State laws on inheritance rights vary dramatically, creating traps for the unwary
Imagine you are the beneficiary of a trust established by your great-grandfather more than 70 years ago. You've been receiving an annual income of $400,000 from the trust for 20 years and your whole family's lifestyle has come to depend upon it. Then, one day, you get a call from a trust officer informing you that the law has changed and your income will be cut in half because your adopted cousin now also is a beneficiary of the trust.
Imagine that you are a professional fiduciary and the law in your state has been amended to provide that adopted individuals now are presumed to be beneficiaries of trusts established during a time when the opposite was true. You must scramble to identify which trusts will be affected by the change in the law. Quickly, you have to identify which families may have adopted children — information you did not need in the past. Once you find the adoptees, you need to collect information about the circumstances and needs of these new beneficiaries to determine if they should receive discretionary distributions from the trust. And you not only must include these new beneficiaries in mandatory income distributions, but also must inform the current beneficiaries that their income stream is going to shrink.
Imagine that you are the estate-planning attorney for a client who is a beneficiary of a 70-year-old family trust and has adopted as well as biological children. You assisted the client in establishing and funding an irrevocable trust for the benefit of the adopted children because, previously, they would not be entitled to receive anything from the old family trust when it terminated. Now, you have to inform your client that because the law has changed, her adopted children may end up inheriting a greater share of the family wealth than her biological children.
Imagine you are an adopted child who receives a call informing you that, because of a change in the law, you are now a beneficiary of a trust established by your adoptive mother's great-grandfather. You are told to expect a check each month of more than $16,000, representing your share of the income of the trust.
These hypothetical situations are not far-fetched. On Jan. 15, 2009, Governor Deval Patrick of Massachusetts signed an amendment that changed the state law governing the inheritance rights of adopted children1 so that all adopted descendants are presumed to be included among beneficiaries referred to in a trust as “issue,” “descendants,” “heirs” or similar terms — unless the instrument's language clearly states an intent to exclude them. This “inclusion presumption” already was in effect for trust documents executed on or after Aug. 26, 1958. But now it also applies to instruments executed prior to that date.
The amendment created a host of issues for both trustees and beneficiaries of trusts that have been in existence for more than 50 years — and for the practitioners whose clients have interests in these trusts.2 There's a good deal of wealth concentrated in many of these trusts. After all, Massachusetts has a lot of “old money” being passed down through the generations.
Surprised and concerned, local bar associations and banking organizations asked for and received a temporary reprieve from Massachusetts lawmakers. The state legislature deferred the amendment's effective date to July 1, 2010.3
But Massachusetts is just the most recent state, and it certainly won't be the last, to wrestle with the nettlesome issue of when, and to what extent, adopted descendants should be permitted to inherit through class gifts included in testamentary instruments.4 Evolving perceptions of adoption have led state courts and legislatures to consider the issue for much of the 20th century and now into the 21st. The resulting laws have been far from consistent.
Continue on Page 2
Until the 1950s, most states interpreted class gifts in testamentary instruments to include only the settlor's adopted children. In the absence of specific inclusion language, all other adopted descendants were presumed to be excluded — an interpretation known as the “stranger to the adoption” rule. Courts reasoned that settlors generally intended for their property to descend along blood lines. So, unless a settlor was party to an adoption, it was presumed that he did not intend for an adopted descendant to inherit. This presumption could be overcome if it appeared that the settlor intended to include adopted descendants — though the standard of proof required to overcome the presumption and the evidence admissible as proof varied widely between states.
Beginning in the 1950s, Americans grew more accepting of adoption. And as adoption became more common, courts and legislatures began to conclude that the “stranger to the adoption” rule was not an accurate reflection of most settlors' unspoken intentions. States began to reverse the rule, either by statutory enactment or by case law, in favor of the inclusion presumption.
More than a third of the states have enacted the Uniform Probate Code (UPC) in some form since it was first promulgated in 1969 — and thereby put adopted descendents on equal footing with biological descendants. The UPC provides that adopted individuals and their descendants are included in class gift terminology in accordance with the rules for intestate succession.5 The UPC's rules on intestate succession provide that, with minor exceptions, a “parent-child relationship exists between an adoptee and the adoptee's adoptive parent or parents.”
