Boning Up on Pet Trusts

By Kenneth W. Kossoff

Believe it or not, some people love their pets more than their children. But until this year, California estate planners were limited in their ability to create a legally enforceable structure that would provide for Sammie the schnauzer or Calliope the calico after the testator's incapacity or demise. Although previously an estate planner could create a trust with Fido as the beneficiary, there was no assurance that a court would enforce it. That uncertainty ended when the Legislature rewrote section 15212 of the California Probate Code; as of January, animal trusts are on par with human trusts. Indeed, in some respects animal beneficiaries have more protection than people do.

The New Statute
Under Probate Code section 15212, a trust for the care of an animal is a trust for a lawful, noncharitable purpose. The revised section defines an animal as "a domestic or pet animal for the benefit of which a trust has been established." (Cal. Probate Code § 15212(i).) The statute specifically instructs courts to construe pet trusts liberally, "to presume against the merely precatory or honorary nature of the disposition"; to carry out the general intent of the settlor; and to allow admission of extrinsic evidence to prove the settlor's intent (Cal. Probate Code § 15212(a)).

The statute's legislative history adds: "The pet trust created under this bill would be subject to all of the Probate Code provisions that generally govern trusts. As a result, the trust may sue and be sued, buy and sell stocks, and conduct any activity that a trust where the beneficiary is a person may conduct." (Assembly Committee on Judiciary, Analysis, Synopsis, page 5.)

Thus, if someone in California wants to create a trust to take care of Fido and fund it with $12 million (as New York hotel heiress Leona Helmsley did for her dog, Trouble), a California court should enforce it (rather than reduce it to a paltry $2 million, as a New York court did in the Helmsley case). Of course, if a California judge has been kicked by a horse, say, or is allergic to cats, or just has difficulty accepting that millions of dollars should be squirreled away and devoted to the care of an animal, it is hard to predict how diligently the courts will actually enforce the new statute.

Enforcement Issues
Though attorneys (and even some judges) occasionally act like animals, the beneficiaries of a pet trust are not likely to appear in a courtroom to bark or squawk for their rights.

A pet trust may be enforced by a person designated in the trust document (Cal. Probate Code § 15212(c)). If no one is designated, the trust may be enforced by a person appointed by the court. In addition, section 15212(c) provides that a trustee or trust beneficiary (presumably, a contingent beneficiary rather than the animal itself) may bring an enforcement action. However, if contingent beneficiaries are upset that Fido is keeping them from their eventual inheritance, they are more likely to discourage enforcement of a pet trust, rather than ask a judge to carry it out.

In view of that reality, the Probate Code generally allows "interested persons" to bring appropriate enforcement actions. Such persons usually include heirs, beneficiaries, or "any other person having a property right in or a claim against a trust estate or the estate of a decedent." (Cal. Probate Code §§ 48(a) and (b).)

Pet trusts, however, are a different species, and the Legislature has greatly?and somewhat controversially?expanded the scope of "interested persons" beyond the traditional rule. Significant powers have been conferred on nonhumans. No, a pack of hounds will not descend on superior court, but entities such as the Society for Prevention of Cruelty to Animals (SPCA) just might. (Other candidates include the Humane Society, local shelters, animal-rescue agencies, and an untold number of similar groups.) These organizational rights with respect to pet trusts stem from the portion of the new statute that states "any nonprofit charitable organization that has as its principal activity the care of animals may petition the court regarding the trust. ..." (Cal. Probate Code § 15212(c).)

A Pet's Best Friend?
The same enforcement rights are extended to "any person interested in the welfare of the animal." (Cal. Probate Code § 15212(c).) But who qualifies? Suppose the decedent's dog poops on a neighbor's lawn. Is that neighbor a person "interested in the welfare" of the pet?

When it comes right down to it, many people are interested in the welfare of animals. And precisely because the potential herd of litigants has expanded, serving as trustee of a pet trust might be more perilous than running a trust for a two-legged beneficiary: At least when the beneficiary is human, a trustee generally knows the universe of interested persons who might sue over trust administration. With the revised statute, one never knows who will jump the fence and attempt to bite the trustee.

