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Protecting pets in perpetuity

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Indiana Lawyer Focus

The non-profit American Pet Products Association estimates that this year, Americans will spend $50.84 billion on their pets – not surprising, considering the ever-increasing variety of treats, toys, and services for animals. But what happens to these pampered pets after their owners die? Are they consigned to a life of off-brand food? Forced to take up residence in a cramped kennel?

Since 2005, Indiana residents have had the option of creating a trust for the benefit of their pets to ensure that their animals will continue to enjoy the quality of care to which they have become accustomed. But estate-planning attorneys say that despite some of the obvious advantages trusts have over wills, they haven’t yet seen many people creating these legal protections for pets.

A niche practice

In 2007, Jeffery Stinson, managing partner for Severns & Stinson, wrote an article about pet trusts.

“One of my reasons for writing that article when I did was that I had about three clients in six months interested in doing something for their pets,” he said. Thus far, however, he has had no requests to set up a pet trust. And Stinson admitted he has not created a pet trust for his own dog, either.

“They say the shoemaker is always the last one to have shoes,” he said.

Former State Representative Trent Van Haaften, an attorney with Evansville’s Bamberger Foreman Oswald & Hahn, said that several years ago, one of the firm’s clients had inquired about how to provide for horses through an estate plan. Van Haaften learned that many states already recognized pet trusts, so he decided to introduce the pet trust bill in 2005.

“I think this probably holds true with most firms, that when you’re talking about estate planning, you’re essentially trying to advise your clients of all the available options out there,” he said. “I don’t know how much it’s been used across the state, but it’s just another option for people.”

Hall Koehler attorney Shawn Scott said she has a pet trust for her two Boston terriers. “And that is how I became the pet trust lawyer in this office,” she said. “Probably more than half of lawyers think they’re really stupid, but some people see the merit.”

Scott said one reason lawyers may snicker at the idea of pet trusts is because of the associated taxes.

“From a practical standpoint, in Indiana, we have inheritance tax, so it’s going to be a larger taxable gift than if you gave it to your kid,” she said. “This trust is taxed at the highest rate, so people think … why would you pay this tax?” And then I think beyond that, it’s just people’s opinions of animals. They think: What’s it really matter?”

Nevertheless, for some people, money is no concern when it comes to making sure their pets have a comfortable life.

“I would find that most people that are inclined to do this don’t care, they put significant financial resources into their pets,” Scott said. “And I haven’t done a lot of these. It doesn’t have a huge market, because it does take extra lawyer time – it’s kind of complicated; it’s more complicated than drafting for kids.”
 

dible-jeffrey-mug.jpg Dible

The American Society for the Prevention of Cruelty to Animals advises pet owners that they will spend a minimum of about $1,218 per year on basic care for a large dog. That includes food, toys, and regular veterinary care, but not boarding or unexpected medical treatments. With the rising costs of goods and services – and no minimum required for funding a pet trust – it’s not just aging socialites who are planning to provide for their pets.

“I have a pet trust in my will, and I’m not old or rich,” Scott said. “But we have two dogs that we care about … we really love our dogs.”

Untested waters

Jeffrey Dible, of Frost Brown Todd, led a continuing legal education program on pet trusts for the Indiana Continuing Legal Education Forum last year. He said he is unaware of any pet trusts being challenged in court. But because Indiana’s pet trust statute is so new, it may be several years before any of those trusts become active.

“If you’re careful enough in designing and drafting them … I think it would be pretty hard to break them or to be found invalid,” Dible said. Someone would have to prove that a decedent was not of sound mind or was tricked when setting up the pet trust, he explained, adding that the fact that there’s now a statute makes them harder to set aside.

A pet trust terminates with the death of the animal, or when multiple animals are named in a trust, with the death of the last surviving animal. Because a pet may die before the trust is defunded, a remainder beneficiary must be named. Choosing that remain-

der beneficiary wisely may be the key to avoiding court challenges, Dible said.

If, for example, the decedent’s grandchildren are named as remainder beneficiaries, they could argue that they are entitled to a bigger piece of the pie.

“The grandkids would be in a position to go into court and say: We think too much money is being reserved or set aside for these animals, and we want to change things,” Dible said.

In materials Dible prepared for his CLE presentation, he wrote: “If the settlor or testator who creates a ‘pet trust’ wants to deter human family members from challenging the level of funding of the trust, nothing in Indiana‘s Trust Code would prohibit the settlor or testator from including a provision that would automatically allocate all court-determined ‘excess’ assets to some other taker-in-default (such as a charitable organization) who would not have a strong incentive to object to the level of the trust’s funding.”

Indiana law regards pets as personal property, meaning someone can’t bequeath money to a pet any more than he can bequeath money to his favorite chair. And even when a person’s will sets aside funds for pet care, there is no guarantee that the decedent’s last wishes will be honored.


scott-shawn-mug.jpg Scott

“There’s no enforceability,” Scott said. “It’s just like when you give someone a diamond ring – you could sell it the next day.”

In a hypothetical worst-case scenario, an unscrupulous executor could pocket your pet’s funds and dump your animal at the nearest animal shelter. Setting up a trust makes that scenario less likely, although it never hurts to add some extra provisions to thwart thieves.

Scott said that some pet owners include provisions in their trusts requiring the named caretaker to have a veterinarian perform annual DNA analysis on the pet.

“They have some requirements to make sure that this is Fluffy,” Scott said, adding that people charged with care of the pets could find a lookalike replacement for a pet after it dies and continue milking the trust.

Scott said that if she and her husband were to die unexpectedly, she is confident their friends would look after their dogs. But in the unlikely event that some tragedy should befall her friends too, she wants her pets to be protected.

“They just become a part of your family. It’s hard to imagine them not having a good standard of care if you’re not around to do that,” she said. “People like my husband and I, we probably care for our pets – not better – but differently.”•

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  • ok but consider the needs of humans too
    Hmm I love pets, I have my own, and they are cared for lovingly. However this makes me uneasy: property set up for property's benefit; wow. How far we have come from the days when the Founding fathers like jefferson debated abolishing rights of inheritance altogether.

    Maybe people should benefit from property? What happens if you have needy natural heirs and the deceased is a dastardly kind who leaves his millions to a poodle? Sign me up for that one!
  • Great story!
    I agree and love Ms. Scott's rational and commentary on pet trusts. She is right, what will happen to our pets if we pass and then our friends who are to care for them, pass? Always best to prepare for the unknown, she definitely has her clients interests in mind. I never even considered the possibility that my trustee could/would replace my cats in order to reap funds! It's sad we have to prepare for this, but it's so true that we must! Great article, thank you!

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