Estate Planning

You've owned your horse, Midnight Star, for two years. One day you come across a newspaper column. It describes a tragic automobile accident in which several people died. You suddenly realize that if something like that happened to you, you would want someone to take care of your horse. You talk to a friend who agrees to take care of Midnight Star for as long as the horse lives. You agree to set aside enough money in your will to cover the reasonable and necessary expenses for upkeep of the horse. You write a will, placing the horse and $70,000 in trust, naming your friend as trustee, to care for your horse until it dies.

Unfortunately, you die before your horse does. It will take some time for your will to be probated. Meanwhile, Midnight Star needs food, water, and a clean stall. What happens to your horse in the time between your death and probate of your will? When your will actually goes through the probate process, will your wishes regarding care of your horse be enforceable? Will they be honored by the probate court? Maybe. Maybe not.

Problems with plans to care for a horse or other pet frequently come to light only after the owner's death, when it might be too late to correct them. With careful planning and sound legal advice, however, you can prevent most of these problems. The suggestions in this article relate primarily to horses owned for pleasure. Some of these ideas also can apply to horses owned for business, but in that situation, there are estate planning and tax considerations that are beyond the scope of this article.


Prepare a Letter of Last Instructions

When you die, someone must have permission to take care of your horse from the date of your death until the will is probated. This might involve giving someone permission to enter your land for this purpose. You would probably, although not necessarily, want the person who will eventually receive the horse as the interim caretaker. You can tell your loved ones what to do in a document frequently called a "letter of last instructions." This letter can specify various things of immediate concern to those trying to settle your estate. It might include, for example, a description of arrangements you have made for your own burial, the location of your will, and other important papers and records. This document can also state your wishes for short-term care of your horse. It does not legally bind the recipient of the letter, but it will provide direction and guidance.

If you write a letter of last instructions, make sure you put it in a fireproof, waterproof place. Also make sure to keep it where those who need it quickly will easily find it. Do not leave the letter with your attorney or place it in a safe deposit box at a financial institution. Safe deposit boxes typically remain locked until a property valuation administrator or similar person can attend the initial post-death opening of the box. If you have no other safe place, use your freezer for this letter. It will withstand a considerable amount of heat and would suffer minimal water damage in the event of fire. Double wrap the letter of last instructions in sealable freezer bags. Then make sure someone knows where the letter is!


Consider Putting the Horse and Funds in a Revocable Trust Now

You must also make funds available to provide for your horse prior to the time your will is probated. One possible solution to this problem is to place the horse and a sum of money to support it in a revocable trust now, naming the person who will care for your horse after you die as beneficiary. This type of trust is frequently referred to as a living trust because it takes effect during your life. You can name yourself as trustee and retain the right during your lifetime to sell the horse or make other decisions regarding it. You can change your mind and revoke the trust at any time. If the trust still exists at your death, the horse will belong outright to the person you named as beneficiary. You might still need the letter of last instructions to specify when and how the beneficiary can take physical possession of the horse.

This living trust will avoid probate and provide some continuity after your death. Revocable trusts are frequently used, for example, as a way to continue operation of a family farm or business, without the delay of the probate process. It is legally enforceable. This option might help provide immediate care for your horse, but will not necessarily decrease the size of your estate. If you have a very valuable horse and wish to reduce the size of your estate, you might want to consider placing the horse and money in an irrevocable trust. Before taking either option, talk to your attorney and accountant about the advantages and disadvantages of each.


Consider a Trust in Your Will

You can also establish a trust in your will. This type of trust goes through the probate process and can take a considerable amount of time. Sometimes a probate court simply cannot allow a trust provision in a will to take effect. When this happens, someone has violated a law or public policy. A common source of difficulty relates to the fact that a trust established for the care of your horse has no human beneficiary who can force the trustee to do his or her job. In legal terms, if you have no human beneficiary, you have no trust at all. Even so, many courts will declare that an honorary trust exists. When a court says there is an honorary trust, it is really saying, "No trust exists and the court cannot enforce the will provision. If, however, the named trustee will agree to care for your horse in the way you requested, the court will allow it." For that to happen, the part of your will providing for care of your horse must survive several legal hurdles.

