Defining Parentage in the Age of Surrogacy, Part 3: Mother at Law

On Christmas Eve in 2004, Mona and Ingrid were legally married in the Netherlands, the first country to allow same-sex marriages.  Ingrid is a Dutch citizen and a practicing attorney in New York.  Her spouse Mona is employed at the United Nations and is of Somali/Yemeni descent.  Desirous of starting a family but eager to preserve their ethnic and racial diversity, the women used assisted reproductive technology to achieve their mutual goals. 

As is the common practice with egg donors, Mona signed a surrender giving up her parental rights.  At the same time, she executed a side agreement with Ingrid.  Mona's ova were fertilized in vitro by an anonymous sperm donor of Dutch and Italian ancestry to match Ingrid's background.  After a successful implantation, Mona became the genetic mother and Ingrid became the gestational mother of boy they named Sebastian.  But even though she was legally married to Sebastian's mother,  Mona initiated an adoption proceeding in order to become the legal parent of her own child.

In a prior series on adoption, I have already examined the history and the New York statutes that create a new legal relationship between the child and the adoptive parents.  In this case, however, Mona was seeking to create a legal relation with her own child and the child of her spouse.  Mona was asking the Surrogate Court to become a mother at law.  But why?

The case of Matter of Sebastian, 25 Misc 3d 567 [Sur Ct, NY County 2009],  raises two key issues about the nature of modern parentage.  The first issue has to do with the portability of parentage rights:  are you a parent to your child everywhere you go?   New York recognizes valid same-sex marriages performed elsewhere (Martinez v. County of Monroe, 50 AD3d 189 [4th Dept 2008]),  and thus Mona and Ingrid enjoyed parentage rights in New York that flow from their legal marriage.  In New York,  the presumptive parentage rights of  "husbands" with respects to the children born to their "wives" flow to same-sex couples as well, making Mona's adoption of Sebastian unnecessary in New York. 

However, the Surrogate Court in Matter of Sebastian recognized that any parentage rights of a validly married resident same-sex couple may not be portable in states that explicitly prohibit same-sex co-parents from petitioning to adopt their partner's child, or the child of their relationship.  The issue of the portability of parentage rights for married same-sex couples is paramount because, unlike the parentage rights for traditional married couples, married same-sex couples do not enjoy presumptive parentage rights in states that do not recognize same-sex marriage.  Thus Mona would not be considered Sebastian's mother in these states, even though she is his genetic mother.

The only way that the Surrogate Court could guarantee the portability of Mona's parentage rights was to grant this genetic mother the right to adopt her own child, even though adoption is not used to affirm existing parental relationships.  Here, the court was asked to use adoption to bind the genetic mother to her own child to assure the portability of her parentage rights because she was not Sebastian's gestational mother.  Since states, even those who do not recognize same-sex marriage,  must give Full Faith and Credit to judicial decrees from sister states, including adoption, Mona was thereby granted full portability to her parentage rights.   Thus it was that Mona became a mother at law.

The court pointed out that amending Sebastian's birth certificate to include Mona as a parent would not have been sufficient to assert the portability of her parentage rights because a birth certificate is only prima facie evidence of parentage.  A birth certificate is a public record.  Under the Full Faith and Credit clause, a sister state can accord to that record no greater validity than the home state (30 Am Jur 2d, section 678).

The second issue addressed by the Surrogate Court in Matter of Sebastian goes to the equal protection of the laws:  are New York's family law statutes as written gender-based and thus unconstitutional because they deny women of any sexual orientation the equal protection of the laws?  To be fair, these laws precede the civil rights and women's movements, to say nothing of recent civil rights advances by the GLBT community.  But as written, New York's statutory scheme privileges the paternity rights of biological and "putative" fathers and provides a way for fathers to assert their parental rights.  The statutory scheme does not provide women the same equal legal opportunity to assert their maternity rights.   And because the New York statutory scheme for parentage is gender-based, the Surrogate Court raised the constitutional issue of equal protection in its opinion .

Under constitutional analysis, gender-based classifications are subject to heightened scrutiny, meaning that the government must show that a statute is related to an important government objective.  Traditionally, this objective has been to make sure that the child does not become a ward of the state, and thus a financial burden.  The laws were written at a time when men provided most of the financial support for households.  But with more and more women in the workforce and women financially able to provide for their children, these statutes now create legal inequities where in the past they created financial protection for women and their children.

