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WILLS TRUSTS & ESTATE PLANNING

Wills are used to name an executor or heir(s) of your property upon death. A will is usually used to set up a trust.

A Trust is the legal method of protecting your property for your beneficiaries. It is used to reduce or prevent tax liabilities, protect property and avoid probate. In the Greater Tampa Bay area contact Williams, Ristoff & Proper for more information.

Estate planning is the legal method of property planning, which is done by the property owners for the transfer of their ownership properties in between their legal heirs or for the persons according to their personal discretion. Immovable properties are real properties like houses. Household items, cars, shares, and bank accounts are categorized legally as personal property list.

Estate Planning is a complex and varied process – in the greater Tampa Bay Area, contact Williams, Ristoff & Proper for a free and confidential consultation.

TRUSTS

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  • Revocable Trust
  • Irrevocable Trust
  • Florida’s New Trust Code

A living trust is one that is established during the lifetime of the person responsible for creating the trust. A testamentary trust, in contrast, is one created from a person’s last will and testament at the time of their death.

The person who creates the trust is known as the settlor or grantor. Once a living trust is created, a trustee is appointed to manage and distribute the trust’s assets to the beneficiaries. A beneficiary is a person or persons named in the trust who will ultimately receive the assets listed in the trust.  The assets are usually distributed to the beneficiaries upon the death of the settlor or grantor. Within the trust, there are instructions for the appointed trustee on how the assets are to be managed, and when to distribute the assets to the beneficiaries. The settlor or grantor creating the trust can also be listed as a beneficiary of the trust during his or her lifetime.

Another possible arrangement in a living trust is for the grantor to serve as the trustee. In this case, a successor trustee is also named, and is responsible for taking over the trustee duties in the event that the grantor is no longer able to perform these tasks.

A trustee can only manage and distribute assets that have been conveyed to the trust. Therefore, beneficiaries listed on the trust are only entitled to the assets included within the trust. When the trust is created, the grantor must convey all real property by a correctly executed deed. Similarly, all personal property that will be moved into the trust must be transferred to the trustee using a properly executed bill of sale. Any bank accounts, stock certificates, certificates of deposits, and other intangible assets to be included in the trust must be retitled in the name of the trustee.

Any assets that are not conveyed or transferred to the trustee are subject to probate. In this case, a pour-over will is used to distribute assets to the trustee when the settlor or grantor dies. These assets are then administered and distributed to the beneficiaries named in the trust.

Revocable Trust

Any trust that is established while the grantor is still living is either revocable or irrevocable. A revocable trust gives the grantor the ability to alter the terms of the trust, withdraw some or all of the assets from the trust, and of course, revoke the trust completely. However, even a revocable trust becomes irrevocable upon the death of the grantor.

Because a revocable trust allows the grantor or settlor of a living trust to maintain control of the assets in the trust, there are no gift, income, or estate tax consequences when assets are conveyed to a revocable trust. If the grantor is also the trustee, he or she will continue to report any earnings derived from the trust’s assets on his or her personal income tax return.

The constitution of the state of Florida as well as the Florida statutes, grant a homestead exemption to every person who has legal or equitable title to real estate and maintains a permanent resident on that property. If this property is held by a revocable trust, the owner is still entitled to the homestead exemption, on the condition that he or she is the sole beneficiary of the trust during his or her lifetime. Furthermore, the owner must be using this property as his or her permanent residence. In the trust, the grantor must be allowed the sole right to the full use, occupancy, and possession of this homestead. The revocable trust may not grant the trustee any power, authority, or duty with respect to the homestead until the grantor directs otherwise, revokes the trust agreement, or the beneficiary dies.

A living trust is an excellent tool that can help plan how one’s assets are to be handled in the event of a disability.  A successor trustee can also be named to administer the trust’s assets in such a case. A trust will typically state that when the written opinions of two licensed physicians (both the grantor’s physician and another physician) certify that the grantor is either physically or mentally incapable of managing his or her property, the grantor’s right to serve as trustee is suspended. It is also common practice for the trust document to specify the right of the grantor to request a court decision to determine the question of incapacity. Once this decision is final, it is the responsibility of the successor trustee to manage the trust’s assets while the trustee is incapacitated.