Still, in all the UPC states (except Maine), this inclusion presumption applies only prospectively to those instruments executed after the state law's effective date. The result is a dramatic dichotomy. Courts apply the stranger to the adoption rule to instruments executed before the UPC's enactment and the inclusion presumption to instruments executed after. This approach generally is defended on the dual grounds of preserving the property interests of biological descendants and respecting the presumed intent of settlors who executed instruments in reliance upon prior versions of the law. It also offers practitioners clear and consistent rules for the administration of older trust instruments.
Eight states have rejected this logic. They have enacted statutes that expressly apply the inclusion presumption retroactively. Those states are, in addition to Massachusetts, Alabama,6 Illinois,7 Maryland,8 North Carolina,9 Ohio,10 Rhode Island11 and Tennessee.12
Debate about this issue has been fierce in some of these states — largely because of constitutional questions raised by beneficiaries whose inheritances were diminished, or even defeated, when adopted descendants were added as beneficiaries.
Statutes with retroactive effect often are challenged on federal constitutional grounds: Plaintiffs argue that these statutes violate due process by diminishing or defeating vested property rights. The inclusion of adopted descendants as beneficiaries of trusts created before the statute was enacted either potentially or actually reduces trust distributions to biological descendants. In some cases, when a branch of a settlor's family has been deemed terminated because only adopted descendants remained, a reconstitution of that branch could effectively eliminate the interests of biological descendants.
State courts have responded to such constitutional challenges in several ways. Those that have upheld a statute's retroactivity generally have relied on one of two rationales. The first rationale has been to reject the constitutional challenge by narrowly defining the term “vested rights” and thus find the statute does not affect vested rights.
For example, the North Carolina Supreme Court in the 1973 case of Peele v. Finch reasoned that statutes that destroy or reduce contingent interests are not unconstitutional because vested rights are not affected.13 The North Carolina statute,14 enacted in 1963, includes adopted descendants in class gifts “unless a contrary intention plainly appears from the terms of the instrument.” The statute applies to all instruments regardless of when executed.
Continue on Page 2
In Peele, in a will executed in 1920, the testator gave a life estate in certain real property to his daughter. Upon her death, the property was to pass to her children or, if she had no children, “to her brothers and sisters, or to the issue of those that may be dead, share and share alike.”15 The daughter died in 1972 and was survived by one sister and children of her three deceased siblings, one of whom was adopted. In 1963, North Carolina had enacted a statute providing that from the signing of a final order of adoption, an adopted child is entitled to inherit from and through his/her adoptive parents.16 The statute also provides that the term “issue”17 includes an adopted person, whether an instrument was executed before or after the enactment of the statute.
The Peele court rejected the argument of the testator's biological issue that application of the 1963 statute retroactively to a will executed 40 years earlier deprived them of their property interests without due process of law, holding that the rights of the biological issue did not vest until the death of the testator's daughter. As long as the statute diminished only contingent remainder interests, the court found, it did not violate the due process clause of the state or federal constitution.18
Other states have similarly confined the term “vested rights.” In applying the Maryland inheritance statute,19 the U.S. Court of Appeals for the Fourth Circuit in a 1977 decision, Purifoy v. Mercantile-Safe Deposit and Trust Company, held that absolute vesting of rights to the remainder of a life estate occurred at the death of the life tenant, and therefore no constitutional violation resulted from a retroactive application of the inclusion presumption.20
A second strain of reasoning has held that the inclusion presumption is merely a rule of evidence, not a substantive law, and therefore does not impair the constitutional property rights of trust beneficiaries. This rationale was applied in 1961 by the Rhode Island Supreme Court in Prince v. Nugent.21
The Rhode Island statute,22 enacted in 1956, provides that adopted children are deemed to be children of their adoptive parents for purposes of the construction of any instrument, regardless of when executed, unless a contrary intent appears in the instrument.
