2006 Winter, 18. PET TRUSTS The Uniform Trust Code Gives Enforceability a New Bite.

AuthorBar Journal Author - Susan Abert

New Hampshire Bar Journal

2006.

2006 Winter, 18.

PET TRUSTS The Uniform Trust Code Gives Enforceability a New Bite

New Hampshire Bar Journal Volume 46, No. 4, Pg. 18Winter 2006PET TRUSTS The Uniform Trust Code Gives Enforceability a New BiteBar Journal Author - Susan AbertOur clients care deeply about their pets. In some cases, clients may have a special affection for their animals meeting (or even exceeding) their affection for their children. Many pet owners also want to make sure that their pets will be cared for in the event that the owners should die or become incapacitated. For example, pet owners may want to put provisions in their General Durable Powers of Attorney permitting their attorney-in-fact to make expenditures for the care of their pets.

Obviously, as animals are considered "property" in and of themselves, they cannot hold title to property in their own right and cannot inherit directly from a decedent. Therefore, there are two options for a client who wishes to leave property for the benefit of a pet animal: (1) the client can provide, through a will or trust, for the animal and an amount intended to be spent on its care to be given to a specific intended caregiver; or (2) the client can establish a trust for the lifetime benefit of the animal as a beneficiary. This article will discuss the latter option, also known as a "pet trust."

Oddly enough, until recently, New Hampshire's trust and estate statutes have not expressly provided for the ability to establish a trust for the well being of a pet after its owner's demise. With the new "pet trust" provision of New Hampshire's Uniform Trust Code ("UTC"), however, we have specific, informative guidance on how to establish a trust for the benefit of a client's pets that will be upheld by the New Hampshire Probate Court.

To be sure, attorneys may not be getting many inquiries from clients for such measures because our clients likely are not aware of the planning possibilities inherent in pet trusts. Therefore, when first meeting with an estate planning client, it's a good idea to ask whether the client has any special desire to provide for the care of his or her pets after the client's death. An attorney's intake form or estate planning questionnaire can easily be revised to inquire as to the clients' plans or concerns regarding their pets, which will encourage discussion of these issues with the attorney.

This article will discuss the development of the law in the area of trusts for pets, the new statutory provision permitting enforceable pet trusts in New Hampshire, the tax consequences of pet trusts, and finally, a number of practical considerations for attorneys drafting pet trusts.

I. Pet Trusts: A Brief Historical Background

Prior to the enactment of the UTC in New Hampshire, there existed virtually no state-specific guidance in this area, there being no statutes and no reported cases involving pet trusts in New Hampshire. It is unknown, if a pet trust had been challenged in New Hampshire, how the state's Supreme Court would have ruled.

In other jurisdictions without pet trust statutes, pet trusts were sometimes permitted to be established as "honorary trusts," which, although technically unenforceable, could be voluntarily carried out by the trustee. This position was derived from the concept of "purpose trusts" set forth in the Restatement (Second) of Trusts, which stated:

Where the owner of property transfers it in trust for a specific non-charitable purpose, and there is no definite or definitely ascertainable beneficiary designated, no enforceable trust is created; but the transferee has power to apply the property to the designated purpose unless such application is authorized or directed to be made at a time beyond the period of the rule against perpetuities, or the purpose is capricious.(fn2)

Thus under the Restatement view, "purpose trusts" were really more like voluntary arrangements than trusts. Drafters of pet trusts in "honorary trust" jurisdictions had to be mindful of the fact that such arrangements were unenforceable, because an animal lacked standing as a beneficiary to enforce the trust.(fn3) Moreover, drafters also had to be mindful of the potential for violation of the rule against perpetuities.(fn4)

The rule against perpetuities was sometimes circumvented by means of judicial interpretation of the trust. For example, in a 1950 Ohio case, a decedent's will left $1,000 in trust for the benefit of the decedent's dog Trixie. The court held that the trust was unenforceable, but that the trustee could carry out the terms of the trust voluntarily. As to the rule against perpetuities, the court held that as a practical matter, given the amount of money transferred to the trust and the directed expenditure (75 cents per day), the trust would last no more than four years and two months. Therefore the trust was upheld by the court as an honorary trust, as it would terminate well within the maximum 21-year period set by the rule against perpetuities.(fn5) Yet another court permitted a pet trust as an honorary trust, but limited the duration of the trust to 21 years.(fn6)

Yet the most risk-averse way of avoiding the rule against perpetuities problem was simply not to link the trust's duration to the life of an animal. A common technique was to grant a person living as of the date of the creation of the trust a vested remainder interest in the trust. Alternatively, the trust would be set up to terminate as of a date certain, within the 21-year limit. Obviously, the latter approach might not work with respect to a particularly long-lived breed of animal.

Regardless, the lack of enforceability of the trust, in jurisdictions permitting honorary trusts, meant that settlors hoping to establish such trusts had to accept a certain level of uncertainty.

The Uniform Probate Code (hereinafter referred to as the "UPC"), which was not adopted in New Hampshire, contains a provision permitting the establishment of pet trusts. This UPC provision, first proposed in 1990 and amended in 1993, represents the first broad-based statutory attempt at making pet trusts valid and enforceable.

Under the1993 UPC,

[A] trust for the care of a designated domestic or pet animal is valid. The trust terminates when no living animal is covered by the trust. A governing instrument must be liberally construed to bring the transfer within this subsection, to presume against the merely precatory or honorary nature of the disposition, and to carry out the general intent of the transferor.(fn7)

The UPC further clarifies that an individual can be designated or appointed for the purposes of enforcing "the intended use of the principal or income" of a trust.(fn8) However, except as ordered by the court or as required by the trust itself, no filing, report, registration, periodic accounting, or the like is required of the trustee(fn.)(fn9) Nonetheless, this is one of the earliest instances of a statute providing for the enforceability of a trust for the benefit of an animal.

II. Pet Trusts under the UTC

New Hampshire's Uniform Trust Code expressly permits the creation of pet trusts, setting forth:

(a) A trust may be created to provide for the care of an animal alive during the settlor's lifetime. The trust terminates upon the death of an animal or, if the trust was created to provide for the care of more than one animal alive during the settlor's lifetime, upon the death of the last surviving animal.

(b) A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person...

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