The Surrogate Court found the New York statutes to be under inclusive, and chose to construe the statutes to avoid the constitutional infirmity, finding that the legislature would have chosen to extend parentage rights to genetic mothers and to provide the equal protection of the laws to genetic mothers like Mona.  The court provided to Mona the only remedy that would ensure full parentage rights and the portability of those rights anywhere in the world.  The court granted her petition to adopt her genetic child and the gestational child of her legal spouse.

In the next part of this series, I will examine the role of second-parent adoptions in creating modern families.  I invite you to join my list of subscribers to this blog by clicking on "Subscribe to" on the left-hand side of the page so that you can receive a notification when the next installment has been published. Thank you.

Defining Parentage in the Age of Surrogacy, Part 2: Who is a "mother"?

In the early 1980s, the Infertility Center of New York placed some ads in area newspapers seeking women who would be willing to carry a child for an infertile couple.  One young woman, Mary Beth Whitehead of Bricktown, New Jersey, saw the ad in the Asbury Park Press and answered it.  The Infertility Center matched Whitehead with William and Elizabeth Stern of Tenafly, New Jersey.  On February 6, 1985 Whitehead and the Sterns executed a surrogacy contract wherein Whitehead, in exchange for $10,000,  agreed to be artificially inseminated with William Stern's sperm, to carry the resulting child to term, and then to give up all legal rights to the child at birth.  At the time, Whitehead was married to Richard Whitehead.

Under this surrogacy arrangement, Whitehead became the genetic surrogate mother to Stern's child through artificial insemination with Stern's sperm.  Had Whitehead not contributed an ovum, as in the case of in vitro fertilization using an anonymous egg donor, she would have been a gestational surrogate mother.  In this case, both genetic parents were known.  Elizabeth Stern did not contribute an ovum because she suffered from multiple sclerosis, the reason for which the Sterns had sought a surrogate in the first place.

At common law, the mother is defined as she who bears the child.   Because maternity rights are presumed, laws protecting maternity rights arising out of surrogacy are often absent.  Parentage of a child is defined by the birth of the child to a mother and the mother's marriage to the child's father.  Where the mother is not married to the father, she retains full custody rights to the child.  A surrogacy contract involving a genetic mother seeks to alter the common law understanding of "mother" by termination of parental rights between the birth mother and her child without the intervention of a court.  In New York,  grounds for the termination of parental rights are governed by statute and found in  Soc. Serv. Law, §§ 384-b, 358-a(3)(b).   The parent must be adjudicated as "unfit" before parental rights can be terminated.

On March 27, 1986 Whitehead gave birth to a daughter whom she named Sara Elizabeth Whitehead.  She and her husband Richard gave every indication that the child was theirs, and the child's birth certificate indicated that Richard Whitehead was the father.  At common law, the mother's husband is the presumptive father.  As per the terms of her surrogacy contract, she gave up custody of the child to the Sterns at their home on March 30th.  But less than a day later, Whitehead had second thoughts.  She became emotionally distraught and asked the Sterns to return the child to her for a week, whereupon she would return the child.   The Sterns complied, concerned over Whitehead's extreme distress.  Instead of keeping her word, Whitehead and her husband fled with the baby to her parents' home in Florida.  The details of the Sterns' legal attempts to reclaim custody of the baby are found in In re Baby M, 537 A.2d 1227 (1998).

The New Jersey Supreme Court found that surrogacy contracts offend public policy and are contrary to New Jersey statutes.  The court found the surrogacy contract invalid and unenforceable for two reasons.  First, termination of parental rights may not be done by contract.  The legal standard for determining whether parental rights can be terminated is the best interest of the child and not a contractual clause.  Second, an irrevocable agreement on the part of a birth mother to give up a child for adoption prior to the child's birth amounts to coercion to contract, making the agreement unenforceable.  The court pointed to additional conflicts with adoption laws:  prohibitions on the exchange of money for the right to adopt, with the exception of fees paid to non-profit approved adoption agencies; and laws that make the birth mother's consent to put her child up for adoption a revocable act.

Furthermore,  New Jersey's Parentage Act codifies the long-standing common law understanding of parentage.  The New Jersey Parentage Act provides that, where a married woman is artificially inseminated by a sperm donor and with her husband's consent, the law creates a parent-child relationship between the husband and the child, and not between the sperm donor and the child (N.J.S.A 9:17-44).   The New Jersey Supreme Court found that Whitehead's parental rights had not been terminated as a result of the surrogacy contract.  The court granted custody to William Stern but visitation rights to Whitehead.