Prince involved the question of whether an adopted son was included in the term “children,” so that he would be entitled to a distribution following the death of his adoptive father, who was still living when the case was decided. The court held that the adopted son was included. The court rejected the argument that the inclusion presumption changed the meaning of the words used by the settlor in establishing the trust, retroactively impairing the property rights that had been established or vested before the statute was enacted.23 Instead, the court held that the statute is “merely a rule of evidence concerned with the burden of proof” and is applied at the time the document is being interpreted.24
Prince also addressed the issue of whether the adopted son's biological daughter was included in a class of beneficiaries — “female children and more remote female issue” — who were entitled to share in an income payment at a specific time each year. Like the North Carolina court in Peele, the Rhode Island court held that the inclusion of the adopted son's daughter did not defeat or diminish the vested rights of a biological child. The biological child's interest was not a “fixed right of future enjoyment of the annual payment;” rather, her interest was contingent on her being alive on the date of the payment.25
Other states have adopted a similar rationale. In First National Bank of Chicago v. King,26 the Supreme Court of Illinois in 1995 allowed an adopted child to inherit under a testamentary trust that granted the principal to “lawful descendants,” when the will establishing the trust was executed 53 years before the enactment of a statute that retroactively applied the inclusion presumption to all trust instruments.27 The court held that the statute was merely a rule of evidence allocating the burden of proof, not a rule of substantive law, and therefore no constitutional deprivation of due process resulted from its operation.28
Continue on Page 4
Similarly, the Court of Appeals of Maryland in a 1981 decision, Evans v. McCoy, held that Maryland's retroactive statute29 merely creates an evidentiary presumption and, as such, does not affect constitutional rights.30
Not all states have been so willing to allow a retroactive application of the inclusion presumption. The Judicial Court of Maine chose to limit the retroactive application of Maine's statute to situations in which the testator survived the enactment of the statute. In 1979, Maine enacted a form of the UPC that provides that adopted children are included in class gifts.31 By its terms, Maine's version of the UPC applies rules of construction and presumptions to instruments executed before the statute's effective date unless there is clear indication of contrary intent. Regardless, in a 1985 decision in Scribner v. Berry,32 the Judicial Court of Maine held that it was appropriate to apply the inclusion presumption retroactively to wills executed prior to the statute's effective date only when the testator survived the effective date and therefore had the opportunity to amend the will if he or she disagreed with the new law.33
The most drastic response to legislative attempts to enhance the inheritance rights of adopted descendants has occurred in Tennessee. The courts there have simply refused to enforce a state statute that includes adopted descendants in class gifts — regardless of when the instrument was executed.
Despite a 1976 statute expressly including adopted descendants in all testamentary gifts,34 the Tennessee Court of Appeals, in the 1982 Banovic v. Davis,35 refused to include an adopted child in a gift to “issue” on the grounds that the ordinary and technical meaning of “issue” at the time the instrument was executed excluded adopted children. The Tennessee legislature responded by amending the statute in 1983 to provide that the use of terms such as issue, children and the like is not an expression of a clear contrary intent to exclude unless the instrument specifically states that adopted descendants are to be excluded from the class.36 Regardless, the Supreme Court of Tennessee subsequently excluded adopted descendants from a class of beneficiaries under a testamentary trust for “lineal descendants,” holding that that term typically excluded adopted descendants at the time of the instrument's execution, and therefore the use of the term without additional language indicating that the testator intended for a future law to apply demonstrated an intent that adopted descendants be excluded.37
Conversely, it should be noted that even in states where statutes have not made the inclusion presumption apply retroactively, courts have sometimes done so on the grounds of public policy. For example, in 1977, the Court of Appeals of West Virginia applied a state statute retroactively in Wheeling Dollar Savings & Trust Co. v. Hanes.38 The West Virginia statute allowed adopted children to inherit from and through their adoptive parents as well as the collateral kindred of the adoptive parents, but it did not expressly state that the statute should apply retroactively.39 Still, the court of appeals held that the statute demonstrated a clear public policy of placing adopted children on par with natural children, and therefore should operate retroactively.40 The court ruled that adopted children can only be excluded if the settlor or testator “specifically excluded them by unambiguous explicit language.”41 Similarly, both the Supreme Court of Alabama and the Supreme Court of New Jersey have cited their legislative enactments as evidence of public policy and applied the inclusion presumption to instruments executed prior to the enactments in order to enable adopted descendants to inherit.42
Proof and Evidence
Once it's been determined that the inclusion presumption applies, the standard of proof required to rebut the presumption, as well as the evidence admissible to establish such proof, vary widely between the states.43
For example, the Ohio statute includes adopted descendants in documents and instruments “which do not expressly exclude an adopted person.”44 Similarly, the statutes of Alabama and Maine provide that the inclusion presumption applies unless there is a “clear indication of contrary intent.”45 Probably the most difficult standard of rebuttal is found in the Illinois statute - “unless the contrary intent is demonstrated by the terms of the instrument by clear and convincing evidence.”46
States also differ on whether a contrary intent must be evidenced by the terms of the instrument itself, or whether extrinsic evidence may be admissible to overcome the presumption. Delaware, Illinois, Indiana, Maryland, New Jersey, North Carolina, Ohio, Rhode Island, Tennessee and West Virginia all clearly exclude extrinsic evidence, either by statute or under case law.
