Page 82 - 8 August 2012

EQUINE TRUSTS
Who will take care of your horses when you’re gone?
Despite an owner’s best intentions, using a will to provide for a horse is not always the best idea.
Billy Peterson, CFP ® CDFATM Peterson Wealth Services, Inc. 877-470-4002 www.petersonwealthservices.com
by Billy Peterson
The foundation of any good “plan” starts with
the will and trust which spells out the “who,” “what” and the “how.” It can be said that a good “estate” plan starts with the best documents possible (Will/Trusts) however, a great “estate” plan makes sure the math works, especially when some of the “who” are part of the family stable. Making sure the documents work based on your own individual mix of assets is essential in making sure your plan works today and tomorrow. But even before that, determine if your spouse or children would want to continue on with the horse operation if you didn’t provide specific instructions for them to do so. If the answer is no or maybe not, it’s wise to put everything in writing in the form of a legal document.
SKIP THE WILL
Despite an owner’s best intentions, using a will to provide for a horse is not always the best idea. Wills can be contested and are subject to probate and public record which can delay the implementation of needed care. Instead, creating an equine trust as part of a living revocable trust or as a standalone trust can be one of the best ways to ensure for the horse’s care. (It is important to note that animal/pet trust statutes vary from state to state and four states do not recognize
pet trusts—Kentucky, Louisiana, Minnesota and Mississippi do not have pet trust laws.)1 In setting up the trust, there are a few items to consider first:
It is important to specifically identify the animal(s) for which the trust is to benefit to avoid any possible confusion. Registration papers, photos, descriptions of unique characteristics, veterinary records, tattoos, micro- chips and DNA testing all work.
Who is going to care for the animals is the next step in drafting the trust. Some larger operations have ranch foremen and stable hands for this assignment so not much changes. But for a smaller stable it is typically necessary to appoint someone who under- stands how to take care of the horses and knows what plans you had for them. Depending on the amount of labor and expenses involved, it may take one individual to handle all of the care, or it may require several. In fact, splitting the duties may be the best option to allow for checks and balances when there are substantial amounts involved.
Also, in the case of a prize racehorse, having an additional third party named or to be named to act as a representative payee to receive and make distributions may be needed. What happens next should basically be carrying out the plan, such as: Do you want your breeding program to continue? Do you want to continue racing the horses that are currently in training? Should the trustee(s) begin selling your mares or foals, and at what price?
The trust should also define what proper care means. It could include a full time caretaker depending on the animals addressed by the trust. Similarly, defining reasonable expenses such as feed, board- ing, veterinary care, exercise, and grooming are just a few items to consider. Moreover, if there are unusual items (acupuncture, massages or carrots) that are regularly incurred that are expected to be continued, then they need to be addressed. You don’t want to leave anything out that could be questionable when it comes to providing care since trustees are essentially carrying out your wishes.
The trust may also allow for the purchase of casualty insurance to protect
the fiduciaries for damage caused by the animal(s). Liability protection is very valuable when something happens. It is also important to consider whether or not the caretaker or representative will be subject to additional income taxes based on trust distributions. The trust should address whether distributions are grossed up or paid separately to cover the liability.
The trust should also specify whether the trust will terminate upon the death of the named animals or their offspring, dDepend- ing on state law. Although there are certain rules to follow, charities can be named to receive the remaining assets upon termination of the trust.
DO THE MATH
Even with the best documents, the math is always important to consider. The plan on paper may not work unless the math behind the goals, objectives and intent also works. When it comes to the math there are several things to consider. The first is initial liquidity. Put bluntly, is there enough liquidity at that moment in time to cover potential taxes and initial costs? While this is an election year, and our elected
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