly to the caregiver or to the trustee to be managed as part of an ongoing pet trust. One advantage of this approach is that, no matter the value of the estate at the time of death, a certain percentage will be allocated to the care of the pets. A disadvantage is that if the estate is not as large as expected, then the percentage allocated for the pets may be insufficient to provide for their care.
In some cases, clients may want to leave their entire estate for the benefit of their pets. This option would only be appropriate if the client is confident disappointed heirs would not challenge the estate plan. The pet trust would be administered for the purpose of investing, managing, and distributing the estate assets for such time as the pets are living. Then, when the last pet dies, the trust would terminate and family members or charities would become the ultimate recipients of the remaining assets (if any).
In order to avoid unnecessary claims by heirs or other beneficiaries asserting the caregiver is spending an unreasonable amount on the pet, the attorney should include language to provide the pet caregiver with specific written directions regarding the care of the pets and the associated costs of care. These instructions are particularly valuable when planning for pets because it allows the pet owner to document the cost of the pet’s care, the type of care required, the medical history of the pet, and the current service providers, including veterinarians, farriers, groomers, pet sitters, or others who play an important role in the life of the pet. Special consideration should also be given to unexpected events, emergencies, and critical illnesses with instructions to guide the pet caregiver, trustee, or animal care panel. Equally important, the written instructions should also include instructions for euthanasia and the final disposition of the pet at the time of death, including cremation, burial, and the handling of the pet’s remains.
Even though the question, “What will happen to your pets if something happens to you?” might surprise some people, it is a relevant and important question to ask during the estate planning process. Florida law authorizes the creation of trusts for the benefit of a pet and opens the door of opportunity to the forward-thinking practitioner to include excellent guidance and counsel for some of the most cherished members of the family, our pets. Ultimately, estate planning is about providing for everyone you love.
1 Regina A. Corso, Pets Really Are Members of the Family, The Harris Poll #70 (June 10, 2011), available at http://www.harrisinteractive.com/NewsRoom/HarrisPolls/tabid/447/ctl/ReadCustom%20Default/mid/1508/ArticleId/814/Default.aspx.
2 Rachel Hartigan Shea, Pets are Becoming People, Legally Speaking, National Geographic Daily News (April 6, 2014).
3 Phillips v. Estate of Holzmann, 740 So. 2d 1 (Fla. 3d DCA 1998); In re Seabright’s Estate, 95 N.E.2d 779 (Ohio Ct. App. 1950); Dep’t of Taxation of Ohio v. Miller, 87 Ohio App. 417 (Ohio Ct. App. 1950).
4 Black’s Law Dictionary 628 (3d ed. 1996).
5 Fla. Stat. §689.225(f) (In Florida, any trust created after December 31, 2000, may go on for 360 years).
6 Unif. Prob. Code §2-907 (1990).
7 See American Veterinary Medical Association, Pet Trusts: Caring for a Pet that Outlives its Owner, www.avma.org/Advocacy/StateAndLocal/Pages/sr-pet-trusts.aspx (Currently 47 states adopted one of the model law provisions or their own version of animal trust legislation. Many of these laws have been enacted in recent years. Mississippi is the latest state to adopt such a law in 2014, and is based on U.T.C. §408. Kentucky, Louisiana, and Minnesota are the only states that do not have laws authorizing pet trusts.).
8 Fla. Stat. §736.0408 replaced the previous pet trust statute §737.116 as of July 1, 2007.
9 Fla. Stat. §736.0408.
12 See also Rev. Rul. 76-486, 1976-2 C.B. 192.
13 See Treas. Reg. §301.7701-4(a).
14 26 U.S.C. §643(c).
15 See Rev. Rul. 76-486.
16 J. Alan Jensen, Tax and Estate Planning Involving Pets: Stupid Pet Tricks for the IRS and FIDO, August 1, 2000, citing Rev. Rul. 76-486, 1976-2
C.B. 192, hklaw.com/id24660/publicationid3/returnid33/contentid45759/.
17 Fla. Stat. §736.0408.
18 See Peggy R. Hoyt, All My Children Wear Fur Coats: How to Leave a Legacy for Your Pet (2012).
Margaret R. Hoyt , a founding partner of the Law Offices of Hoyt & Bryan, LLC, practices in the areas of family wealth and legacy counseling, including trust and estate planning and administration, elder law, small business creation, succession and exit planning, real estate transactions, and animal law. She is dual certified by The Florida Bar in wills, trusts, and estates and in elder law.
Sarah S. AuMiller is an attorney with the Law Offices of Hoyt & Bryan. Sarah practices in the areas of wills, trusts, disability planning, special needs planning, guardianship and guardian advocacy, probate and trust administration, and elder law.