Continue on Page 5
Many of the other states have not explicitly established a rule either way, leaving open the possibility that extrinsic evidence, such as whether a settlor knew of the adoption or even considered the possibility of adoption, could affect inheritance rights.47
Finally, when evidence of the settlor's intent is limited to the terms of the instrument, there are different points of view on whether the use of terms that, at the time the instrument was executed, were understood to exclude adopted descendants — such as “lawful descendants” or “issue” — is sufficient to overcome a presumption of inclusion. In most cases, the answer has been no. But the Tennessee courts have used precisely this reasoning to overcome a statutory provision that requires inclusion of adopted descendants “unless a contrary intention clearly shall appear by the terms of such instrument.” In Banovic v. Davis, the court excluded adopted descendants from a class gift to “issue” on the grounds that the ordinary meaning of this term at the time the instrument was executed excluded adopted descendants, and thus by using the term, the settlor had clearly demonstrated an intent contrary to the inclusion presumption.48
How To Cope
The laws governing the inheritance rights of adopted children are varied and often unclear. They have changed significantly in recent years, often in ways that have affected instruments executed long before the statutes or court decisions changing the law took effect. Estate-planning attorneys and fiduciaries are advised to pay careful attention to the question of whether adopted children are included as beneficiaries of trusts when the instrument does not specifically and clearly define terms such as “children,” “issue,” “descendants,” “heirs” and the like. Not only can the existence of adopted children affect the administration of a trust, but it's also a critical issue for beneficiaries exercising powers of appointment and/or providing for adopted children in their own estate plans, based on the belief that these children are not entitled to share in older family trusts. Attorneys must discuss with their clients how they want adopted children to be treated in their estate plans, and must carefully craft language that will embody the client's wishes even if the law changes in the future.
As a matter of caution, fiduciaries may want to collect information about adopted children and include them in family trees so that they are prepared in the event the law governing the trust changes in the future, either by statute or court decision. Moreover, fiduciaries must keep abreast the law of the jurisdictions governing the trust instruments, which may differ from the law of the jurisdiction where the fiduciary is located. Finally, in states where it's unclear whether adopted children are included in class gifts, fiduciaries also may want to consider seeking the assistance of the court in making this determination.49
— The authors gratefully acknowledge the assistance of Janet M. Rickershauser, an attorney at Goodwin Procter LLP in Boston, in the preparation of this article.
Continue on Page 6
- Massachusetts General Laws, Chapter 210, Section 8. Chapter 524 of the Acts of 2008, titled “An Act Further Regulating the Rights of Adopted Children,” provides that “Section 8 of chapter 210 of the General Laws shall apply to all grants trust settlements, entails, devises or bequests executed at any time, but this section shall not affect distributions made before May 1, 2009 under testamentary instruments executed before September 1, 1969.” The act became effective 90 days later, on April 15, 2009, although it appears that for testamentary instruments (in Massachusetts, this term is generally understood to refer to trusts created under wills) the effective date was May 1, 2009.
