🐾 Guardianship Beyond the Grave: The Power of Pet Trusts in Your Estate Plan 🐾
At Thompson Legal, we recognize that your furry, feathery, or scaly companions are cherished members of your family. That's why the expert estate planning attorneys of Thompson Legal are excited to share the valuable insights into an often-overlooked estate planning tool—Pet Trusts. Michigan law considers pets to be personal property, and therefore they can not make their own decisions. Pet Trusts provide a legal arrangement wherein your companions are to receive continued care and support.
Note that this post is not exhaustive, and every situation is unique. It is always advisable to speak with an estate planning attorney before execution of any documents. Contact Thompson Legal to schedule a discovery call with an estate planning attorney today.
🐾 What is a Pet Trust?
A Pet Trust is a specialized form of trust designed to ensure the care and well-being of your beloved pets, even after you're no longer able to care for them. It provides a legal structure for appointing a caregiver, setting aside funds, and outlining specific instructions for your pet's care. Pet Trusts can be separate trust agreements, or can be testamentary trusts, created by a provision in your will or revocable living trust.
Michigan is at the forefront of recognizing and regulating Pet Trusts, and expressly provides for the allowance of Pet Trusts in MCL 700.2722.
🐾 Who Needs a Pet Trust?
Whether you're a devoted dog owner, a cat enthusiast, or someone with more exotic pets, a Pet Trust is a must for anyone concerned about the future well-being of their animal companions. However, a Pet Trust is especially recommended for those who (1) only one spouse primarily cares for, (2) expect an estate planning dispute, and (3) have specific pets.
🐾 Types of Pets Likely to Need a Pet Trust
Certain types of animal companions require higher levels of care, and therefore a Pet Trust should be considered. These special types of pets include:
Horses: Horses and livestock have long lifespans coupled with expensive care costs. A properly funded pet trust ensures pet receive proper long-term care.
Reptiles: Pets with longer lifespans, like parrots or turtles, can significantly benefit from the security and care provisions of a pet trust.
Exotic Pets: Exotic pets, especially those that require permits, are significantly less likely to be able to find suitable living and care accommodations after you are gone. For that reason,
Pets with Special Needs: Animal companions that have special needs or medical requirements may be especially hard to place and find qualified caretakers for.
🐾 Tax Implications of Pet Trusts
There are multiple tax considerations surrounding Pet Trusts, including trust income taxation and potential caregiver income taxation. A pet trust is not considered a charitable trust by the IRS, and therefore will pay income taxes. Estate and trust tax rates are on the high end, and parties should consider that expenses related to the care of the animal are disallowed by the IRS because the animal is not an income-producing asset. Adding another layer of complication, and distributions made to a caregiver directly to pay for pet food, care, etc. will be taxable income to the caregiver.
In order to lessen the tax burden incurred by your future Pet Trust, consider the following:
Make express efforts to reduce taxable income by directing trustees to invest trust corpus in tax exempt bonds,
Include provisions in your Pet Trust that a trustee is permitted to reimburse any caregiver for any personal income tax liability arising from their role,
Have the Pet Trust pay all possible pet expenses directly to reduce any income tax liability incurred by the caregiver, and
Direct that any distributions that are directly made to the caregiver for pet care need to be ‘grossed up’ to cover the hidden income tax liability arising from those trust distributions.
🐾 Funding Challenges
One of the most important decisions will involve identifying the anticipated future costs of your pets needs. You should consider how much money the caretaker will need to cover the pet expenses such as food, vet appointments, medications, flea, tick, and heartworm preventatives, toys, treats, and much more. Additional costs, like dog walkers, grooming, daycare, and boarding should also been considered when considering a funding amount. Other costs that should be taken into account include the cost of transporting the pet to the new caretaker, administrative expenses, and the cost of burial or cremation on the pet’s passing.
Once you’ve determined the funding amount, you can estimate your pets remaining life to identify how much you need to fund your Pet Trust with. Thompson Legal can help address potential issues related to the funding Pet Trusts, providing guidance on ensuring there are adequate resources to meet your pet's needs. Careful consideration should be had to avoid double funding or overfunding the Pet Trust, both of which could result in legal disputes.
🐾 Trust Director
Pursuant to MCL 700.7703a, a trust director can be designated to enforce the pet’s best interests in court. Specifically a Pet Trust director could be given the authority to check on the pet’s welfare, enforce the terms of the trust on the pet’s behalf, remove and appoint trustees and caretakers, change the frequency or amount of caretaker compensation, and make decisions regarding euthanasia in consultation with the pet’s veterinarian.
🐾 Conflicts of Interest
Every trust agreement has to name a beneficiary to receive the remaining trust proceeds upon dissolution. Given the companion is legally personal property, it might seem natural to want to name the pets caretaker as the remainder beneficiary of any proceeds of the Pet Trust. However, doing so creates a potential conflict of interest which could affect the long-term care of your companion. For that reason, it is recommended that all Pet Trusts appoint a charitable organization to receive any remaining proceeds of the Pet Trust.
Conclusion
Pet Trusts are not just for the rich and famous! Thompson Legal encourages all pet owners to consider the welfare of their furry companions in their estate plans. Pets are some of the most important pieces of our lives and are unable to advocate for themselves in your absence. Pet Trusts ensure that your animals continue to receive the love and care they deserve even when you're no longer there to provide it. Contact Thompson Legal to speak with an attorney about the specific needs of your pets and how they should be addressed in your customized estate plan.
This blog is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with an estate planning attorney about your case Contact Us at (734) 743-1646 to schedule a consultation.
