Many people are concerned enough about the fate of their family pet or companion animal that they attempt to provide for the animal’s welfare in their will or by means of a trust. Seventeen states recognize these wishes by allowing in some form the use of pet trusts, which provide for care, feeding, and housing of Fido or Fluffy for the rest of the animal’s life.
Uncle Sam, however, is not so understanding, and decrees via the tax code that an animal cannot be the beneficiary of a trust since an animal is property, and one piece of property cannot hold title to another. Aside from the fact that this is far from the way many people feel about their pets (some of whom actually help ill owners live longer and have better quality of life), this interpretation of law prevents people’s last wishes and provisions for companion animals from being carried out, thus denying them control over a portion of their own property.
Congressman Earl Blumenauer (D-OR) is attempting to do something about the situation. Blumenauer has introduced a bill, H.R. 1796, the Pet Trust Bill, that would allow pet owners to provide for companion animals by funding a trust for their care and welfare. At the end of the animal’s life, the remainder of the trust must go to a recognized charity. Says Blumenauer, “What we should be doing is encouraging people to be responsible for pets, property, and family, and this is one area where you could make an argument on the basis of all three.” In a previous incarnation in local government, says Blumenauer, he saw the results “in human health and safety and animal welfare issues” of the failure of society to care for the pets of people who have died.
J. Alan Jensen, a tax attorney with Holland & Knight in Portland, Oregon, says that the way the bill is structured these pet trusts are “absolutely anti-abusive in the sense of no tax gimmick. The charitable remainder pet trust is not tax exempt. It pays tax on any income it receives.” If property is transferred into such a trust and then sold to provide for the pet, capital gains tax will be due on the sale, unlike the situation for human beneficiaries. “The pet trust would pay the tax,” says Jensen; “the trust is structured so that there would not be a whisper of abuse”–so that such trusts cannot be used to avoid estate tax or income tax.