- For an excellent discussion of the Massachusetts statute, see Marc J. Bloostein, “An Act Further Regulating the Rights of Adopted Children,” Boston Bar Ass'n Trusts & Estates Section Newsletter (Spring 2009).
- Chapter 27 of the Acts of 2009, Section 101, 102, 159 and 160. But this deferral took effect on July 1, 2009, so the “inclusion presumption” amendment was in effect for approximately two months. To address this issue, the deferral act provides that it does not affect the validity of any action taken pursuant to the amendment between April 15, 2009 and July 1, 2009.
- It is doubtful, however, that any other state has such a convoluted statutory history on this issue. In 1876, the Massachusetts legislature enacted a statute providing that children adopted by a trust settlor were presumed to be included in class gifts to the settlor's descendants, but children adopted by others (for example, an adopted grandchild) were presumed to be excluded. This was known as the “stranger to the adoption rule.” The presumption of exclusion could be overridden if it “plainly appears” that the settlor intended to include adopteds; intent could be gleaned not only from language in the instrument but also from extrinsic evidence such as the settlor's relationship to an adopted descendant. There was also an exception to this rule — it did not apply to divest the interests of adopteds under the law in effect prior to 1876, which included all adopteds in class gifts to a settlor's issue. In 1958, the statute was amended to reverse the stranger to the adoption rule. Thus, adopteds were presumed to be included in class gifts, whether the settlor was the adoptive parent, unless a contrary intent plainly appears in the actual instrument. This “inclusion presumption” applied only prospectively to instruments executed on or after Aug. 26, 1958, the effective date of the legislation. In 1969, the statute was again revised. Now, the inclusion presumption was to apply retroactively to instruments created before 1958, unless it would divest a beneficiary of an interest in a pre-1958 trust that had vested prior to Sept. 1, 1969. This caveat generated a number of cases centering on the definition of a “vested” interest. In 1972, the Supreme Judicial Court of Massachusetts held that an adopted grandchild could not take under a pre-1958 trust because the interests of the testator's biological descendants vested at birth. Billings v. Fowler, 361 Mass. 230, 241-242 (1972). Rejecting complicated property law concepts of vesting, the court held that the interests of the testator's biological descendants, contingent and present, vested upon the testator's death or upon their birth and therefore fell within the exception for vested interests in the 1969 statute. These interests could only be diminished or defeated by biological events, such as the birth of an additional biological descendant or the death of a descendant before he or she was entitled to receive trust distributions. In 1975, Section 8 was amended again, this time by an act that repealed the retroactive provisions of the 1969 act. The inclusion presumption was again applicable only to instruments executed after Aug. 26, 1958. Except for the period between 1969 and 1975, the stranger to the adoption rule has continued to be applied in Massachusetts to pre-1958 instruments for the past 50 years.
- Uniform Probate Code (UPC) Section 2-101 (2008).
- See Ala. Code Section 43-8-48(1) (1991) (for intestate purposes, adopted person is child of adopting parent); Section 43-8-230 (adopted persons are included in class gifts); and Section 43-8-8(3) (rule of construction applies to instrument executed before Jan. 1, 1983, unless there is a clear indication of contrary intent).
- See 755 Ill. Comp. Stat. 5/2-4(a) (1996) (adopted child is descendant of adopting parent for purposes of inheritance); 5/2-4(f) (a child adopted at any time before or after Sept. 30, 1989, is deemed to be born to adopting parent for purpose of determining property rights under any instrument executed before Sept. 1, 1955, unless an intent to exclude such child is demonstrated in the instrument by clear and convincing evidence or the adopting parent, based on the belief that the adopted child would not take property under the pre-1955 instrument, acted to “substantially benefit” such adopted child relative to provisions that the adopting parent made for his/her biological children).
- See Md. Code Ann. (Real Prop.) Section 2-123 (c) (2008) (unless indicated otherwise, the terms “child,” “descendant,” “heir,” and “issue” include adoptees).
- See N.C. Gen. Stat. Section 48-1-106(b) (1995) (adoptee entitled to inherit real and personal property by, through, and from adoptive parents in accordance with intestate succession statutes); Section 48-1-106(e) (in any instrument executed before Oct. 1, 1985, the words “child,” “grandchild,” “heir,” “issue,” and “descendant” include adopted persons unless a contrary intention plainly appears from terms of instrument).