The need for a living trust is based on many factors, including the amount of assets, the ability of the spouse to manage assets acquired during the marriage, and the health of both the husband and wife. While considering a living trust as soon as the circumstances call for it is best, it is especially wise to evaluate this option upon the death of a spouse. Furthermore, special consideration may be warranted based on the ability of a child to serve as a successor trustee. If a child is not able to serve as the successor trustee, a trust company or bank can also serve as the successor or initial trustee.

Any assets that are conveyed to a living trust are not subject to a probate proceeding, but they must be administered after the death of the grantor. The successor trustee is to collect the trust assets, pay all final bills, assume responsibility for the federal estate tax apportioned to the trust, and make the distribution of the remaining assets according to the instructions set forth by the trust. Creditors in a probate proceeding must file claims against probate assets no later than three months after the first notice to creditors is made in the newspaper. All assets listed within the trust, which have been distributed to the beneficiaries, are subject to creditor claims for a maximum of two years from the date of the grantor’s death. This time period is based on the statute of limitations that dictates all creditor claims must be asserted within two years of the settlor’s death. A summary probate administration can also be useful, given that this procedure permits the publication of a notice that requires creditors to file their claims within three months of the original publication date.

Irrevocable Trust

Another common type of trust, as mentioned above, is an irrevocable trust. An irrevocable trust cannot be altered or amended once is it put in place. That is, any assets conveyed to an irrevocable trust cannot be withdrawn or returned to the grantor. The most common reason to establish an irrevocable trust is for estate tax purposes. By transferring assets to an irrevocable trust, the grantor is not required to include the fair market value of these assets in their taxable estate upon their death. However, transferring these assets into an irrevocable trust constitutes a gift, as far as the IRS is concerned. As such, the fair market value of these assets at the time of the transfer must be reported to the IRS as a gift by April 15th of the year following the transfer. As a result of the transfer, the taxpayer’s estate or gift tax unified credit will be applied to any gift taxes incurred. The advantage of moving assets into an irrevocable trust is that any appreciate that may occur in the value of these assets is not subject to federal estate taxes upon the taxpayer’s death.

Another use of an irrevocable trust is for the purchase of life insurance, in order to provide the beneficiaries of the trust money to pay the estate taxes of the grantor. Because the life insurance is held by the trust, it is officially owned by the trustee rather than the grantor. This means that upon the death of the grantor, any proceeds paid out by the life insurance policy as exempted from the grantor’s gross estate. The life insurance premiums paid during the grantor’s life are normally paid by annual contributions by the grantor to the trustee of the irrevocable trust. Because of the current $12,000 per donee annual exclusion that is applied to federal gift taxes, no gift taxes are owed as a result of these annual contributions, on the condition that the beneficiaries of the trust are given the unrestricted right to withdraw these contributions during the year in which they are paid to the trustee. The withdraw right of each beneficiary is typically limited to the amount of the annual gift tax exclusion. This exclusion is subject to change, but as I mentioned above, is currently equal to $12,000 per donee.

Any proceeds of an existing lift insurance policy that has been transferred into an irrevocable trust will be included in the estate of the grantor of he is she does not survive at least three years after the transfer is made. There is also a gift tax on the total value of the life insurance policy that occurs on the date of the transfer to the irrevocable trust.

Now, if the goal of the trust is to avoid probate on the distribution of ones assets after his or her death, then there are also other options that are worth exploring. Bank accounts can be distributed to beneficiaries without a living trust or a probate proceeding by using joint bank accounts with the right of survivorship. However, the risk of this method is the ability of the joint owner(s) to remove funds from the account without the knowledge or consent of the original owner.

Florida’s New Trust Code

Florida’s new trust code became effective on July 1, 2007. With a few exceptions, the new statutes apply to all trusts regardless of whether or not they were created before or after July 1, 2007.

Before this new code was created, Florida’s trust laws only covered a portion of the law regarding trusts. Many provisions required for a valid trust and for the rights of the creditors were either found in other statutes or were not written at all.

This new code allows the grantor of the trust to designate a person in charge of representing and binding a trust beneficiary, or to receive notices, information, reports, and accounts on the beneficiary’s behalf. This becomes applicable if the grantor believes that the beneficiary may not be willing or able to sign receipts and communicate with the trustee. Thus, in these cases, an attorney or a family member could accept notices or information, and bind the beneficiary who may not be involved in the communications. This will save a substantial amount of money related to court hearings to approve accountings or obtain necessary approvals needed by the trustee.

