United States: Trusts For Pets - Fido´s Fiduciary?

Article by John Brooks, Maureen McGinnity, Greg Monday and Michael Taylor

Summary

This article discusses the changing legal status of our pets as evidenced by various statutory enactments around the country. These new laws are sure to create not only new planning opportunities for our clients, but controversies as well.

As usual, the round-up of cases from around the country covers a broad range of issues. From Illinois, yet another case on the inheritance rights of adopted individuals, the interpretation of a one-line will and an interesting application of the Principal and Income Act. From Minnesota, a noteworthy case holding that other related documents executed contemporaneously with a will may not be considered extrinsic evidence and may be considered when construing the will. From New York, cases touching on issues related to a bigamous marriage, assignment of rights to an inheritance and the implied revocation of advance health care directives. Finally, from North Dakota, a case that exposes a drafting trap for the unwary related to testamentary powers of appointment.

Most pet owners view their animal companions as members of the family, and now, in a growing number of states, pet owners can establish trusts for their pets, just as they can for their human family members. Although pet owners have long attempted to leave money to their pets when they die, these attempts have often failed because, under the law, pets are considered property. However, as the legal status of pets advances, an increasing number of states are enacting "pet trust" statutes, which allow pet owners to create legally enforceable trusts naming their pets as beneficiaries. The statutes generally provide for enforcement of the trusts by an individual designated by the owner in the trust document (or, if none, by a person designated by the court). Pet trust statutes have been enacted in fifteen states, including: Alaska, Arizona, Colorado, Florida, Iowa, Michigan, Montana, Nevada, New Mexico, New Jersey, New York, North Carolina, Oregon, Utah, and Washington. Three states, California, Missouri, and Tennessee, recognize pet trusts as valid but do not provide for their enforcement in court.

Although most pet trust statutes are modeled after Uniform Probate Code § 2-907 (as amended in 1993) which validates pet trusts, there are variations in the states’ statutes. One such variation relates to the permitted duration of the trusts. Some states limit the duration of the trusts to twenty-one years (New Jersey, New York), while other states limit them to the life of the animal (Alaska, Arizona, Florida, Iowa, Michigan, Montana, Nevada, New Mexico, North Carolina, Oregon, Utah, Washington). Colorado’s pet trust statute is unique in that it validates pet trusts for the life of the animal and the animal’s "offspring in gestation" at the time of the owner’s death. Another variation relates to the court’s power to reduce the amount of property in the trust if it considers the amount to be unreasonably large. Some pet trust statutes give the court this power (Alaska, Arizona, Florida, Michigan, Montana, Nevada, New Jersey, New Mexico, New York, North Carolina, Utah), while others do not.

Pet owners should consider several important issues when setting up pet trusts. They must carefully select the trustees and pet caretakers to ensure that their pets are cared for in a manner acceptable to them. Owners should consult with the individuals to be named before making a formal designation. Pet owners also must carefully compute the amount of money used to fund the trust. If too much money is left for the pet, it may create an impression of lack of capacity, and the gift may fail. Furthermore, leaving too much to a pet may increase the likelihood of litigation by human family members.

In states that have not adopted a pet trust statute, such as Illinois, pet owners must use an alternative method for caring for their pets after death, including making a conditional gift in trust to a caretaker for the pet or arranging for the care of the pet with an animal shelter, pet retirement home, or sanctuary. Moreover, in states which have not enacted a pet trust statute but which have a statute authorizing honorary trusts, pet owners may establish an honorary trust for the care of their pets, although such trusts are not enforceable in court.

Finally, another example of the changes in the legal status of pets is legislation recently introduced in Colorado which would raise the status of cats and dogs from "property" to "companions", allowing pet owners to sue veterinarians and animal abusers for up to $100,000 for loss of companionship and emotional suffering if their pets are injured or killed (HB 03- 1260). Currently, because pets are considered property, owners can only recover fair market value. This measure would be the first of its kind in the United States. As one might imagine, this bill is supported by the Plaintiffs’ bar and vigorously opposed by veterinary associations.

