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Advice has been requested whether, under the circumstances described below, a bequest in trust for the care of a pet animal creates a valid trust for purposes of the imposition of tax under section 641 of the Internal Revenue Code of 1954.

A, a resident of State X, died testate in 1976. Under the terms of A's will A's entire property passed to designated individuals, including a residuary legatee, with the exception of a fund that was established to care for A's pet animal. The income of the fund, to the extent required, is to be used for the care of the animal. Upon the death of the animal, the corpus of the fund is to be distributed to A's heirs, if living, or their descendants.

Under the common law rule against perpetuities, the period during which vesting of interests in property may be postponed is limited to a life or lives in being plus twenty-one years and any period of gestation involved in the situation to which the limitation applies. It has generally been assumed that the lives that measure the period of perpetuities should be human lives. II Scott on Trusts, section 124.3 (3d ed. 1967); Restatement of Property, section 374, comment h (1944).

In the absence of statutory abrogation, the rule against perpetuities is part of the common law in most jurisdictions in the United States. State X has adopted no statute that would render the rule against perpetuities inapplicable in the circumstances set forth in the instant case. Since the life of an animal is not a proper measuring life in being under the rule against perpetuities in State X, the bequest in trust to provide for the care of the animal was void from its inception.

The law of State X provides that personal property comprising any bequest that fails, is void, or is otherwise incapable of taking effect, will be included in the residuary bequest, if any, contained in the decedent's will, unless a contrary intention appears in the will.

Accordingly, in the instant case, since the bequest in trust for the care of the pet animal was void from its inception, a valid trust never came into being for purposes of the imposition of tax under section 641 of the Code. Further, the property passed to the residuary legatee pursuant to the law of State X, because no contrary intention appears in the will, and the income earned on such property is includible in the income of the residuary legatee in the year the income is received.

A bequest in trust for the care of a pet animal is not void from its inception in all states. In those jurisdictions where a trust created by such a bequest is valid, the trust is unenforceable because there is no one who as beneficiary can compel the trustee to carry out the purpose of the testator. Such intended trusts have been characterized as “honorary trusts,” the conscience of the trustee being the only compelling influence on performance. However should the trustee fail to perform the intention of the testator, the trustee will not be allowed to keep the property; instead a resulting trust will arise in favor of the testator's residuary legatees. See Scott on Trusts, sections 123(2) and 124 (3d ed. 1967). The income tax consequences of an honorary [PAGE 193] trust will depend on whether it will qualify as a valid trust for purposes of section 641 of the Code.

Section 641 of the Code provides, in part, that the taxable income of a trust is computed in the same manner as in the case of an individual, except as otherwise provided. Also, a trust is generally allowed, in computing its taxable income, the deduction provided by either section 651 or section 661 and the regulations thereunder, relating to distributions to beneficiaries.

Section 651 of the Code provides for a deduction in the case of a trust that distributes current income only. The deduction is limited to the amount of the distributable net income regardless of whether the amount of income required to be distributed currently exceeds the distributable net income of the trust for the taxable year. Section 652 provides, in part, that the amount of income for the taxable year required to be distributed currently by a trust shall be included in the gross income of the beneficiaries to whom the income is required to be distributed, whether distributed or not. Such includible amount shall be an amount equal to each beneficiary's share of distributable net income of the trust.

Section 661 of the Code allows a deduction to a trust not qualifying under the provisions of section 651 in computing its taxable income, for any amount of its income for such taxable year required to be distributed currently and any other amount properly paid or credited or required to be distributed to a beneficiary for the taxable year to the extent such deduction does not exceed the distributable net income of the trust. Section 662 provides generally that the beneficiary of a trust must include in gross income all amounts that are deductible by the trust under section 661(a).

Section 301.7701-4(a) of the Income Tax Regulations provides that in general, the term “trust” as used in the Internal Revenue Code refers to an arrangement created either by a will or by an inter vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules applied in chancery or probate court.

The term “beneficiary,” for purposes of Part I, subchapter J, of the Code, is defined in section 643(c) to include heirs, legatees, and devisees. Heirs, legatees, and devisees are persons. See 96 C.J.S. Wills, section 1097 (1957). For purposes of the Code, where not otherwise distinctly expressed to the contrary or manifestly incompatible with the intent thereof, the term “person” is construed to mean and include an individual, trust, estate, partnership, association, company or corporation. Section 7701(a). Since animals do not fall within this category, they cannot be beneficiaries for purposes of section 643(c).

Since a beneficiary is lacking, a bequest in trust for a pet animal does not fit into the traditional concept of a trust, as set out in section 301.7701 of the regulations. Such an arrangement, however, should nonetheless be classified as a trust for tax purposes under section 641 of the Code in those jurisdictions where it would not be invalid. To treat this arrangement as not being a taxable trust would, in addition to ignoring its validity under local law, cause the income on the bequest to escape taxation altogether, since the distributions of income for the benefit of the pet animal would similarly not be taxed.

Accordingly, the taxable income of a fund, which is not invalid under state law, bequeathed in trust for the benefit of an animal, is subject to the imposition of the tax of section 1(d) of the Code pursuant to section 641. See Rev. Rul. 58-190, 1958- 1 C.B. 15, which holds that a trust is created for purposes of section 641 where funds are received by a cemetery company or corporation for the perpetual care of an individual lot or mausoleum crypt.

Furthermore, since the amounts of income required to be distributed under section 651 of the Code and amounts properly paid, credited, or required to be distributed under section 661 are limited to distributions intended for beneficiaries, a deduction under those sections is not available for distributions for the benefit of a pet animal. Similarly, such distributions are not taxed to anyone under sections 652 and 662.