As a result of the Baby M case, New York passed a law prohibiting surrogacy agreements as contrary to public policy (D.L.R. § 122).   Surrogacy contracts fracture the unified concept of motherhood by separating out the functions of the genetic mother,  the gestational mother, and the custodial mother.  There are fines and criminal penalties in New York for commercial surrogacy.  Non-commercial surrogacy contracts are de facto unenforceable.  But this law did little to settle the issue of who is a "mother."  The issue is particularly thorny in cases where a resulting birth is produced by assisted reproductive technology (ART).  

Unlike surrogacy, artificial insemination is not against public policy in New York.   Artificial insemination maintains the unified concept of motherhood.  Women who donate eggs anonymously are generally required by fertility doctors to sign a surrender, thereby waiving all parental rights and responsibilities.  New York goes further and denies any egg donor (the genetic mother) standing to initiate an action for custody.  Anonymous sperm donors generally sign contracts with a sperm bank and not with a mother, and so the donor's anonymity and waiver of parental rights are generally upheld.  However, in New York a contract waiving parental rights and responsibilities between a known sperm donor and a mother is generally unenforceable.  The court will use the "best interest of the child" standard to determine the parental rights and obligations of the sperm donor.

Because New York legitimacy laws only apply to married couples, courts have approved instances where an anonymous sperm donor can successfully waive his parental rights if the the woman is unmarried.  The mother then gains sole custody of her child and has no standing to claim child support.  

Where a mother is married, there is the legal presumption in New York that a child conceived with the husband's consent  through artificial insemination is the legitimate, natural child of the couple.  The sperm donor has no rights to the child.  The mother who has been artificially inseminated is considered to be both the genetic and the gestational mother.

There have been exceptions to the rule that in New York a mother is both the genetic mother and the gestational mother.  In Perry-Rogers v. Fasano, 715 N.Y.S.2d 19 (App. Div. 2000),  a New York court awarded custody of one Black fraternal twin whose white mother was mistakenly implanted with an embryo created with the sperm and ovum of another couple, the Rogers.  In a truly Solomon-like fashion, the court decided that Donna Fasano was the gestational mother of both twins, but the genetic mother of only one twin.  The court acknowledged the legal challenge brought about by ARTs to the concept of “mother”:  “It was only with the recent advent of in vitro fertilization technology that it became possible to divide between two women the functions that traditionally defined a mother, at least prenatally. With this technology, a troublesome legal dilemma has arisen: When one woman’s fertilized eggs are implanted in another, which woman is the child’s “natural” mother? (Perry-Rogers v. Fasano, at 24)”

The court presciently predicted that further challenges to the legal concept of “mother” as being both genetic and gestational in New York would be forthcoming.  ” (W)e [do not] necessarily accept the broad premise that in any situation where a parent, possessed of that status by virtue of having borne and given birth to the child, acknowledges another couple’s entitlement to the status of parent by virtue of their having provided the genetic materials that created the child, the birth parent automatically gives up all parental rights (Id., at 25).

We will look at this precise question in the next part of this series:  who is the "mother" when a woman donates her ova (genetic mother) for in vitro fertilization by an anonymous sperm donor with the intent of having her spouse, another woman, carry the child (gestational mother)?  I invite you to join my list of subscribers to this blog by clicking on "Subscribe to" on the left-hand side of the page so that you can receive a notification when the next installment has been published. Thank you.

Defining Parentage in the Age of Surrogacy, Part 1: Who is a Parent?

On the surface, the question of who is a parent may seem simplistic or even obvious. But from a legal perspective, the issue of parentage has become a challenging one in the age of assisted reproductive technologies (ART) that include in vitro fertilization, surrogacy, genetic vs. gestational motherhood, etc. In this series, I will explore the question of parentage by looking at both the New York State statutes that govern parentage as well as some recent cases that are defining the legal framework for this issue.

At common law, the issue of parentage was simple. The mother was she who bore and delivered the child. Parentage was defined by birth to a mother and her marriage to the child's father. Any legal  impediment to marriage failed to confer this presumptive paternity.  Once the child was born, the child's property rights flowed through the husband of the child's mother. At law, the husband was considered the presumptive father of his wife's children. This remains the state of the law today (Michael H. v Gerald D., 491 US 110 (1989)), and is codified in New York in Family Court Act (FCA).

At common law, any legal questions regarding parentage or lineage involved issues of paternity exclusively.  This remains largely the case today, and the statutory scheme in the New York Code reflects this gendered language and thinking about parentage.  And while the rights of a mother to her child may be presumptive in this statutory scheme, they become at issue in cases where advanced reproductive technologies are used in procreation.  As we shall discover in this series, defining parentage is becoming a complicated matter.

