Tuesday, October 28, 2008

How to actually create a good trust plan: Part 1

Basics down. Let’s go into more details. . . .

Now I want to break down each part of the honorary trust process into smaller sections. Trusts for animals can be tricky. Over the course of the next few posts I’d like to cover, in detail, some of the important things to know and understand, including: 1) Trustees, 2) Trust documents 3) Funding your trust 4) Finding someone to help you with your trust.

Luckily, I am STILL working on perfecting my AT&T DSL connection so I have lots of time to write posts. The computer is still shut down for almost any other use for (hopefully only) a few more hours.


Anyone can serve as a trustee. There is no special training or licensing required. Who should serve as your trustee after you death is an important decision. A trustee needs to be responsible, organized, realistic, good with money and most of all, trustworthy.

Trustees take on certain duties outlined by law. These duties, fiduciary duties, mean the trustee can get into trouble with the law if they mismanage your trust. You will be dead, so its most likely you will not be suing the trustee, but that second cousin twice removed who is your only legal heir? She might try to get rid of the trust and the trustee so she can get her hands on your estate. It doesn’t matter that you have never met this person and would never have included her in your will. What matters is that anyone with even a remote legal interest in your estate can try and gum up all your well thought out plans. They do not have to worry about what you think of them. You are dead. They can just think about all the money they will win if they overturn your trust and run off your trustees. Your trustee must be up to having to fight for your trust if needed.

You need to be clear with your trustee that they are taking on a fiduciary role and will have to keep good books and account for very expense paid toward your animal. Some day they might have to explain their actions to a judge. States will vary in their reporting and accounting processes, but if the trustee mismanages your trust they can get in serious trouble. Make this clear and discuss the role of a trustee before you appoint someone. Get their informed agreement. They will not only be responsible for caring for your animals or overseeing the care of your pets, but they will also be responsible as your trust’s accountant.

Now I think you can already see the problem here. Your trustee should be a lawyer, an accountant, or a trust company. They know how to handle trusts and keep your funds safe and productive. However, they may not know jack about horses or cats or dogs. Personally, I can’t trust Bank of America with my checking deposits. I certainly wouldn’t trust them with the care and upkeep of my horse! When they lose my deposit they can make it up to me later. If they forget to pay the board bill on my horse and it gets sold under a stableman’s lien? They can’t make that up to anyone later.

Don’t fear though, there is a solution. You can have co-trustees, You can assign one trustee to mange your financial accounts and another trustee who knows a hoof pic from a socket wrench. That friend you were going to trust to take your animals under your will? He might be a great co-trustee to make the day-to-day decisions regarding the care of your animal. Then you just need to find a financial institution, degreed accountant, or other trained professional to manage the money. One has a head for money and one has a heart for animals.

Next, after you have struggled so hard and long with choosing a trustee you need to start all over again and chose successor trustees. Since you are clearly planning well ahead your first choice for trustee may precede you in death or have other circumstances that prevent her from carrying out her duties. Pick out a few back-ups or the Court will pick them for you. No trust shall ever fail for want of a trustee. The Court will appoint a trustee for your trust if yours declines or is not available. With these laws being so new and untested there is not a large pool of professional honorary trustees for The Court to choose from. Some day yes, but right now they might pick someone you do not want or someone who just happens to be standing in the back of the court that day. So make a string—if not A then B, if not B then C, if not C then D.

In my practice I do feel confident that my background in animal care along with my legal experience would make me an excellent trustee. However, I do not fool myself into thinking I am also an expert in finical investments and tax matters. Animal expert, legal expert, tax expert and investor are just too many hats to wear at once. If my clients have any appreciable wealth then I work along with their accountants to create a trust and manage it. Create a team that does what they do best and spread the responsibility out.

For example, I can write and very good honorary trust for the care of animals. That does not mean I am the best lawyer to writer a complete estate plan for someone who has millions of dollars and tax consequences to worry about. In a good plan I would do what I do best—write a section of your complete estate plan and a lawyer with an LLM in tax law and certification in estate planning would do the rest. Not all lawyers have 30 years experience as a professional in the pet care industry and an MS in Equine Science, but I don’t have 30 years experience in tax law either. There may be a few estate planners out there who can do it all, but I find its best to let specialists do each part under the guidance of one well qualified master planner. Keep experts in each field doing what they do best and don’t try and find a single trustee to do it all.

Lets review: anyone can be a trustee but it comes along with legal responsibilities and duties. Co-trustees who specialize in just part of managing your trust is advisable—animal expert to spend the money and financial expert to manage the money. Don’t try and have your family lawyer or accountant try and do more then they are trained to do. Let an expert deal with the honorary trust and let an expert deal with the remainder of your estate planning. The chances of finding one person to do it all well are slim. There is no rule that says you must have all your estate in one trust or all your animals looked after by a single person.

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