In Estate of Louise Green, 2003 D.C. App. Lexis 20, the D.C. Court of Appeals ruled that the statute of limitations starts to run against a surety who has provided a bond for a personal representative only after the final account of the estate has been filed and approved by the probate court. The surety argued that the statute of limitations should have started to run when the executor was removed from his position, but the court held that because a special master had been appointed to investigate the executor’s actions, the statute of limitations would not begin to run until the "misdeeds" of the executor could be established, which was after the final account for the estate was filed.

In In re Estate of Snodgrass, 2003 Ill. App. LEXIS 175 (4th Dist. February 7, 2003), the petitioners’ mother never married their father, the decedent. Instead, the mother married another man who then adopted the petitioners. The petitioners, who were not named as beneficiaries in the decedent’s will, contested the will, and the executor argued that because the petitioners had been adopted by the mother’s husband, they were not the decedent’s children under section 2-4(d)(1) of the Probate Act, and they therefore lacked standing to contest the will. Section 2-4(d)(1) provides that if a child is adopted by a descendant or spouse of a descendant of a great-grandparent of the child, the child is a child of both natural parents and may inherit from both natural parents. Petitioners argued that under section 2-4(d)(1), they were decedent’s children because when their stepfather adopted them, he was the spouse of their natural mother, and their natural mother was a descendant of a great-grandparent of petitioners (her paternal and maternal grandparents were petitioners’ great-grandparents). The executor, on the other hand, interpreted the statute to mean that the adopted child remains a child of both natural parents only if the adopting parent is a descendant, or spouse of a descendant, of a grandparent of the parent who is no longer a legal parent. Rejecting the executor’s interpretation, the court notes that the executor’s interpretation has no basis under the plain and unambiguous language of the statute. The court also states that there is no "absurdity" in an adopted child inheriting from both of his biological parents and that even if petitioners’ interpretation of the statute is inconsistent with sound public policy, as the executor asserted, the court would not interpret the statute as saying something other than what it plainly says. Thus, the court concludes that when the mother of an illegitimate child marries someone other than the father of the child and the mother’s husband then adopts the child, the child is still the child of his or her natural father for purposes of inheritance under section 2-4(d)(1).

Cain v. Finnie, 2003 Ill. App. LEXIS 248 (5th Dist. February 21, 2003), involves the interpretation of a simple, one-line will. The decedent’s husband predeceased her, and his will provided in its entirety that all of his property and holdings would pass to the decedent so long as she remained his widow. The decedent never remarried after the husband’s death. The plaintiffs, grandchildren of the husband from his first marriage, filed a complaint against the defendant, the daughter of the decedent and the husband, to quiet title to real property. The plaintiffs requested that the court declare that the husband’s will devised to the decedent only a life estate in the real property, while the defendant requested that the court declare that the will devised a determinable fee in the property to the decedent which turned into a fee simple at the time of the decedent’s death. The court first looked to the will’s language to determine the husband’s intent and stated that it appears that the husband devised to the decedent a life estate in the property on the condition that she never remarry. However, an ambiguity arises because there is no gift-over to others of the remainder interest at the decedent’s death. The court notes that some courts have concluded that when no gift-over provision exists, the devise creates a fee simple determinable, which is a fee simple estate that has a condition attached to it and that must be determined whenever the condition attached to it is at an end. In this case, the condition upon which the fee simple estate would terminate, the decedent remarrying, never occurred and can never occur because the decedent is deceased. Stating that the will’s language supports both interpretations, the court examines extrinsic evidence. The defendant presented no evidence to show the circumstances under which the will was made or the relationship of the family members, while the plaintiffs specifically alleged that in her will, the decedent acknowledged that she had only a life estate in the real property, with the remainder interest being left to all of the children equally, and that the defendant had recognized the plaintiffs as heirs of the husband with an interest in the property. Furthermore, the plaintiffs had received accountings for the rents and profits from the property, and they shared in the losses incurred from the property. The court thus affirms the grant of summary judgment in favor of the plaintiffs.

