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Massachusetts Pet Trust Law Can Now Be Found at M.G.L., Chapter 203E, Section 408

When the Uniform Trust Code was adopted in Massachusetts in 2012, the 2011 pet trust law was repealed. The new pet trust law can be found at Massachusetts General Laws, Chapter 203E, Section 408, and is pasted below.

Section 408. Trust for care of an animal

(a) A trust for the care of animals alive during the settlor’s lifetime shall be valid. Unless the trust instrument provides for an earlier termination, the trust shall terminate upon the death of the animal or, if the trust was created to provide for the care of more than 1 animal alive during the settlor’s lifetime, upon the death of last surviving animal.

(b) Except as otherwise expressly provided in the trust instrument, no portion of the principal or income shall be converted to the use of the trustee, other than reasonable trustee fees and expenses of administration, or to any use other than for the benefit of covered animals.

(c) A court may reduce the amount of property held by the trust if it determines that the amount substantially exceeds the amount required for the intended use and the court finds that there will be no substantial adverse impact in the care, maintenance, health or appearance of the covered animal. The amount of the reduction shall pass as unexpended trust property in accordance with subsection (d).

(d) Upon reduction or termination, the trustee shall transfer the unexpended trust property in the following order:

(1) as directed in the trust instrument;
(2) to the settlor, if living;
(3) if the trust was created in a nonresiduary clause in the transferor’s will or in a codicil to the transferor’s will, under the residuary clause in the transferor’s will or codicil; or
(4) to the settlor’s heirs in accordance with chapter 190B.

(e) If a trustee is not designated by the trust instrument or no designated trustee is willing or able to serve, the court shall name a trustee. The court may order the transfer of the property to another trustee if the transfer is necessary to ensure that the intended use is carried out. The court may also make other orders and determinations as the court deems advisable to carry out the intent of the settlor and the intended use of the trust.

(f) The intended use of the principal or income may be enforced by an individual designated for that purpose in the trust instrument, by the person having custody of an animal for which care is provided by the trust instrument, by a remainder beneficiary or by an individual appointed by the court upon application of an individual or charitable organization.

(g) The settlor or other custodian of an animal for whose benefit a trust was created may transfer custody of the animal to the trustee at or subsequent to the creation of the trust.

(h) Any trust created under this section shall be subject to sections 2-901 to 2-906, inclusive, of chapter 190B, and the common law rule against perpetuities; provided, however, that the life or lives in being shall be measured based on the animal or animals alive at the time of the settlor’s death or when the trust becomes irrevocable. The measuring lives shall be those of the beneficiary animals, not human lives.

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.

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

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.

What Are the Income Tax Issues for Massachusetts Pet Trusts?

A pet trust that has investments and earns any income has to file annual federal and state income tax returns.  Unless the pet trust provides for payments to a qualifying charity that is caring for your pet, the trust may owe income taxes on an annual basis.

The trust will be considered  a complex trust for federal and Massachusetts income tax purposes.  Trustee’s fees will serve as a deduction against the taxable income of the trust.

If any person or entity is paid by the trust for their services, the Trustee of the pet trust will be responsible for sending the appropriate tax forms to the service-provider.

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

What is Reasonable Compensation for the Trustee of a Massachusetts Pet Trust?

Under Massachusetts law, a Trustee is entitled to a fee that is “reasonable.”  Reasonable persons can have disagreements about what is a reasonable fee for services as a Trustee, so it is important to give guidance in the trust document.

The person establishing the trust can and should establish the method for compensating persons who serve in each key role, including Trustee.  If a bank will be serving as Trustee, the bank’s fee schedule will establish the fee, but if a person who doesn’t normally serve as Trustee will be serving, the method of determining compensation should be dealt with.

Should the Trustee’s fee be based on an hourly rate or a percentage of the total amount of assets in the trust?  There is no right answer.  Basing the fee purely on an hourly rate would result in scrutiny by the Monitor, and disagreements could be the result.  On the other hand, a percentage fee could result in the Trustee being overcompensated in some cases or undercompensated in others.  In many cases, a blended fee could make sense, such as a low percentage of the assets plus a low hourly rate.

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

Should the Trustee of Your Massachusetts Pet Trust Be Given a Limited Durable Power of Attorney?

Consider what happens if you become disabled at some point, and funds will be needed to care appropriately for your pet. If you have a funded stand-alone revocable trust, the Trustee could step right in and provide for your pet financially.

If you do not have a funded trust, perhaps the Trustee should be given a limited Durable Power of Attorney to allow some of your funds during your lifetime to be spent on the care of your pet.  By use of the Durable Power of Attorney, some of your funds could be moved into the Massachusetts Pet Trust upon your disability.

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