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A.R.T. and Estate Planning

Assisted Reproductive Technology and Estate Planning: 
When Science Gets Ahead of the Law

Traditionally, Americans and the law have thought of families as mothers, fathers and their children conceived by conventional methods and brought to term in the mother’s womb.  However, since the 1978 birth of Baby Louise Brown after laboratory fertilization and implantation, individuals and couples have increasingly turned to Assisted Reproductive Technology (“ART”) to have children when impaired fertility, anatomical anomalies, or risks of future infertility or death otherwise make this difficult.  For these reasons and changes in family social structures, the birth of a child and the creation of a family relationship are no longer limited to instances resulting from human copulation.  In addition, children born as a result of changes in social standards (without ART) call to question whether biological parentage should always be the measure of family composition.  At the same time, however, like the mindsets of many, the law remains deeply rooted in concepts of family and descendancy that fail to consider these new methods of human gestation and family structures.  This paper suggests some considerations about these scientific and social developments and the law’s slow response that clients should contemplate in planning to achieve their hopes for future generations.

The Increasing Number of Non-Traditional Families

ART is the use of laboratory procedures that include the handling of human eggs or embryos to help a woman become pregnant other than by sexual intercourse.  ART includes techniques such as in vitro fertilization, egg and embryo cryopreservation for deferred use, egg and embryo donation, and the use of a gestational surrogate other than the ultimate child’s actual mother.  The U.S. Centers for Disease Control and Prevention (“CDC”) estimates that today, approximately 1.7% of all infants born in the United States every year are conceived using ART.  Between 1999 and 2013, the CDC reports that about 2% (30,927) of all ART “cycles” used a gestational carrier, resulting in some 13,380 deliveries and, because of the high incidence of multiple births, 18,400 infants.  Additionally, the U.S. Department of Health and Human Services Office of Population Affairs reports that there are now more than 620,000 cryo-preserved embryos in the United States awaiting future use.

As the science of ART develops, so too is the likelihood of future increases in the birth of infants as a result of ART and outside traditional family structures.  This past November, a Chinese biophysics researcher and former professor, He Jianjui, announced that he had used ART to prevent HIV vulnerability in the first genetically edited babies brought to term.  Although this announcement was met with widespread ethical condemnation, it illustrates a potential new use of ART and new questions about the descendancy of the ART produced children with genetic alterations.

According to the U.S. Census Bureau in 2011, there were approximately 13.7 million single parents in the United States; and those parents were responsible for raising some 22 million children.  Although these single parent families are presumed to be mostly biological in nature, single parent adoption and ART now allow persons to be single parents by choice.  In addition, since the Supreme Court’s 2015 decision granting same-sex couples the constitutional right to marry nationwide, same-sex marriages now allow couples of the same sex anywhere in the U.S. to have children where at least one spouse will not be the biological parent.

Longer Ranged Estate Planning

We have noted in the past about the benefits of estate planning on a multi-generational basis.  In particular, such multi-generational planning using life-long Inheritance Trusts protects inherited assets from future beneficiaries’ potential creditors and estate taxes.  Effective multi-generational planning, however, demands that we be able to identify who the beneficiaries of that planning are intended to be.  For decades we have used such terms as “child”, “children”, “descendants” and “issue” in our estate planning documents to define the persons for whom we are planning.  ART and new family structures may now be making these terms fuzzy and call to question who a trustmaker intends to benefit.  For example, is a baby born to a gestational carrier who brings another couple’s embryo to term a “descendant” or the “issue” of the gestational carrier?  How do we know whether a trustmaker intends to include among his descendants children conceived using donated sperm from his biological male offspring who are not married to their mother?  In the future, how much genetic engineering will result in children that a trustmaker would not intend to include among his beneficiaries?

Maryland’s Limited Response to ART Children and Non-Traditional Families

To date, legislatures and the courts have lagged in providing answers to these and similar questions.  Fortunately, since the 1940s in Maryland, unless a will clearly indicates otherwise, the words, “child”, “descendant”, “heir”, “issue”, or any equivalent term in a will includes a person who is adopted; and an adopted child is treated as a natural child of his adopting parent or parents.  Adoption, therefore is one means of clarifying a child’s ancestry unless a testamentary document declares otherwise.  Similarly, Maryland law is clear that a child conceived by “artificial insemination” of a married woman with the consent of her husband is the legitimate child of both of them; and a child born to parents who have not participated in a marriage ceremony with each other is considered to be the child of the mother, unless a testamentary document declares otherwise.  Less clear is the status of an ART child whose married father has not documented his consent to parentage and whether a person born to parents who have not participated in a marriage ceremony is deemed to be the child of the father.  In the latter situation, the person is legally deemed to be child of the father only if the father is judicially determined to be the father in legal paternity proceedings, has acknowledged himself to be the father in writing, “has openly and notoriously recognized the child to be his child”, or has subsequently married the child’s mother and orally or in writing acknowledged himself to be the father.

