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How Would Tax and Medicaid Authorities Treat an Irrevocable Pet Trust?

A transfer of assets into an irrevocable Massachusetts pet trust should be treated as a taxable gift without the availability of an annual exclusion, since the pet is not a person and the trust is not a charity. Further, it seems likely that MassHealth would treat such a transfer as a disqualifying transfer, subject to the 5-year lookback period in current law.

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Should Your Massachusetts Pet Trust Contain a Trust Purpose?

While it is not legally necessary that a specific statement of purpose be included in a Massachusetts Pet Trust, it makes sense to include it.  You could state that the primary purpose of the Pet Trust  is to provide for the health, care and welfare of your pets, or you could go deeper into your wishes for your pets.  A trust purpose section can establish your overall wishes and give general or specific instructions to the Trustee, Caretaker and Monitor in case they later have a difference of opinion.

You may not want the Caretaker to be prevented from doing what the Caretaker thinks is appropriate, but that problem could occur if the Trustee is second-guessing the Caretaker and withholding funds.  For example, if any of your pets ever suffer from a medical or physical condition or illness and the Caretaker determines, based on the opinion of a Veterinarian who has examined the pet, that it would be more humane to euthanize the pet, then you may wish to authorize the Caretaker to do so at the expense of the Pet Trust.

The trust purpose section should also cover what happens both during your lifetime and after your death.  During any period of time that you are incapacitated, the Pet Trustee should be allowed to spend the principal and net income of your trust as is necessary for the care of your pets, and if it is not practical to keep your pets and animals at your home during that time, then the pets should be placed with the Caretaker.

Posted by: Brian E. Barreira, Esq. / 18 Samoset Street, Plymouth, MA 02360 / 508-747-8282

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Assigning Assets and Pets to a Revocable Living Trust During the Pet Owner’s LifetIme

There are very few people who want to leave everything in trust for their pets, and the Massachusetts pet trust law prohibits leaving an unreasonable amount to be held in trust for the benefit of pets.   The clients that I have dealt with recently who wanted to take advantage of their new opportunity to leave funds in trust for their pets have done a specific dollar amount or percentage of their revocable living trust.

To be able to have the pet taken care of both during the pet owner’s disability and after the pet owner’s death, the Trustee needs the authority to make expenditures for the benefit of the pet.  The pet can be assigned to the trust when the trust is established (or amended) or the person serving as agent or attorney-in-fact in the pet owner’s durable power of attorney can assign ownership of the pet and other assets to the trust.   Only then can the assets or income of the trust be utilized for the pet’s benefit.  To minimize the Trustee’s potential financial liability to anybody inheriting from the trust, it is also advisable for the trust to have an explicit provision authorizing payments to or for the benefit of the pet.

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Establishing a Life Care Plan for Your Pet

A well-drafted Massachusetts Pet Trust should include a Life Care Plan for the pet.  The Life Care Plan would explain the expected standard of living to be provided to the pet, including food, medication and grooming.  The Life Care Plan should also go into whether it is intended to provide for expensive medical treatment.  Doing so can minimize the chances of disputes among the Caretaker, Monitor and Trustee.

A well thought-out Life Care Plan should also consider that the Caretaker may at some point be temporarily unavailable to care for the pet, such as when on vacation, hospitalized, or away on business.   The Life Care Plan should explain whether the use of a pet sitter or professional boarding business would be acceptable during such temporary events.

Once a Life Care Plan has been established, it will be easier for your Veterinarian to help determine how much funding may be necessary for the Pet Trust.

Posted by: Brian E. Barreira, Esq. / 18 Samoset Street, Plymouth, MA 02360 / 508-747-8282

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Who Should Be the Monitor in Your Massachusetts Pet Trust?

The Monitor should monitor the care of your pet and the actions of the Trustee of a Massachusetts Pet Trust.  It may be difficult enough to choose the Caretaker and Trustee, but a third person or entity should be involved.  You need to consider that for one reason or another the Caretaker or Trustee may at some point not be performing their roles appropriately, or a dispute may arise between them.  The role of the Monitor in a Massachusetts Pet Trust would be to make sure both are acting appropriately at all times and to resolve occasional disagreements. 