But why would anybody want to sue a pet trust? An animal-care agency, for example, might well complain about the way trust assets are used. There are strict statutory requirements that trust funds be dedicated to the pet beneficiary and to no one (human or animal) else. Section 15212(b)(1) states that "[e]xcept as expressly provided otherwise in the trust instrument, the principal or income shall not be converted to the use of the trustee or to any use other than for the benefit of the animal."

This language is sweeping, but its meaning is unclear. If it means simply that a trustee of a pet trust cannot convert trust property to his or her own use, why did the Legislature include it in the statute? Existing laws already prohibit self-dealing and require the trustee to exercise discretionary powers reasonably. (See Probate Code §§ 16080-16082.) Is section 15212(b)(1) intended to go further? If so, it could conceivably be argued that the trustee is not entitled to compensation unless the trust expressly provides for it. Such a result would be harsh indeed, considering that trustees normally are entitled to reasonable compensation when the trust instrument is silent (Cal. Probate Code §§ 15680-15681 and 16243).

Accounting Concerns
Accountings are required for a pet trust unless the value of its assets is less than $40,000 and the trust instrument does not require an accounting (Cal. Probate Code § 15212(e)). Considering that the cost of maintaining a couple of horses can exceed $40,000 annually, attorneys can expect substantial funding of pet trusts.

Who's entitled to the accountings? Under section 15212(e), "[t]he accountings required ... shall be provided to the beneficiaries who would be entitled to distribution if the animal were then deceased and to any nonprofit charitable corporation that has as its principal activity the care of animals and that has requested these accountings in writing." Therefore, counsel can anticipate that organizations interested in animal welfare will regularly request such accountings, to ensure that caretakers for animals are using the trust assets for the benefit of Abby the Appaloosa and not for the benefit of the trustee, contingent beneficiaries, or others.

Can a party waive the accounting requirement? Yes, but there are limitations: Because the Legislature is concerned about the danger of fraud and abuse when drafters gain control of trust assets and then unilaterally dispense with accounting requirements, a trustee who drafted the trust and is not related to the decedent cannot waive an accounting. (See Cal. Probate Code § 21350.5.)

It should be noted, as well, that even if the trust instrument itself waives an accounting, a court can still compel one (Cal. Probate Code § 16064(a)). And courts may be more inclined to compel accountings for a pet trust because the beneficiary?though capable of hissing or scratching?is incapable of recognizing whether the trust is being properly administered.

Inspection Rights
Accountings aren't the only thing a pet trustee has to worry about. Section 15212(f) also gives a remainder beneficiary, an enforcer named in the trust, and nonprofit charitable animal-care corporations the right to "inspect the animal, the premises where the animal is maintained, or the books and records of the trust."

The right of an animal-care corporation to inspect Polly the parrot, as well as the premises where the bird is maintained, is not further defined by the statute. It's possible that if a person accepts the job of caring for a beneficiary animal and then boards the animal at his or her residence, the right of inspection may well extend to that person's entire home.

The statute does not say whether the inspection is governed by principles applicable to inspections under the Civil Discovery Act, which covers inspections of places or things in normal civil litigation. (See Cal. Code Civ. Proc. §§ 2031.010-2031.060.) Nor does it require that there be a pending proceeding in order to trigger the right to inspect?although the enforcement, should the caretaker resist inspection, would require the filing of a probate petition if there is no proceeding already on record.

Inspections raise a host of issues. Can an animal-care organization inspect a caretaker's bedroom if Fido spends most of his time in the backyard? Do the inspectors need to give reasonable notice before they look around? If the caretaker does not like what the inspectors do when they are on the premises, can the caretaker sue them? Might a caretaker go even further and argue that private inspectors fulfill a "public statutory mission" under section 15212, in essence claiming that they act under the color of state law?thus rendering them liable for violating a caretaker's federal civil rights? (See 42 U.S.C. § 1983; Wyatt v. Cole, 504 U.S. 158, 161-62 (1992); American Bankers Mtg. Corp. v. Federal Home Loan Mtg. Corp., 75 F.3d 1401, 1407 (9th Cir. 1996).)

