Take Two Tuesday
Estate Planning for Your Horses
Special Purpose Trusts Can Secure Their
Future When You’re Gone
By Scott Martin
Editor of The Trust Advisor
When asked how many children they have, many horse people have to resist the urge to count up stalls as well as bedrooms, but the bittersweet truth is that the human kids get all the legal advantages when we die, while the horses can be left at the mercy of family, executors or even the state.
My own mother-in-law would probably have preferred to give her beloved girlhood horse better treatment in her estate plan than her (human) daughter, perhaps giving Skipper the Rhode Island house and enough cash to live comfortably in retirement. Our two-legged kids can look out for themselves when we’re gone. Skipper would have had a much harder time paying the bills and keeping tabs on the bank accounts.
The good news is that it’s possible to prevent the side of the family that lives in the stable from being left out in the cold when we die. We just have to plan ahead.
Start With the Trust
Equine trusts are actually one of the oldest forms of estate planning instruments designed to protect the interest of animals, dating back to British law in the 1840s when aristocrats took care to set money aside for favorite mares, hunting horses and even whole herds. Today, most U.S. states allow them under the overall “pet trust” umbrella.
Like other types of trust, these vehicles create a legal entity that can accept assets from you (the grantor) and then spend the money according to your instructions.
In early Victorian England, these instructions sometimes got specifi c and sentimental, with rules for the food the horses should eat, housing conditions and whether they could ever be made to work again. Nowadays it’s probably enough to name a person you trust (the caretaker) to do the best for the animal with the money you transfer into the trust.
You will also need to assign a person or company to serve as trustee and monitor the way the funds are used, invested and ultimately spent on your horses.
The caretaker is probably the easy part. You probably already know someone who could effectively serve as “guardian” to your four-legged kids.
The trustee administers the trust as a legal vehicle and monitors the standard of care your horses receive. Unless you know someone who has experience dealing with the paperwork, it may make sense to approach a corporate trustee to handle the job for a nominal annual fee – your estate planner or attorney should be able to recommend a few fi rms.
Once the people are in place, the only real questions are how much money to put into the trust and what happens to any assets left behind when your horse follows you into the hereafter.
Budget a number that covers the level of care you have in mind – good food, veterinary bills, other expenses – and multiply it by the number of years a typical horse might outlive you. Since this is your horse’s “retirement fund,” you don’t really want to guess too low and force your caretaker to make difficult choices if the money runs out. Any money left behind in the trust can be assigned to family members, charities or other entities legally allowed to own and inherit property. Horses can’t, which is why people set up special trusts for them in the fi rst place. It is crucial to specify in your will that the trust will also own the animals, which unsympathetic heirs could otherwise consider valuable property to be sold off at their whim.
The Living Horse Trust
One extremely attractive feature of the equine trust is that it can guarantee that your wishes are respected with regard to your animals, even if you are still alive but incapacitated in some way.
In such a “living” trust arrangement, the trustee will determine that it is time for the caretaker to step in to look after your horses. This peace of mind can be precious if, for example, you have no close family members who share your love of the species and your knowledge of how to care for them.
Simply bequeathing your equines to someone you can count on to treat them well – with or without a lump sum of cash to fund that care –fails on that front because it provides no guarantee that the horses won’t be left in limbo before you die.
Furthermore, any assets assigned in your will and passed on via your estate rarely carry strings attached. The person who inherits your horses can still do whatever he or she pleases, even if it means going against the instructions you leave behind.
A trust is not quite a sacred contract, but it comes close. The caretaker won’t be able to deviate from the rules you set down without a challenge from the trustee. The trustee has a legal responsibility to act in the best interests of the animal, even overruling the caretaker as necessary.
Finally, the trustee will generally be able to appoint a new caretaker if the one you pick dies or resigns the position. Should your goal truly be to make sure your horses live out their natural days in the best style possible, this is essential. Otherwise, all you’ve really done is bought a little time and not real confidence. Otherwise, who will look out for them when you’re gone?
Contributed by Scott Martin, Editor - The Trust Advisor® Scott Martin has been tracking various aspects of the fi nancial industry since 2001 for publications like Research, Institutional Investor, and Buyside. Previously, he was a market writer for CNN. As an advocate for the trust industry, he has testifi ed to the Nevada Senate Committee on Commerce, Labor and Energy on issues of national competition. He is also active as a marketing and editorial consultant for investment advisors.