- See Ohio Rev. Code Ann. Section 3107.15(A)(2) (2002) (adopted person considered legitimate blood descendant of adoptive parent for all purposes including inheritance and applicability of statutes, documents and instruments, whether executed before or after the adoption and before or after enactment of statute on May 30, 1996).
- See R.I. Gen. Laws Section 15-7-16 (1970) (adopted child deemed child of adoptive parents the same as if born to them in lawful wedlock. In construction of any instrument, whether executed before or after May 8, 1956, an adopted child shall be deemed child of adoptive parent unless contrary intention appears in terms of instrument).
- See Tenn. Code Ann. Section 36-1-121(b), (c) and (d) (1991) (in construction of any instrument executed before or after August 24, 1995, an adopted child is deemed included in class of lawful heirs, issue, children, and descendants of the adoptive parent unless a contrary intent clearly appears by terms of instrument).
- Peele v. Finch, 200 N.C. 375, 382 (1973).
- See supra note 9.
- Peele, supra note 13 at p. 377.
- N.C. Gen. Stat. Section 48-1-106 (1995), formerly Section 48-23-(1).
- N.C. Gen. Stat. Section 48-1-106(e) (1995), formerly Section 48-23-(3).
- Peele, supra note 13 at pp. 378, 382. In an earlier case, Wachovia Bank and Trust Company v. Andrews, 142 S.E.2d 182 (N.C. 1965), the Supreme Court of North Carolina refused to apply the statute retroactively. The court excluded adopted children from taking under a trust gift to “great nieces and nephews” on the grounds that retroactive application of the statute would unconstitutionally diminish the vested rights of the other trust beneficiaries. In Andrews, however, the living members of the class of “great nieces and nephews” were receiving income distributions under the terms of the trust prior to the enactment of Section 48-23-(3).
- See note 8.
- Purifoy v. Mercantile-Safe Deposit and Trust Company, 567 F.2d 268 (4th Cir. 1977). See also this article's discussion of Prince v. Nugent, 172 A.2d 743 (1961). The Massachusetts courts' concept of “vested” interests is markedly different. In the 1972 case Billings v. Fowler, the Supreme Judicial Court of Massachusetts held that an adopted grandchild could not take under a trust established before the inclusion presumption statute became effective because the interests of the testator's biological descendants vested at birth. 361 Mass. 230, 241-242 (1972). The trust at issue in Billings provided that income was to be paid to the testator's children and to a deceased child's issue by right of representation. A child sought a declaratory judgment that “issue” included her adopted child. The court rejected a narrow approach to the concept of vesting in favor of a simpler definition: the interests of the testator's biological descendants, contingent and present, vested upon the testator's death or upon their birth. These interests could only be diminished or defeated by biological events, such as the birth of an additional biological descendant or the death of a descendant before he or she was entitled to receive trust distributions.
- Prince v. Nugent, 172 A.2d 743 (1961).
- R.I. Gen. Laws Section 15-7-16 (1970) provided that in the construction of any instrument, whether executed before or after May 8, 1956 (the effective date of the statute), an adopted child and his or her descendants are included in the terms “lawful issue or descendants,” unless a contrary intent appears in the instrument or unless the estate at issue had vested in the persons entitled thereto on May 8, 1956. The retroactive application of Section 15-7-16 was temporarily limited by a statutory amendment in 1962, which restricted the inclusion presumption under Section 15-7-16 to children who were adopted during the testator's life. In 1966, the statutory exclusion for children adopted after the testator's death was repealed by statutory amendment. In its current form, the statute provides that an adopted child and his descendants are included in the terms “lawful heirs, issue, children, descendants or the like,” unless a contrary intent appears in the instrument or unless the estate at issue has vested in the persons entitled to it on April 20, 1962.
- Prince, supra note 21 at pp. 164-165, 166.
- Ibid. at p. 166.
- Ibid. at pp. 163-164.
- First National Bank of Chicago v. King, 165 Ill.2d 533 (1995), rehearing den. (May 30, 1995).
