By Peter Shanahan, CFP, CRPC, MPAS
I think it’s fair to say that just about anyone who has owned horses has had the painful experience of watching his equine partner age out of work and finally pass on. How many of us has owned a “horse of a lifetime” sometime in the past?
But sometimes things play out differently.
Particularly as we age, we need to think about the possibility that our horses (and dogs, for that matter) might just outlive us. And we need to plan for what will become of them. Making a provision in our estate plan (either a will or a revocable living trust) to sell or gift our horses might work if our horses are still young enough to be useful to others. But even then, as our equine partners age, they become less valuable and therefore more vulnerable. How will they fare three owners down the line when they’re no longer fit to ride in the jumper ring, or can no longer keep up with the hunt field?
What, then, can we do to protect them? Estate planning attorney Lee Mulligan, of Strauss Attorneys in Hendersonville, North Carolina (near Tryon), often suggests that her clients consider an “equine trust,” which is simply a variant of a pet trust. Under this arrangement, you create a trust that will typically not be funded during your lifetime, but rather, the language creating this trust will become a part of your will or revocable living trust. It will go into effect and be funded at your death.
The equine trust will make provisions to fund the care of your horses. Typically, you will name a caretaker for your horses, whether an individual or an institution — like a vet school. You should confirm with the caretaker that they would be willing to take your horse(s), and under what circumstances. The caretaker might need additional stalls and/or pasture. Your trust will probably need to fund these upgrades, as well as daily feeding, veterinary care and possibly a farrier. The amount of money you allocate to fund this trust should take into account a rough estimate of how long we might expect your horses to live.
Ideally, you might want to use some type of a formula in the body of the trust, rather than naming each horse. This will allow the funding to vary as your horses age during your lifetime. This will also allow you to avoid amending your estate plan every time you buy a new horse.
Of course, you will also need to designate some individual or entity to manage the money. This person will be named as “trustee.” Here, Lee strongly urges that this person should be someone other than the caretaker. This can minimize the moral hazard of incentivizing the caretaker to “replace” an animal that has died in order to keep the gravy train running. Lee tells a story about a cat that apparently lived well past 36 years — unlikely, even with the best care!
A chip or tattoo is also very useful. Also, it would be helpful if both your attorney and the designated trustee know something about horses.
You should also consider whether any family members are likely to challenge the trust. Two things would be useful to bear in mind here. First, in most jurisdictions, the amount going into the trust should be “reasonable.” This, of course, is highly subjective. That said, a New York Surrogate Court judge found that the funding amount for the trust for Leona Helmsley’s dog Trouble was excessive, and reduced the amount from $12 million to $2 million.
Second, you should also consider using a revocable living trust, rather than a will, as your primary estate planning vehicle. Such trusts can allow the assets that were titled to the trust during your lifetime to bypass probate court, avoiding the delay and publicity of the probate process. This will likely reduce challenges from family members who may not be as fond of your horses as you are. Your instructions regarding the creation and funding of the equine trust will be contained in your living trust.
You should also give instructions for dissolving the trust after your horses pass, spelling out where any remaining money should go.
Finally, you should have your estate plan drawn by an attorney who specializes in estate planning. The real estate attorney who did the closing on your farm may not be the best choice, unless he or she is board certified in estate planning. The website “findlaw.com” is useful for finding such an attorney in your area. Once you have pulled up a list of estate planning attorneys, call them to find one who is familiar with horses and equine trusts. Good luck!