No trust, including an honorary (unenforceable) trust, can violate a little-known, and even less well-understood, rule of law called the Rule Against Perpetuities ("RAP"). This rule prevents people from tying up their assets indefinitely. Simply stated, the rule makes a gift invalid if someone creates an honorary trust that allows the trustee to use the property for trust purposes for more than 21 years after death of a "life in being." If, for example, you place $70,000 in trust for the care of your horse for 25 years, in case Midnight Star lives that long, you will break the rule. You have given the trustee power to use the money to care for the horse for longer than 21 years. Because Midnight Star is not human, he doesn't count as a life in being. The only life in being that the court will consider for purposes of this rule is yours. Your trust specifies too long a period unless you live in a state that has a statute allowing a longer time or one that has adopted a "wait and see" approach. Although you have only an honorary trust, the court might have honored your wishes anyway if you hadn't violated the 21 year rule.


A court will generally do whatever it can to carry out your intentions. One notable example of this was a case where a man left $1,000 in trust to care for his dog. The dog's caregiver was to receive 75 cents per day to care for the dog. In considering whether the trust violated RAP, the court decided that it didn't matter because the money would all be gone within a few years.


Check with your attorney to determine if your state's law allows a court to wait and see what happens. If you happen to live in one of the "wait and see" states, the court will wait and see if your horse has died within 21 years. If it has, the trust will probably be declared valid. If not, the court will usually declare the trust valid for 21 years. After that, any assets remaining must be returned to your estate and distributed.


Make the Amount of Your Bequest Reasonable

Even if your honorary trust doesn't violate any law, a court still might not honor your wishes. Our legal system is largely a series of balances and counter balances. A probate court will give heavy weight to the intentions expressed in your will. But if an honorary trust would violate public policy, the court will reject it.

It is against public policy, for example, to place $70,000 in an honorary trust to care for Midnight Star while leaving your family destitute. If a court allowed the trustee to use all the money to care for the horse, society would have to pay to care for your family. It would have to reject such a trust as against public policy. In any situation where a court has discretion to make decisions about the validity of a will or provision of a will, human needs weigh more heavily than those of animals.


As you plan what amount should be set aside for the care of your horse, be realistic about what it will actually cost to care for it. In one Pennsylvania case, a woman established a trust through her will to care for her three cats until they died. She placed $76,000 in trust for that purpose. After the cats died, the remainder was to go to Wellesley College. The court considered $76,000 excessive for the care of three cats. It allowed the executor to set aside $5,000 in a savings account for the care of the cats. The other $71,000 went directly to the college.


If you make an unreasonable bequest to care for your horse, the court could set aside a smaller sum. But the court might decide to set aside nothing. Maintain some control by setting aside an amount of money that realistically takes into account both human and animal needs.


Give the Horse to Your Friend in Your Will

A court can permit a trust you establish to care for your own horse to take effect, but it cannot enforce it. Suppose that, after you die, the friend you name as trustee for Midnight Star does not want to care for the horse. The court cannot force your friend to care for the horse simply because you have attempted to establish a trust. Furthermore, the court might not want to appoint a substitute trustee for an unenforceable trust. Usually, the court will instruct the executor to distribute the money and the horse along with the rest of your estate.

If you trust your friend enough to name him or her as trustee, you might wish to consider making an outright gift of the horse and money. You can simply give the horse and money to your friend in your will. For example, a woman from New York left her two mares and $14,000 to someone she named in her will. She expressed the wish that the named person should spend the money to care for the horses. She also specifically stated that the recipient of the gift should have complete, unrestricted power to decide how to spend the money. The court interpreted this as an outright gift, rather than as an attempt at establishing a trust. The instructions for care of the horses imposed a moral, but not a legal, obligation on the recipient. The named beneficiary received the horses to care for, along with the money set aside for their care.


In leaving the horses and money as a simple gift through her will, the woman avoided the potential complications of an honorary trust. She told the court, her family, and the recipient of the gift how she would like the money used. Because neither the court nor her family could force the recipient to spend the money to care for the horses, this woman took a chance that her horses would not receive the proper care. But the chance she took is not much greater than the chance she would have taken with an honorary trust. And it was much simpler.


Income Taxes and Final Words

Your friend has agreed to take care of Midnight Star after you die. If you set up your trust so that he or she will receive money in more than three payments, the IRS will consider this as personal income to your friend. Your friend will owe income tax on this money. Be kind. Give him or her immediate access to the money. You've already trusted this person with your horse! Surely you can trust him or her with the money.

As you've just learned, providing for your pleasure horse after you die can involve numerous complications. Consult an attorney in your state who specializes in estate planning. With proper planning and sound legal advice, you can dramatically increase your odds of achieving the result you really want.

About the Author

Karen L. Perch, PhD, JD

Karen L. Perch, PhD, JD, is a partner in the Lexington, Ky., law firm of Perch & Toby. She currently practices law in the area of estate planning administration and has written several publications related to personal finance.

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