In Estate of Henry v. St. Peter’s Evangelical Church, 2002 Ill. App. LEXIS 1386 (3d Dist. February 26, 2003), the decedent devised the remainder interest in his farm to St. Peter’s Evangelical Church. After the decedent died, the administrator of his estate filed a petition to sell the Church’s remainder interest in the farm. The administrator claimed that the sale was necessary to pay administration expenses. The appellate court agreed. The Church also argued that even if the sale was proper, the trial court erred in using the valuation method in section 15(b) of the Principal and Income Act to value the remainder interest because that method is implicitly meant to apply only when the cost of improvements to land are apportioned between a legal tenant and a remainderman. Noting that the Church’s interpretation of the statute limits the legislative intent, the court determined that the statute indicates that the valuation method in section 15(b) is not meant to be applied only to the apportionment of improvement costs between legal tenants and remaindermen. Section 15(b) specifically states who should bear the cost of improvements and clearly applies to legal tenancies and remaindermen. Thus, the trial court properly applied the valuation method in section 15(b).

In Estate and Trust of Anderson, 654 N.W.2d 682 (Dec. 2002), the Minnesota Court of Appeals held that if a will is not ambiguous on its face, extrinsic evidence cannot be considered to clarify a testator’s intent. However, when the will is part of an integrated estate plan, the other documents can be introduced as evidence, and the will and related documents should be interpreted as a single estate plan. In Anderson, a beneficiary claimed that the personal representative breached his fiduciary duty by transferring stock to the trust before paying the estate taxes. The will provided that the residuary estate should pass to the estate "after the payment of all items required by law to be paid therefrom." However, the trust provided that the trustee should pay "all death taxes of any character." The court found that, when read together, it was clear that the decedent’s intent was that the personal representative would fund the trust, and the trustees would pay the estate taxes.

Estate of Dominguez, 2002 N.Y. Misc. LEXIS 1596 (November 18, 2002) involves the disqualification of the decedent’s surviving spouse as administrator of the decedent’s estate. The decedent’s daughter, petitioner, petitioned for the issuance of letters of administration to herself, and the decedent’s alleged spouse, respondent, cross-petitioned for the issuance of letters to himself. Petitioner argued that the respondent was disqualified as the surviving spouse on two separate grounds. First, because his alleged marriage to the decedent was a sham marriage, entered into to gain favorable immigration status for the respondent. Second, the alleged marriage was void as bigamous because the decedent was never validly divorced from her first husband and because the respondent was never validly divorced from his second wife. The court held that the first ground, that the alleged marriage was entered into solely for the purpose of assisting respondent in his immigration status, is not a ground for disqualification under the statute. However, the court found that respondent was disqualified as the decedent’s surviving spouse under the statute on the second ground: that the marriage was void as bigamous either because respondent was never validly divorced from his second wife or because the decedent was never validly divorced from her first husband. Thus, respondent was not entitled to letters of administration.

In re Estate of Betlem, 753 N.Y.S.2d 632 (2002) involves the assignment by the decedent’s son (petitioner) of 40% of his rights in the decedent’s estate to respondent, who rendered services for the decedent. The court concluded that the purported assignment was ineffective. Rejecting respondent’s argument that the court did not have jurisdiction because the forum selection clause in the parties’ agreement provided for exclusive jurisdiction in Florida, the court concluded that enforcement of the forum selection clause was barred by the statute, which was enacted to protect out-of-state beneficiaries of New York estates, such as petitioner, from those seeking an assignment of a portion of the inheritance of such beneficiaries in exchange for services that are often of little value. The court also found that the purported assignment was invalid because it did not comply with statutory requirements that every assignment of an interest in an estate that contains an express authorization to act thereunder be acknowledged or proved in the manner required for a conveyance of real property.

