Astrue v. Capato ex rel. B.N.C., — S.Ct. —- 2012 WL 1810219 (U.S. May 21, 2012)

Karen Capato gave birth to twins 18 months after her husband died from cancer in 2002 using sperm he froze after his cancer diagnosis. The Social Security Administration (SSA) defers to state law when deciding whether to award claims for benefits to heirs conceived posthumously in the absence of a will.

In this SSA case Florida law controlled, and the decedent’s will made no mention of his posthumously conceived twins, but did name his spouse, the son they had prior to his death, and two children from a previous marriage. The US Supreme Court sided with the District Court’s determination of non-eligibility based on the following interpretation of Florida law:

Karen Capato claimed survivors insurance benefits onbehalf of the twins. The SSA denied her application, and the U. S. District Court for the District of New Jersey affirmed the agency’s decision. See App. to Pet. for Cert.33a (decision of the Administrative Law Judge); id., at 15a (District Court opinion). In accord with the SSA’s construction of the statute, the District Court  determined that the twins would qualify for benefits only if, as §416(h)(2)(A) specifies, they could inherit from the deceased wage earner under state  intestacy law. Robert Capato died domiciled in Florida, the court found. Under [Florida] law, the court noted, a child born posthumously may inherit through intestate succession only if conceived during the decedent’s lifetime. Id., at 27a–28a.FN1.

FN1. The District Court observed that Fla. Stat. Ann. §732.106 (West 2010) defines “‘afterborn heirs’” as “‘heirs of the decedent conceived before his or her death, but born thereafter.’” App. to Pet. for Cert. 27a (emphasis added by District Court). The court also referred to §742.17(4), which provides that a posthumously conceived child “‘shall not be eligible for a claim against the decedent’s estate unless the child has been provided for by the decedent’s will.’” Id., at 28a.

For an excellent write up this case you’ll want to read the analysis posted by Prof. Jeff Pennell on the LISI network entitled Jeff Pennell on the Supreme Court Decision in Caputo: An Update on the New Biology.

Can in vitro fertilization be used to create new beneficiaries of multi-generational dynasty trusts?

For most Florida trusts and estates lawyers the US Supreme Court’s decision in Astrue won’t be surprising. We’ve long known that posthumously conceived children don’t qualify as intestate heirs under F.S. 732.106, and there’s likely a good number of planners who have previously worked with F.S. 742.17(4).

The more interesting question for practicing trusts and estates lawyers, which remains unresolved under Florida law, is how children of assisted reproduction are treated for class-gift purposes. Are such children included as class members in the case, for example, of an income or a remainder interest to a trust beneficiary’s “children” or “descendants,” and if so, under what circumstances are they included? Here’s how Prof. Pennell frames the issue in his write up of the Astrue decision:

If D leaves DNA in the freezer and that DNA is used postmortem with the requisite permission to produce a child, it seems relatively clear that D intended that child to be a beneficiary of D’s estate. But what about relatives of the DNA provider? Assume, for example, that the provider’s ancestor created a trust for the provider’s benefit for life, remainder to the provider’s descendants. Does the settlor intend to give anyone (the provider’s surviving spouse or anyone else) a blank check to create more remainder beneficiaries? That question was answered in the affirmative by In re Martin B. (Sur. Ct. 2007), 841 N.Y.S.2d 207.

The question whether a provider intends for a posthumously conceived child to be treated as their own is easier than the question whether an ancestor intends for someone else to be able to use the DNA to create more beneficiaries of the ancestor’s trust. Indeed, if clients were asked the question, “would you want your daughter-in-law to be able to make herself pregnant with your son’s frozen sperm, to create more beneficiaries of your trust,” would their answers predictably be the same as if they were asked “do you want your son-in-law to be able to withdraw your daughter’s frozen egg (or their frozen embryo) and find a surrogate mother to make more beneficiaries of your trust”? There is likely no way to predict a typical client’s reaction to either question, nor to predict whether any client’s response would distinguish between a daughter-in-law using the son’s sperm and bearing the child herself as opposed to a son-in-law finding a surrogate mother to carry the daughter’s child.

. . .

As all this shakes out, it may be wise for estate planners to draft for these issues, to articulate their clients’ intent in each regard. Particularly because state law is in flux, because one-size-fits-all legislation may not reflect a client’s intent, and because conflict of laws issues may inform a court’s reliance on the law of a different state.

So what’s it all mean?

First, the question of whether posthumously conceived children are included as beneficiaries of multi-generational trusts should be answered by focusing on the original trust settlor’s intent, not biological science. In other words, the right question is “what did the settlor intend?” not, “are posthumously conceived children biologically related to their parents?” The intent v. science conflict is crystalized beautifully in testamentary DNA cases [see here, here]. In Florida, the intent v. science conflict has yet to play itself out in an appellate decision involving a class gift to posthumously conceived children.

Second, one-size-fits-all legislation is never perfect, but it’s sorely needed for intestate estates involving posthumously conceived children. As of 2008, we now have new UPC § 2-705 to potentially fill this gap (this new UPC provision hasn’t been adopted in Florida). Here’s how new UPC § 2-705 is described in The Uniform Probate Code Addresses the Class-Gift and Intestacy Rights of Children of Assisted Reproduction:

Although estate-planning specialists do not often deal directly with intestate estates, the treatment of children of assisted reproduction under the intestacy laws is a matter of social importance and, under the UPC, governs how such children are treated for purposes of a class gift. UPC § 2-705 provides that a class gift that uses a term of relationship to identify the class members includes a child of assisted reproduction and their respective descendants if appropriate to the class, in accordance with the rules for intestate succession regarding parent-child relationships.

It bears emphasizing that UPC § 2-705 establishes a rule of construction regarding class gifts, not a mandatory rule. A rule of construction is a default rule that applies in the absence of a contrary intention. Consequently, drafting attorneys have every opportunity to alter a rule of construction in order to give effect to a client’s preferences.

Finally, until, as Prof. Pennell puts it, “all this shakes out,” there’s only one way to deliver a semblance of certainty to estate planning clients (as well as giving voice to their personal values): good drafting. When it comes to good drafting, no man is an island. I don’t care how good you are, it never hurts to read what other thoughtful trusts and estates lawyers are drafting. In Florida, one of the best drafters in practice is Bruce Stone of Goldman Felcoski & Stone in Coral Gables, Florida. At the 2012 Heckerling conference earlier this year Bruce published a short piece entitled Drafting for Flexibility in Dynasty Trusts, in which he provides sample trust language addressing class gifts to posthumously conceived children. Bruce’s clause probably won’t be the last word in drafting for this contingency, but it’s a solid start.

Stay tuned for more . . .