The Trustee will be in charge of investing and spending the funds in the trust, and Massachusetts law requires that the Trustee disclose all financial transactions through an accounting.  The Monitor can be the person or entity with the responsibility for reviewing those accountings and either approving them or , if appropriate, objecting to them.

The Caretaker will be in charge of the daily care of your pet, and an occasional visit (perhaps sometimes unannounced) by the Monitor can ensure that the pet is being properly cared for.

The Monitor perhaps should be the pet’s Veterinarian, who would have a good idea of what proper care for the pet would be and how much that care should cost.

Posted by: Brian E. Barreira, Esq. / 18 Samoset Street, Plymouth, MA 02360 / 508-747-8282

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What are the Key Issues to Consider When Appointing the Trustee of a Massachusetts Pet Trust?

Generally, the Trustee of a Massachusetts Pet Trust has four major areas of responsibility.  The Trustee must:

  1. collect all of the assets that belong to the trust, including the pet, which is considered personal property under Massachusetts law;
  2. manage and invest the trust assets;
  3. pay taxes as required in the trust document or required by federal and Massachusetts tax laws, and pay expenses, including fees for the Trustee, Caretaker and Monitor;
  4. when the time comes for the trust to terminate, which is usually when the pet dies, the Trustee must distribute the remaining trust assets to the beneficiaries named in the Trust.

The collection of the assets should be a fairly simple task in that the trust should have specific source of funds to be placed into the Trust.   Prudent investments must be made, and maintained in a separate account that is not commingled with the Trustee’s own assets.  Accurate records of all income and expense of the trust funds must be kept by the Trustee, and an accounting must be prepared on an annual basis and shown to the appropriate persons, as defined by the trust.

The Trustee should be empowered to hire legal counsel or accounting help to assist in the legal or financial affairs of the Trust, to be sure that the Trustee is in full compliance with Massachusetts and federal laws and regulations.  In my opinion, the Trustee’s ability to use the trust’s funds to hire lawyers to defend the Trustee’s own fees, however, should be limited.

It has been my experience in similar situations that it seems far too easy for people who are in charge of a trust to overcharge for their services, then get away with it by threatening to damage the trust even more by hiring lawyers to defend their actions.

I would not leave it up to the Trustee to decide how much the services of the Trustee, Caretaker and Monitor are worth.  Simple disputes about the value of services can become costly when legal action is initiated, and those disputes be exploited by some lawyers who are looking to feather their own nests.

Posted by: Brian E. Barreira, Esq. / 18 Samoset Street, Plymouth, MA 02360 / 508-747-8282

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Choosing a Caretaker for Your Pet in Your Massachusetts Pet Trust

The choice of a Caretaker for your pet is always a tough decision in the estate planning process.  The Caretaker is the person that will be in charge of your pet when, due to your death or disability, you cannot be responsible for the daily care of your pet.  The Caretaker will be in charge of your pet’s Life Care Plan, including its diet, exercise, medical treatment and eventual death.

The Caretaker should be expected to follow your wishes for the care of your pet.  In most cases, another member of your family or a friend will be appointed as the Caretaker, but you need to discuss the situation completely with the family member or friend in advance to ensure that this person is able and willing to accept this responsibility.  In case that person cannot continue to serve in the role, a successor Caretaker should also be appointed in the trust, or there should at least be a method for appointing a successor.  If you do not have a clear choice for the role of Caretaker or successor Caretaker, perhaps the pet’s Veterinarian may have some suggestions, such as a local Humane Society.

Under the system of checks and balances in the trust, the person who is appointed Monitor should have the ability to check on the pet at any reasonable time.  The Caretaker should be someone who will not be resentful of this scrutiny.

If it is your intention that the Caretaker be compensated for taking care of your pet, the method of compensation should be clearly outlined in the trust.

Posted by: Brian E. Barreira, Esq. / 18 Samoset Street, Plymouth, MA 02360 / 508-747-8282