In 2012, the Maryland Bar brought to the Legislature’s attention a developing legal issue concerning the posthumous use of decedent’s genetic material: how long should the decedent’s estate be kept open to determine who his or her legatees or heirs would be?  To allow estates to be expeditiously concluded for decedents leaving genetic material for future use, Maryland law was amended to legitimate a child conceived from the genetic material of a decedent if the decedent consented in a written record to be the parent of a posthumously conceived child, if the child is born within 2 years of the decedent’s death, and if, with respect to any trust, the decedent was the creator of the trust and the trust became irrevocable on or after October 1, 2012.  Unfortunately, this law is therefore inapplicable to trusts other than those of the decedent leaving genetic material for posthumous use, where the decedent has failed to consent in writing to posthumous use of his or her genetic material, or where a child conceived from the genetic material is born more than two years after the decedent’s death.

The Importance of Declaring your Intent About ART Questions in Your Estate Planning Documents

Given the current status of the Law, determination of questions about how ART and non-traditional family structures affect the interpretation of estate planning documents will rest largely on judicial findings of trustmaker intent at the time his or her documents were created.  How is this possible if these issues have never been considered or if a testator or trustmaker leaves no written statement of intent?  When the Law provides no default position on these questions, the need is magnified for consideration of the potential issues involved and effective expression of how you feel they should be resolved.  If you disagree with the Law’s limited resolutions made to date for these issues, you need to say so in your testamentary documents because the Law’s resolution will apply unless you state otherwise.

For over two years, we have included in our pre-initial conference Estate Planning Questionnaires a page with questions about “Determining Family Relationships”.  (My hope was that this page would itself become a statement of intent that could be used as a future reference.)  I find, however, that few clients fill in answers on this page in the belief that these issues will never apply to their situations.  Where they do complete the form with respect to children conceived by ART, most will indicate that “[c]oncerns about ART children are unlikely to apply in my family.  I accept any judgments made in this context by applicable Maryland law.”  When I explain why I think this is short-sighted (in light of the statistics quoted above and my own family’s experiences), most recognize the need for considering these concepts, especially when planning on a multi-generational basis.  The concepts involved are so new that most have not come to grips with how these issues should be involved in their particular situations.

You need to know that these issues are far more likely to affect you, your family, and your estate planning than you think.  I hope that this paper will spark a sensitivity to these trends that will motivate you to express your intent in your documents about how these issues should be resolved if they affect your family and its membership.

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Securing Your Family’s Future Using Inheritance Trusts: Part 3

The Logistics of Inheritance Trusts

In parts 1 and 2 of this series, we described Inheritance Trusts and how they can achieve clients’ desires to maintain their assets for as long as possible as a safety net protecting themselves and their loved ones from both anticipated and unforeseen threats and challenges. In this installment, we go over the mechanics of setting up and operating an Inheritance Trust.

Titling Trust Assets and Setting Up Trust Accounts

When an Inheritance Trust is established, its Trustee (and in particular, a Trustee who is also a beneficiary of the trust) will need to keep inherited assets (as well as assets acquired in the future using the proceeds of these inherited assets) segregated from his personal assets. He does so by the titling of trust property and by using a separate trust taxpayer identification number.

Title to all newly inherited trust assets (and the proceeds of these inherited assets) should be kept in the name of the Inheritance Trust at all times. We prefer the following format for titling assets in the name of an Inheritance Trust:

“Gloria Sample Jones, Trustee of the Gloria Sample Jones Inheritance Trust under Article Twelve of the John Sample Living Trust dated December 24, 2008”

Obviously, each beneficiary Trustee would insert his or her name in this language and the particulars of the source document when titling inherited assets to his trust. However, to avoid future problems with banks and financial houses, it is important to use a title that references the document that states the authority for the trust, the trust administration provisions, as well as the source for Trustee powers and succession provisions.