What happens if Sammie the schnauzer bites an inspector? Can the pet trust pay for the increased premium on the caretaker's homeowner's policy? Would such an expense be "for the benefit of the animal" under section 15212(b)(1)? And what if the caretaker's insurance company cancels coverage because the decedent's dog is a breed that the insurer will not cover? Is the pet trust allowed to defend and indemnify the caretaker under such circumstances?

Another area ripe for litigation concerns the nature of the principal activity of, say, the local greyhound or Doberman rescue organization. Is the organization's main activity animal care, or promoting the adoption of animals by others? Is the work of caring for animals during the transition between rescue and adoption something other than the organization's "principal activity"?

Sections 15212(e) and (f) are even more striking when one considers their statutory counterpart for humans. There are no parallel statutory trust accounting and inspection rights for the guardians of minor children. Although a call to child protective services might elicit a faster response than a call to animal control, the powers given to animal-care organizations under section 15212 are sweeping indeed, and they are much more specific than those granted to the trustees (or guardians) of human beings.

End of the Trust
Under Probate Code section 15211, a 21-year limitation applies to trusts created for a lawful noncharitable purpose, a noncharitable corporation, or an unincorporated society. Section 15212(h) explicitly exempts pet trusts from this limitation, presumably because the pet beneficiary may have a life expectancy of more than 21 years (that's human years, not dog years, folks).

But pet trusts do not last forever. Section 15212(a) expressly provides that unless otherwise set forth in the trust agreement, a pet trust will automatically terminate "when no animal [beneficiary] living on the date of the settlor's death remains alive."

Who inherits the estate when the pet dies? If contingent beneficiaries are not specified in the governing instrument, section 15212(b)(2) controls the disposition of the residue on the termination of the trust.

Normally, trustees are concerned with the inherent conflicts between income beneficiaries and contingent beneficiaries: Income beneficiaries want to maximize trust income and couldn't care less about the growth of the trust corpus (principal), while contingent beneficiaries prefer that the trust corpus be invested for growth and that distributions of income be minimized.

There is a narrow line between these two extremes, and the trustee must hew a path close to it. The trustee is duty-bound to act "impartially in investing and managing the trust property, taking into account any differing interests of the beneficiaries." (Cal. Probate Code § 16003.)

The situation appears to be different for a pet trust in light of section 15212(b)(1), which requires that principal and income "shall not be converted ... to any use other than for the benefit of the animal." Arguably, this language trumps a trustee's duties under section 16003, and it would seem that?unless otherwise instructed by the trust instrument?a pet trust trustee must invest the trust property solely for the benefit of the animal, without concern for contingent remainder persons.

However, few contingent beneficiaries are likely to read the statute that way. This may leave the trustee feeling like a fire hydrant for either a pet trust enforcer or a contingent beneficiary?or both.

Until these issues are resolved by the courts, potential trustees?especially potential institutional trustees?may be reluctant to serve in a pet trust. And after they learn about the rights conferred on animal-care organizations, potential pet trust trustees may be even less likely to participate.

New statutes?like new pets?must be housebroken. But that is easier said than done, and some of the work may be messy. Interpreting section 15212 and integrating it with other Probate Code provisions will take time, an understanding of the love that spawned the concept of a pet trust, and a great deal of patience.

In the interim, estate planners should advise their clients about the new statute, draft trusts to incorporate pet care for clients who have beloved pets, and keep the statutory deficiencies at the forefront during client discussions and when drafting. Lawyers must also recognize that a trustor might have a different or additional animal at the time of death, as opposed to when the pet trust is drafted. In addition, attorneys need to counsel animal-care organizations about how to responsibly exercise their new rights.

Now here's a suggestion: Think about adopting a pet or two from a local shelter or animal-rescue organization. This will foster a true appreciation of why clients want to assure their pets' well-being long after they have departed this world.

Kenneth W. Kossoff, a member of Panitz & Kossoff in Westlake Village, is a certified specialist in estate planning and probate and trust law.

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