The person who receives a notice as a designated representative is not a fiduciary. They are not liable for any acts or omissions that are made in good faith. The trustee cannot serve as the designated representative, and a beneficiary may only serve as a representative if they are a spouse, grandparent, or the descendant of a grandparent of the beneficiary being represented or that beneficiary’s spouse. An amendment can be made to an existing trust using an attorney, allowing a grantor to appoint a designated representative.

The new Florida Trust Code states that a trust is valid as long as it complies with either the law where it is to be executed, or the law where the grantor lived when the trust was created. However, according to Florida statutes, any trust that deals with real property must be in writing and signed before witnesses by the party authorized the create the trust for the land.

The new trust code confirms that the testamentary aspects of a revocable trust created by a Florida resident are invalid unless the trust is signed with the formalities required for the execution of a will in this state. According to the new trust code, the capacity to create a trust is equivalent to the capacity required to execute a will. A trust may be void if it was created by fraud, duress, mistake, or undue influence.

The new law dictates that all trusts must name a definite beneficiary or a charity. A trust may also be established for the care of an animal that has survived the grantor. The new laws allow a trust for a trust to be created for a non-charitable purpose for no longer than 21 years, if the trustee is directed to apply the income annually to such worthy purposes as the trustee decides.

As part of the new trust codes, non-judicial modification of a trust is allowed after the grantor’s death. In order for any modifications to occur, the trustee and all living persons who are current, intermediate, and first remainder beneficiaries must unanimously agree upon the changes. However, this rule only applies as long as there is not a provision in the trust that prohibits any modifications or revocations.

A trust that contains property valued at less than $50,000 may be terminated if the trustee discovers that the cost of administering the trust will be greater than the value of the property it contains.

According to the new trust code, if a revocable trust is created or funded by multiple parties, each party involved may revoke or amend the trust with regard to the portion of the trust property attributed to that party’s contribution. If any revocations or amendments are made to the trust by less than all of the total parties involved in the trust, it is the responsibility of the trustee to notify the remaining parties.

A provision added to the new trust code says that any action which challenges the validity of a revocable trust must be commenced either within the time dictated by the Florida statute of limitations or six months after the trustee has sent a copy of the trust instrument, a notice informing the person of the trust’s existence, the trustee’s name and address, and the time allowed for commencing a proceeding, whichever is shorter.

Anyone who has created a revocable trust should consider sitting down with their attorney to learn more about the new trust codes. After learning more about these changes, as well as any other changes not mentioned, the grantor can decide whether or not the trust should be amended to take advantage of the new laws in place.

WILLS

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A will is a document that dictates how a person’s property is dispersed upon his or her death. A will is a formal document that must be signed by the creator. If the creator is unable to sign the will, he or she may direct someone else to sign on his or her behalf, as long as the creator is present at the time of the signing. Regardless of who is signing the will, there must also be at least two witnesses present. The witnesses must also sign, while in the presence of the creator of the will, as well as the other witness.

No particular form of words is required for the will to be valid, as long as it is signed with the required formalities described in the paragraph above.

A codicil is an amendment to a will and must be signed following the same formal rules as the original document.

A holographic will is a handwritten document that was not properly witnessed. A nuncupative will is one that is declared orally as part of one’s last wishes. The declaration of a nuncupative will must have taken place in font of a sufficient number of witnesses and later must be put into writing. According to existing Florida law, a judge may not admit holographic or nuncupative wills to probate. However, if a will is handwritten but was signed following the proper procedure, it is not considered holographic and may be admitted to probate.

The purpose of probate is to collect a deceased person’s assets, pay their claims, taxes, and administrative expenses from those assets, and distribute the remaining assets to the beneficiaries described in the will.

Any will, other than holographic and nuncupative wills, that is valid in the state or country in which it was signed is also recognized as valid in the state of Florida. While Florida recognizes that these wills are valid, there are some stipulations that occur when admitting the will to probate.  Unless the will is self-proved, a witness to the will from the state in which it was signed must swear under oath that the creator of the will was of sound mind and no undue influence when he or she signed it. This means that probate may be delayed until a commissioner (notary public) from the state where the will was signed is appointed by a Florida circuit judge.