Merging Separate Inheritance Trusts from Each Parent

Often, children of the same parents will technically receive an Inheritance Trust from each parent. To avoid having multiple trusts, the source document will generally have a merger clause allowing the Trustee to merge multiple trusts with the same beneficiaries and trust provisions. As such, the substantially identical trusts set up by each parent can be merged by having the Trustees sign what is known as a Trust Merger Agreement. Thus, two separate Inheritance Trusts (i.e., one received each parent) are consolidated into a single Inheritance Trust for the beneficiaries involved.

Utilizing the Assets of An Inheritance Trust

In order to provide the asset protection and tax benefits described in Part 2 of this series, there need to exist certain technical restrictions on beneficiary Trustee access to an Inheritance Trust’s property. However, beneficiary Trustees need not feel particularly limited by these restrictions because these provisions are purposefully drafted to be as expansive as possible without causing tax effect. The beneficiary Trustee will generally have complete authority as to the investment of trust property and broad authority as to when to make distributions.

A Trustee of an Inheritance Trust may make distributions of trust property to trust beneficiaries (including himself) for their education, health, maintenance or support. These terms have very broad meanings as demonstrated below:

Education

Includes payments for tuition, fees, books, supplies, living expenses, travel and reasonable spending money related to private pre-school, kindergarten, elementary school, middle school, college preparatory high school, undergraduate college, graduate college, and vocational, professional, or other specialized training

Health

Includes payments for medical services, prescription/over-the-counter drugs, and/or medical equipment, and, in general, anything directly promotive of the good health of trust beneficiaries

Maintenance or Support

Includes payments to keep the beneficiaries living in the manner that is reasonable given the amount of funds which can be devoted to this purpose, i.e., anything reasonably required to maintain the beneficiary’s lifestyle. (In addition, Trustees are often given the discretion when and whether to take the beneficiary’s other resources into consideration in making such lifestyle maintenance distributions.)

The principal limitation here is that Inheritance Trust assets may not be used to benefit persons or entities other than those persons who are currently the beneficiaries designated by the Trustmaker.

Types of Property an Inheritance Trusts Can Own

In general and unless otherwise specified in the Trustmaker’s instructions, Inheritance Trusts may own any type of property that is readily available to the public, such as: real estate, farming/ranching businesses, stocks, bonds, commodities, options, metals, partnership interests, limited liability company interests, and other types of closely-held business interests. The limitations here are that the Trustee is obligated to the beneficiaries to invest prudently and to avoid self-dealing.

Inheritance Trusts may also own life insurance or annuity products. However, you should consult with an estate planning attorney prior to purchasing a life insurance or annuity product with an Inheritance Trust. Notwithstanding trust provisions, if the Trustee of a trust owns life insurance on his own life, that life insurance can be made taxable as a part of his estate.

Other Ongoing Trustee Duties

In addition to the duties discussed above, Trustees of Inheritance Trusts need to remember that they now have fiduciary duties to others to be responsible for many of the same tasks they would have been doing if they owned the property in their own name (rather than as Trustee of the Inheritance Trust), such as:

Insuring trust property against potential hazards/casualties;
Keeping records of the trust’s financial history; and
Filing annual federal and state income tax returns for the trust on April 15th of every year.

It is important to note that Inheritance Trusts will each be separate income taxpayers and will require their own respective income tax returns. To this end, Trustees need to use separate federal tax identification numbers for their trusts. Because trusts pay federal income tax based on very compressed tax brackets (in 2017, a trust’s undistributed income is taxed at 39.6% once that income totals only $12,500), Trustees will probably want to do some distribution planning to make sure that as much of this income as possible is taxed at lower rates available to trust beneficiaries.

Trusts currently written as a Maryland trust are also subject to Maryland income tax. However, beneficiary Trustees who reside outside of Maryland may change the taxing state if the trust is being administered outside of Maryland and was not created under the will of a Maryland resident. One of the first administrative activities a beneficiary Trustee might want to consider undertaking is an examination with a local accountant or attorney as to where it makes the most sense to have the trust taxed.

Finding Assistance

Much of this may seem new to you, but it is not “rocket science”. We are in business to help our clients plan their Inheritance Trusts and to help with their implementation and administration. If you would like to speak with us about achieving your goals for the future, please give us a call at (410) 224-7800.

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