- In 1955, the Illinois legislature enacted what is now 755 Ill. Comp. Stat. 5/2-4 (1996), which provides that an adopted child is deemed a descendant of his adoptive parents for purposes of inheritance from the adoptive parents and their lineal and collateral kindred. As enacted in 1955, that section provided that for purposes of instruments executed on or after Sept. 1, 1955, adopted children are included “unless the contrary intent plainly appears by the terms of the instrument.” Thus, the statute reversed the stranger to the adoption rule only prospectively. An amendment to the statute in 1989 added a retroactive clause, providing that adopted children are included in instruments executed prior to Sept. 1, 1955, unless either the instrument includes clear and convincing evidence to the contrary or the adoptive parent acted to substantially benefit the child because of a belief that he would not otherwise be included. King involved a trust that paid income to the “lawful descendants” of the testator's daughter-in-law upon her death. The daughter-in-law died in 1968. One of her children predeceased her, leaving two children, one of whom was adopted. The biological child began receiving the income upon the death of his mother. When the 1989 statute was enacted, the trustees filed a declaratory judgment action to determine if the adopted child should also be treated as a beneficiary.
- King, supra note 26 at pp. 541-542. The court rejected the argument that the simple use of the words “lawful descendants” constituted clear and convincing evidence that the testator intended to exclude adopteds. “There must be something more in the terms of the instrument itself to demonstrate, at a minimum, that the testator actually considered the contingency of adoption.” Ibid., citing the Appellate Court of Illinois decision, 263 Ill.App.3d 813, 820 (1994). Justice James D. Heiple of the Illinois Supreme Court dissented on the basis that it is a basic rule of testamentary construction that a testator is presumed to know the law in effect at the time he executes his will, and that therefore the testator's use of the terms “lawful descendants” and “per stirpes” indicated his intent to exclude adopteds pursuant to the stranger to the adoption rule then in effect. Further, Justice Heiple opined that the retroactive application of the inclusion presumption did violate the vested rights of the biological child who had received the income from the trust for over 20 years. Application of the inclusion presumption allowed the adopted child to receive one-half of the income stream to which the biological child is, in Justice Heiple's view, “entitled to the continued enjoyment.” Ibid. at p. 545.
- In 1947, the Maryland legislature enacted Article 16, Section 78(c), which provided that adopted children are included in testamentary instruments unless a contrary intent plainly appears by the terms of the instrument. Application of the statute was dependent upon the date of adoption, not the date when the instrument was executed. The statute applied to any instrument, regardless of when it was executed, but did not affect the rights of children adopted before June 1, 1947. The statute effectively reversed the stranger to the adoption rule only as it pertained to children adopted after the statute's effective date. Subsequent amendments to the statute have increased the evidence required to overcome the presumption. The current version, which is now Md. Code Ann. (Real Prop.) Section 2-123(c) (2008), includes adopted children unless the instrument “clearly indicates otherwise.”
- Evans v. McCoy, 436 A.2d 436 (Md. 1981).
- Effective Jan. 1, 1981, Me. Rev. Stat. Ann. Tit. 18-A, Section 2-611 (1998) provides that adopted children are included in class gifts. Section 8-401(b)(5) provides that rules of construction and presumptions contained in the UPC apply to instruments executed before its effective date unless there is clear indication of contrary intent.
- Scribner v. Berry, 489 A.2d 8 (Me. 1985).