A valid will may be made self-proving when it is signed or any time thereafter. To make a will self proving, the signer of the will and the witnesses must acknowledge it under oath in front of an officer who is authorized to administer oaths, such as a notary public.  A self-proved will can be admitted to probate without further testimony of a witness to the will.

A will or codicil, or any part of either, may be revoked by a subsequent will, codicil or other document declaring the revocation of the previous document. The new will, codicil, or overwriting document must also follow the same signing procedures as the original will. However, if the second will, codicil, or document is later revoked, it does not reinstate the validity of the original will or codicil.

Furthermore, a will or codicil, or any part of either, may also be revoked by an inconsistency in a subsequent will or codicil. In this case, the revocation only applies as far as the inconsistency exists.

Lastly, a will or codicil may be revoked by the creator of the will, or by someone else in the presence of the creator, and at his or her direction, by burning, tearing, canceling, defacing, obliterating, or destroying it with the intent and purpose of revoking the will. However, there cannot be a partial revocation of a will by these actions. A person cannot make changes that give new meaning to the will without again following the proper signing formalities.

It is also worth noting that a new will should be created after a marriage, or after the birth or adoption of a child. Without a new will, Florida law states that the spouse or child will receive the same share of the estate’s assets that they would if the deceased didn’t have a will. So, if a person is survived by lineal descendants from a previous marriage, the new spouse will receive one half of the deceased spouse’s probate estate. This applies regardless of what is stated in the previous will that was signed prior to the remarriage. If there are no surviving lineal descendants, and no new will is signed after the marriage, the new spouse will receive the entire probate estate.

There are also rules that dictate what happens if a new will is signed after marriage, but the new spouse is omitted from the will, or gave the spouse less than 30% of the probate estate. Before October 1, 2001, the surviving spouse was only entitled to elect a share of the deceased spouse’s probate estate. This “elective share” was equal 30% of the value of all property of the deceased, regardless of location, that was subject to probate administration, except for real property not located in Florida.

However, Florida’s new elective estate statute, which went into effect on October 1, 2001, says that the surviving spouse is entitled to 30% of the deceased’s probate estate, but he or she is also entitled to 30% of the value of the decedent’s other assets. This means that, in addition to the 30% entitlement of probate assets, the surviving spouse is given access to 30% of the fair market value of the deceased spouses real property owned in another state, as well as any other assets including accounts or securities which are to be paid upon death, or in co-ownership with another person than the spouse, or are intended to pass from a revocable trust to another person. The right given to the surviving spouse to an elective share may be waived before or after marriage by signing a written agreement in the presence of two attesting witnesses.

There is also a provision regarding trusts signed after October 1, 1995 that deals with the disposal of a trust’s property upon the death of the person that created the trust. Any provision in a trust signed after the aforementioned date that dispose of the property in the trust upon the grantor’s death is invalid unless the trust instrument was signed following the same formal rules applied to the signing of a will. If the trust was not signed in Florida, these provisions remain valid as long as the trust was correctly signed under the law of the state or country in which the trust was established.

Once a trust is established, it cannot be revoked unless a right of revocation is reserved in the trust instrument. Unless the trust agreement states otherwise, the revocation right of the trust is given only to the creator of the trust. Furthermore, a trust may specify that the power of revocation is personal and may not be exercised by a guardian, attorney-in-fact, or others.

PROBATE

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Alternatives to Formal Probate

The purpose behind probate, as described above, is to collect a deceased person’s assets, pay his or her claims, taxes, and administrative fees, and distribute what is left of the assets to the beneficiaries entitled to them. An executive, or a representative of the deceased, is appointed by the court to pay any outstanding claims or taxes and distribute the remaining assets according to the will. If a person passes without establishing a will, the executor distributes the remaining assets in fixed percentages to the heirs, per Florida state law.

The executor, appointed by the court, is required to take possession of all property left by the deceased, regardless of where it is located. The Florida personal representative (or executor) is also responsible for administering the deceased’s real property in Florida, with the exception of the deceased’s homestead. Because the Florida courts have no authority over real property in other states, the executor appointed in Florida has no authority to manage or administer that property. Because of this, the beneficiaries of the real property in another state must request that a court in that state appoint an executor to manage the real property. This process is known as an ancillary administration.