In the Matter of University Hospital of the State of New York Upstate Medical University, 2002 N.Y. Misc. Lexis 1701, Petitioner Hospital filed an order requesting a determination of the validity of a health care proxy and a living will of one of its patients. Respondents, the patient’s family, argued that the health care proxy and the living will were invalid and against the patient’s wishes. The court held that the Hospital did not meet its burden of proving by clear and convincing evidence that the patient authorized the discontinuation of life-sustaining treatment. Although there was no question that the patient had validly executed the health care proxy and living will authorizing discontinuation of life-sustaining treatment, the evidence on the record, including the respondents’ testimony that the patient confided that she did not understand the implications of the living will, proved that the patient had revoked the living will. The health care proxy was also revoked by implication by virtue of the fact that its terms were nearly identical to the living will which the patient had revoked.

In re Accounting of Robinson, 2003 N.Y. Misc. LEXIS 84 (February 5, 2003), involves a claim by a department of social services against a decedent’s estate for the amount of care provided to the decedent. To become eligible for Medicaid, the decedent, who resided in a nursing home, transferred a one-half interest in his house to the executrix, who was the decedent’s daughter. The executrix later entered into an agreement with the nursing home to pay the nursing home from the sale of the house for the decedent’s care during the period before Medicaid coverage. After the decedent’s death, the executrix sold the house and had one-half of the proceeds from the sale held in escrow. These funds were paid to the nursing home pursuant to the agreement between it and the executrix. The department of social services, which had provided assistance to the decedent, then filed a claim against the decedent’s estate. The executrix argued that there were no estate assets against which the department could file a claim because no money passed through the estate as the proceeds from the sale of the decedent’s one-half interest in the house were placed in escrow. Rejecting this argument, the court states that the decedent held one-half of the house as a tenant in common with the executrix and that when he died, his one-half interest passed to his estate, regardless of whether his interest was held in escrow or by the executrix herself. Because his interest in the house passed to his estate, it was subject to claims against the estate. The executrix also argued that the department could not assert a claim against the decedent’s estate because the decedent’s house was an exempt asset for purposes of Medicaid eligibility. The court rejected this argument as well, stating that if a home is part of decedent’s estate, the department has a right of recovery against the home. The court also rejected the executrix’s third argument: that her payment to the nursing home left no estate assets. The department was a preferred creditor under New York law as to its claim against the decedent’s estate, giving it priority over the nursing home’s claim. When considering claims by the nursing home and the department, the executrix could not give a preference to the home, in violation of New York law. Thus, because the executrix paid the nursing home’s claim, leaving the estate with insufficient assets to pay the department’s claim, the executrix was personally liable for the amount of the department’s claim.

In Duemeland v. Norback, 655 N.W.2d 76 (N.D. 2003), the settlor established an irrevocable inter vivos trust and named it as the beneficiary of an insurance policy on the settlor’s life. The trust gave the settlor’s husband a testamentary power of appointment over a trust described by the trust agreement as the Family Trust. If the husband did not exercise his power of appointment, the trust property was to pass at his death in equal shares to the settlor’s son and daughter. After a family dispute, the settlor’s husband exercised his testamentary power over the Family Trust in favor of the son. However, the husband predeceased the settlor. At the settlor’s death, the son claimed the trust assets as the appointee of the husband’s power of appointment. The daughter argued that the settlor intended the husband to have a power of appointment only if he survived the settlor. The trust provided that at the death of the settlor’s husband (or at the death of the settlor if her husband did not survive her), the trustees were to distribute the Family Trust assets to the son and daughter equally unless the husband executed his power to the contrary. The daughter also asserted that the term "Family Trust" was not referred to in the trust agreement until after language mentioning the husband’s death, so that the Family Trust was not created until after the husband’s death. Therefore, even if the settlor intended for her husband to have the power of appointment if he predeceased her, the husband could appoint only that property in existence at his death, and the Family Trust was not in existence at his death. The son argued that the settlor intended the husband to have the power of appointment regardless of whether or not he predeceased the settlor and that she meant the term Family Trust to include all assets in the irrevocable inter vivos trust at the time of her death. The court finds that the settlor’s will and trust were ambiguous on these issues and that there was not enough evidence of the assets constituting the trust at the husband’s death and at the settlor’s death, which were presumably different because of the life insurance proceeds. Thus, the court reversed the summary judgment for the son and remanded the case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.