- Ibid. at p. 9. For an interesting constitutional analysis of a retroactive statute, see Bank One Trust Co. N.A. v. Reynolds, 173 Ohio App.3d 1 (2007). The Ohio statute provides that upon the entry of a decree of adoption, the adoptee has all of the rights of a blood descendant of the adoptive parent “for all purposes including inheritance and applicability of statutes, documents and instruments, whether executed before or after the adoption was decreed, and whether executed before or after May 30, 1996 [the effective date of the statute], which do not expressly exclude an adopted person.” Ohio Rev. Code Ann. Section 3107.15(A)(2) (2005). The statute, however, excepts persons adopted over the age of 18, “unless the… instrument expressly includes the adopted person by name or expressly states that it includes a person who is 18 years of age or older… [when] adopted.” Section 3107.15(A)(3). Reynolds involved a testamentary trust for the benefit of the testator's “lineal descendants,” and the will specifically provided that term “lineal descendant” shall include “in every instance both blood and adoption relationships.” The trustee of the trust sought instructions on whether a person adopted as an adult by the testator's grandson was a “lineal descendant” of the testator, or whether he was excluded pursuant to Section 3107.15(A)(3). In analyzing the constitutionality of the statute, the Court of Appeals of Ohio wrote that it must first determine whether the legislature intended the statute to apply retroactively, which it clearly did. Secondly, it must determine if the retroactive statute is substantive or remedial. The retroactive application of a remedial statute is constitutional. The retroactive application of a substantive statute is also constitutional unless “it impairs vested rights, affects an accrued substantive right, or imposes new or additional burdens, duties, obligations or liabilities on a past transaction.” Ibid. at p. 8. The court refused to retroactively apply the provision that persons adopted as adults are not beneficiaries unless the testator includes specific language in the will, on the grounds that this imposed an additional burden on the testator in violation of her right to create a trust as a means of protecting her property, an inalienable right set forth in the Ohio Constitution. Ibid. at p. 9, citing Section 1, Article I of the Ohio Constitution, which provides: “All men are, by nature, free and independent, and have certain inalienable rights, among which are those of enjoying and defending life and liberty, acquiring, possessing, and protecting property, and seeking and obtaining happiness and safety.”
- Tenn. Code Ann. Section 36-126 (1977).
- Banovic v. Davis 642 S.W.2d 153, 156-157 (Tenn.Ct.App. 1982).
- Tenn. Code Ann. Section 36-1-126(d) (1984), now Section 36-1-121(d) (1991).
- Calhoun v. Campbell, 763 W.2d 744, 750 (Tenn. 1988).
- Wheeling Dollar Savings & Trust Co. v. Hanes, 160 W. Va. 711 (1977); rehearing den. (Oct. 10, 1977).
- W. Va. Code Section 48-22-703(b)(2004).
- Wheeler Dollar Savings & Trust Co., supra note 38 at p. 717.
- Ibid. at p. 713.
- See McCaleb v. Brown, 344 So.2d 485, 488 (Ala. 1977); In re Accounting of Thompson, 250 A.2d 393 (N.J. 1968); Estate of Wehrhane, 128 A.2d 681 (N.J. 1957).
- For a comprehensive review of court decisions addressing these issues, see Jay M. Zitter, “Adopted child as within class named in testamentary gift,” 36 A.L.R.5th 395 (1996).
- See Ohio Rev. Code Ann. Section 3107.15(A)(2) (2002).
- See Ala. Code Section 43-8-8(3) (1991); Me. Rev. Stat. Ann. Tit. 18-A, Section 8-401(b)(5) (1998).
- 755 Ill. Comp. Stat. 5/2-4(e) (1996).
- See. e.g., King, supra notes 26 and 28 (instrument must indicate that testator actually considered the contingency of adoption).
- See Calhoun v. Campbell, 763 W.2d 744, 750 (Tenn. 1988) (excluding adopted descendants from the term “lineal descendants” on similar grounds); see also the dissent in King, supra note 28.
- In connection with a court action or dispute centered on the inclusion of adopted children as trust beneficiaries, fiduciaries should consider the potential tax consequences of a court decision or settlement agreement. The Internal Revenue Service has issued several private letter rulings on the gift and generation-skipping transfer (GST) tax consequences of court decisions and agreements resolving this issue. The Service appears to be consistent in ruling that no gift tax will be imposed where the decision or agreement settles a bona fide issue of whether adopteds are to be included under the law of the state governing the trust. Moreover, the Service has consistently ruled that a trust will not lose its status as being grandfathered from GST tax in these circumstances. See, for example, PLR 9528012 (April 13, 1995); PLR 200303030 (Oct. 8, 2002); PLR 200328026 (April 3, 2003); and PLR 200747015 (July 6, 2007).
Jennifer Locke (far left) is counsel to Goodwin Procter LLP in Boston. Lauren E. Gustafson is an attorney in Boston