For creditors to collect, a claim must be filed against the estate of the deceased in the probate hearing. This must occur either 3 months after a notice to creditors was first published, or 30 days after the executor notifies a known creditor, whichever is longer.

The executor is given the authority to represent the interests of all persons affected by the estate proceeding. Furthermore, it is also the executors responsibility to collect the deceased’s assets to pay the creditors, not just the beneficiaries.

Personal Representative’s Compensation

A personal representative, or executor, is compensated from the estate assets for their services. This compensation is earned on a commission basis, dependent on the value of the probate estate, and any income those assets earn. The commission is calculated as follows:

  • At the rate of 3 percent for the first $1 million
  • At the rate of 2.5 percent for all above $1 million and not exceeding $5 million
  • At the rate of 2 percent for all above $5 million and not exceeding $10 million
  • At the rate of 1.5 percent for all above $10 million

In addition to the standard commission, an executor may be provided with extra compensation for extraordinary services. These services include:

  • The sale of real or personal property
  • Bringing suit for or against the estate
  • Adjusting or paying taxes
  • Carrying on the deceased’s business

The court may also adjust all compensation, both ordinary and extraordinary. Before any adjustments to compensation are made, the course must consider these facts:

  • The promptness, efficiency, and skill with which the administration was handled by the personal representative
  • The responsibilities assumed and the potential liabilities of the personal representative
  • Whether the estate benefited or suffered from the personal representative’s services
  • Whether the administration of this service was complex or simple

Attorney Fees

The attorney for the executor is also compensated from the estate assets for his or her services. Florida also has existing law that dictates reasonable compensation for services provided by this attorney. The attorney’s compensation is based on the value of the probate assets and all income earned. Compensation is determined as follows:

  • $1,500 for estates having a value of $40,000 or less
  • $2250 for estates having a value of more than $40,000 but not exceeding $70,000
  • $3000 for estates having a value of more than $70,000 but not exceeding $100,000
  • At the rate of 3% for estates having a value of more than $100,000 but not exceeding $1 million
  • At the rate of 2.5% for estates having a value of more than $1 million but not exceeding $3 million
  • At the rate of 2% for estates having a value of more than $3 million but not exceeding $5 million
  • At the rate of 1.5% for estates having a value of more than $5 million but not exceeding $10 million
  • At the rate of 1% for estates having a value of more than $10 million

Like the executor, the attorney is also entitled to reasonable compensation for extraordinary services, including:

  • The purchase or sale of real property by the executor
  • Involvement in a will contest
  • Will interpretation
  • A proceeding for determination of beneficiaries
  • A contested claim
  • Apportionment of estate taxes
  • Any litigation by or against the estate

The attorney may also collect compensation for preparing the estate’s federal estate tax return. Once the gross estate is determined, and the attorney prepares the tax return, reasonable compensation is calculated. The compensation is determined as follows:

  • At the rate of .5% for estates having a value of up to $10 million
  • At the rate of .25% for estates having a value of more than $10 million.

All compensation, both ordinary and extraordinary, is subject to adjustment either up or down by the court which considers the same factors as they do when adjusting an executor’s compensation.

Alternatives to Formal Probate

The value of a deceased person’s estate does not always warrant a formal probate administration. Some examples of these instances are as follows:

