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From
E.
Frederick Petersen III |
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The
Petersen Law Firm
One Corporate Center
10451 Mill Run Circle;
Suite 400
Owings Mills, MD 21117
(443) 392-2585
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I have over
20 years of experience helping my clients develop and
enhance their estate plans by incorporating up-to-date
wealth preservation techniques.
Contact me to learn how the New STANDALONE IRA TRUST can
benefit your clients! |
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Volume 2,
Issue 1 |
| Planning
for Pets |
For
many pet owners, pets are members of the family.
These individuals often say that if something
happens to them, they are more concerned with what
will happen to their pets than to their children or
spouse.
This issue of The Wealth Advisor examines the issues
surrounding caring for pets after the disability or
death of the pet's owner. Given the feelings of many
individuals towards their pets, and the costs of
care and longevity of some types of pets, planning
in this area can be of critical importance. This is
particularly true given our mobile society and that
the laws of a different county or state may impact
you and your pets or the pets of parents and other
loved ones.
What Will Happen to the Pets When the Owner
Becomes Disabled or Passes Away?
Most pet owners do not want their pets killed if
something should happen to them. However, without
proper planning, the death of the pet is almost
certain in some areas. For example, in some Nevada
counties, if the owner does not provide for a pet by
way of a trust, when the owner dies Animal Control
must take the pet to the local kill shelter if there
is not a family member present who is willing to
care for the pet. Some kill shelters euthanize
animals 72 hours after they arrive at the facility,
making it virtually impossible for anyone to adopt
the pet. Thus, it is critically important that pet
owners know how their state and county laws may
impact their pets.
Planning Tip: Pet owners should
discuss with their advisor team how state and
county laws affect pets after the owner dies or
cannot care for the pet.
Planning Tip: A good resource
for pet owners is Providing for Your Pet's
Future Without You by the Humane Society of the
United States (order a free kit by calling
202-452-1100
or e-mailing petsinwills@hsus.org). It includes
a door/window sign for emergency workers, an
emergency contacts sticker for inside of the
door, emergency pet care instruction forms for
neighbors/friends/family, wallet alert cards,
and a detailed instruction sheet for caregivers.
Providing for Pets Upon the Owner's Death
Outright Gifts
The law treats pets as property, and thus an
individual cannot leave money outright to a pet, as
property cannot own other property. An individual
may leave an outright gift of money to a caretaker
with the request that the caretaker care for the
individual's pet for the rest of the pet's life.
However, because the caretaker received the gift
outright, and not in trust, no one is responsible
for ascertaining whether the pet is receiving the
care requested by the pet owner.
Once the caretaker receives the gift and the pet's
owner is gone or incompetent, there is nothing to
stop the caretaker from having the pet euthanized,
throwing it out on the street, taking it to a local
kill shelter, or using the assets in ways unrelated
to the care of the pet. In addition, once in the
caregiver's hands, the assets are exposed to the
caregiver's creditors and they may be transferred to
a former spouse on the caregiver's divorce.
Statutory Pet Trusts As of
late 2007, thirty-eight states and the District of
Columbia have enacted statutes pertaining to pet
trusts, and others have legislation pending. These
statutes allow virtually any third party designated
by the terms of the trust to use the trust funds for
the benefit of pets.
Some state statutes specifically limit the terms of
a pet trust. For example, some states limit the
amount of money an individual can leave in trust for
his or her pet to the amount required to care for
the animal over the term of the trust. The trust
must distribute any excess funds to the
beneficiary(ies) who would have taken them had the
pet trust terminated.
The pet's current standard of care determines the
endowment amount required to provide care for the
pet. Factors include: the cost of daily care (food,
treats, and daycare), veterinary care (yearly teeth
cleaning, shots, nail trimming, and emergency care),
grooming, boarding, travel expenses, and pet
insurance. Additional factors may apply in
particular cases. For example, horses are expensive
to maintain and require exercise, training, and a
large tract of land; some birds and reptiles have
very long life expectancies; and care of some pets
will require construction of a special habitat on
the caregiver's property.