  • Summary Administration. The fair market value of assets that can be subject to a summary administration has recently been increased. A circuit judge has the authority to authorize a summary administration for any estate in which the property subject to probate does not exceed $75,000, and the deceased died after Jan 1, 2002. Summary Administrations can also be ordered to confirm the title for a protected homestead that is being given to a surviving spouse or an heir-at-law. This can be done regardless of the value of the homestead. A protected homestead is described as the intended permanent residence of the deceased at the time of his or her death. A summary administration is also allowed for a protected homestead because creditors have no claim to this real property. If all of the beneficiaries and the surviving spouse submit a petition for a summary administration, the judge has the power to order immediate distribution of this property to the beneficiaries named in the will. However, the judge will not grant a summary administration if the deceased has creditors that the beneficiaries have not agreed to pay. Of course, creditors must adhere to the rules of filing a claim to the assets.
  • Disposition without Need of Administration. The Florida statutes allow for the distribution of assets without probate when the value of the nonexempt assets does not exceed the preferred funeral expense of $6,000 plus the reasonable and necessary medical expenses of the last 60 days of the deceased’s life. The judge will review the petition along with the receipts from the paid funeral and medical expenses. If the judge is satisfied with these records, he or she may authorize the payment of the proceeds of the bank accounts to the person who paid those expenses.
  • Automobile. If the only property that requires probate is an automobile, the beneficiary named in the deceased’s last will can apply for the Florida Department of Motor Vehicles to issue a new motor vehicle certificate of title in the name of the beneficiary. This application is completed at the county tax collector’s office. The beneficiary must provide the deceased’s copy of the automobile’s title, a sworn copy of the will, and must sign an affidavit that the deceased is not indebted to anyone. If a person dies with no last will and testament, the heir of the deceased can still apply to the DMV for a new certificate of title by using an affidavit that says the estate of the deceased is not indebted, and the surviving spouse and other heirs have amicably agreed to the title transfer.

PLANNING FOR PETS

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In addition to tangible property, one’s estate and disability plan can also include instructions for how their pets are to be taken care of if they pass away or become disabled. The pet owner’s durable power of attorney can specify that during the owner’s incapacity, the agent named in the durable power of attorney is authorized to pay the bills required for the care of the pets. The durable power of attorney can also specify the type of care that the pets shall receive. The bills that are usually authorized include paying for the pets’ regular exercise, grooming, veterinary care, and special dietary needs, if any.

The disability documents may also specify that it is his or her intention to keep the household pets at home with the owner as long as it is medically advisable. If a revocable trust has been established, a successor trustee can be directed to pay for the pets’ regular exercise and medical care if the owner is no longer able to provide this care. The successor trustee can also be authorized to pay family members or friends for their time spent attending to the pets. If family members are not available to care for the pets, the successor trustee may also be authorized to employ pet care in order to ensure the pets’ regular exercise and companionship. An example of this might be a pet sitter that comes to the house to walk a dog and take care of the cat. The trust may also state which veterinary clinic the animals normally visit, and direct that these animals should continue to be cared for by this clinic.

If a person is forced to leave their home because of a medical condition, their disability documents may specify that the healthcare surrogate select an assisted living facility that permits the pets to stay with the owner. If this is not possible, regular visits with the pets can be arranged. These types of arrangements only apply to household pets such as dogs, cats, or birds. Unusual pets or barnyard animals are not included in this type of care plan.

Now, we have been talking about what will happen to one’s pets if he or she became disabled or unable to care for them. However, if a pet owner dies, it is up to the person’s last will and testament to determine who will take ownership of their pets after their death. The will or revocable trust can name a person to take the pets, as well as give them an allotment of assets sufficient enough to pay for the pets’ care throughout their natural lifetime. Of course, without a trust fund being set up specifically to provide funds for pet care, there is no way to ensure that the money given to the beneficiary of the pets will be used for the pets’ care.

The creator of the will or trust can also include a provision that says if the person named to receive the pets and the subsequent funds to care for the pets is unable or unwilling to give the animals the proper care, then the gift of the animals and the money is void. In this case, the executor will arrange a suitable home for the pets, along with the money that has been allocated for the care of the animals.

Another possible option is to prepay any veterinary expenses for the animal by way of a contract with the animals vet. In this case, you would establish a contract for the life long care of the animal with either a veterinarian or a dog care manager. One may also contract with a charitable organization that will agree to care for the animal in exchange for a cash donation to the charity.

The Florida legislature has approved legislation allowing for the establishment of a trust for the care of a deceased person’s pets. According to the legislation, a trust may be created to provide for the care of an animal over its lifetime. The trust will terminate upon the death of the last surviving animal. Unless otherwise specified in the trust document, the Florida statutes regarding the administration of a trust will also apply to a trust for the care of an animal.

The property of a pet trust must be applied only to its intended use for the animals. However, a judge may determine whether the value of the trust property is greater than the amount required for the expected cost of the animal’s care. In this case, any property of the pet trust that is not needed for it’s intended use, and any property left in the trust after the pet’s death, shall be distributed as directed to the ultimate beneficiaries named in the trust.