Traditional Trusts Even if
your state does not have a specific pet trust
statute, a pet owner can name a human caregiver as
the beneficiary of a trust, require that the
distributions to the beneficiary are dependent on
the beneficiary caring appropriately for the pet,
and require the trustee to ensure that the
beneficiary is properly caring for the pet using
trust assets. This type of trust may be used without
regard to whether the state has a specific pet trust
statute.
Planning Tip: Both statutory
pet trusts and traditional trusts allow the pet
owner to provide detailed requirements as to how
the caregiver must care for the pets upon the
pet owner's disability or death.
Planning Tip: Will planning is
inadequate for pets because Wills do not address
disability and because of the time lapse between
the pet owner's death and the Will being
admitted to probate.
Funding Pet Care
Many pet owners do not have sufficient funds to
properly care for their pets after their disability
or death. Life insurance is one way to increase
funds available to care for pets after the pet
owner's death.
Planning Tip: Pet owners should
consider life insurance that names a pet trust
or traditional trust as beneficiary to fund a
pet's care. If the pet owner is concerned that
funding of a pet or traditional trust will
reduce the inheritance of children or other
beneficiaries, he or she should consider life
insurance that names both (1) the pet or
traditional trust and (2) other beneficiaries
(or a trust for their benefit). These assets can
be invested like any other assets during the
owner's lifetime, and those who currently manage
the assets can continue to do so for the pet's
lifetime.
Trust Terms
Here are several issues for pet owners'
consideration:
- Creating a pet panel to offer guidance to
the trustee and caregiver/beneficiary, and to
remove and replace the trustee and
caregiver/beneficiary if necessary. Consider
including a veterinarian to make the final
decision regarding euthanization for medical
reasons, to ensure that the pet is not
euthanized prematurely by the
caregiver/beneficiary.
- Paying the caregiver/beneficiary a monthly
fee for caring for the pet or allowing the
caregiver/beneficiary to live in the pet owner's
home, rent free.
- Awarding a bonus to the
caregiver/beneficiary at the end of the pet's
life as a "thank you" for taking care of the
pet.
- Determining how the trustee is to distribute
the remaining trust funds after the last pet
dies.
If the pet
owner decides against creation of a pet panel to
determine who will be a successor
caregiver/beneficiary, the trust should name
multiple successor caregivers/beneficiaries (three
or more) in case a caregiver/beneficiary is
unwilling or unable to serve. As a final back-up,
the pet owner should consider requiring the trustee
to give the pet to a no-kill animal sanctuary if
there are no caregivers/beneficiaries available.
An alternative to naming individual caregivers is
for the pet owner to name a local charitable
organization that will ensure care in exchange for a
contribution upon the owner's disability or death. A
listing of such organizations nationally is
available online at
www.professorbeyer.com/Articles/Animals_More_Information.htm.
Pet Identification
To prevent the caregiver/beneficiary from replacing
a pet that dies in order to continue receiving trust
benefits, the pet owner should specify how the
trustee can identify the pet. Micro-chipping the pet
or having DNA samples preserved are two methods
commonly used for verification.
Other
Some pet owners want their healthy pets euthanized
when they pass away because "no one can care for my
pets as well as I do." However, many courts have
invalidated euthanasia provisions on the basis that
destruction of estate property is against public
policy. Instead, pet owners should consider no-kill
organizations that have the pet's best interest in
mind and will find the next best home for the pets.
Conclusion Many individuals are
unaware of the issues surrounding the care of their
pets after their disability or death. By discussing
these issues with their advisor team, pet owners can
ensure that all of their
loved ones are cared for, even when the owner is
unable to care for them directly.
To comply with the U.S. Treasury regulations, we
must inform you that (i) any U.S. federal tax advice
contained in this newsletter was not intended or
written to be used, and cannot be used, by any
person for the purpose of avoiding U.S. federal tax
penalties that may be imposed on such person and
(ii) each taxpayer should seek advice from their tax
advisor based on the taxpayer's particular
circumstances. |
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