Because legal rights historically have been conferred on children through their fathers, mothers of children born out of wedlock traditionally have sought legal protection for their children through paternity proceedings.  This is still the case in New York today as codified in FCA § 513. The Family Court has the exclusive original jurisdiction for all paternity proceedings in New York.

Of the many benefits that flow to children from having two recognized legal parents, one very tangible right is that of collecting social security benefits from both parents.  For the purposes of eligibility, the Social Security Act defines "child" according to the inheritance laws of each state (42 USC § 416 [h] [2]) .  Inheritance laws differ in each state, and in  New York are governed by the Estates, Powers & Trusts Law (EPTL).  Please refer to my prior post on this issue.

Because it is in the best interest of the child that the child have the benefit of two parents, New York law provides for a simplified way for an unwed father to acknowledge paternity.  Paternity may be acknowledged prior to the birth of the child through a procedure established in Public Health Law § 4135-B (1)(a):  "Immediately preceding or following the in-hospital birth of a child to an unmarried woman, the person in charge of such hospital or his or her designated representative shall provide to the child's mother and putative father, if such father is readily identifiable and available, the documents and written instructions necessary for such mother and putative father to complete an acknowledgment of paternity witnessed by two persons not related to the signatory. Such acknowledgment, if signed by both parties, at any time following the birth of a child, shall be filed with the registrar at the same time at which the certificate of live birth is filed, if possible, or anytime thereafter."

Paternity may also be established after birth "by a written statement, witnessed by two people not related to the signator or as provided for in section four thousand one hundred thirty-five-b of the public health law. Prior to the execution of such acknowledgment by the child's mother and the respondent, they shall be advised, orally, which may be through the use of audio or video equipment, and in writing, of the consequences of making such an acknowledgment. Upon the signing of an acknowledgment of paternity pursuant to this section, the social services official or his or her representative shall file the original acknowledgment with the registrar (Social Services Law § 111-k (a))."  Among the consequences of acknowledging paternity is that the birth mother may file for child support from the father in Family Court.

After the acknowledgment is filed with the registrar, a new birth certificate will be issued that reflects the names of the birth mother and the "putative" father (Public Health Law § 4138 (1)(e)).  The father remains "putative" even after acknowledgment of the child because the presumption of paternity is conferred only upon a man married to the birth mother. 

 

Parentage of a child can also be conferred through adoption.  Adoption is a creature of statutory law because it runs counter to the common law principles of parentage. Through adoption, courts create new legal relationships between the parent(s) and the child.  Please refer to my prior series on Adoption and Inheritance in New York for more detailed information.

In the next installment of this series, I will examine how reproductive technologies are challenging our established notions of who is the child's mother.   I invite you to join my list of subscribers to this blog by clicking on "Subscribe to" on the left-hand side of the page so that you can receive a notification when the next installment has been published.   Thank you.

The Carvel Soft-Serve Empire: Avoiding an Estate Meltdown

When I was growing up, one of my favorite treats was a Carvel chocolate-dipped vanilla soft-serve cone.  And  no birthday party was complete without a Carvel ice cream cake.  Tom Carvel was able to parlay my sweet tooth and millions of others into an empire at one time valued at $250 million.  When he died in 1990, he left behind his wife, the former Agnes Stewart, who had once loaned her future husband $15 to begin his ice cream business.  It proved to be a spectacular investment.  

Tom Carvel owed his spectacular good fortune to a flat tire.  When Carvel began his business in Hartsdale, New York in 1929, he used a truck to bring his homemade confection to his clients.  One day, a tire blew in the proximity of a pottery store parking lot.   With his ice cream quickly melting, Carvel decided to start selling right from his parked truck.  Thus began the idea for soft serve ice cream, which Carvel refined over time.  He then worked out a deal with the pottery store so that he could sell his ice cream in the parking lot by running an electrical wire to keep his confection refrigerated.  His sales took off.

In 1936 Carvel purchased the pottery store and formed the Carvel Brand Corporation.  Carvel realized that there was money to be made from real estate as well.  Having established a successful business model, Carvel proceeded to map out a plan to franchise his business.  As part of his franchising model, Carvel purchased the properties upon which his franchisee's store would be located, leasing back the space to the franchisee as part of the license agreement.  Thus the expansion of the Carvel brand also meant the expansion of the Carvel real estate holdings.

A known control freak, Carvel fought for years with the Federal Trade Commission against antitrust charges.  He required his franchisees to attend a three-month intensive training program, and the purchase of all supplies were to come directly from the Carvel Brand Corporation.  While this mentality may have served him well in business, the Will that he executed reflected his need to control from the grave.  The Will became the fodder for controversy and chaos.

His estate planning needs were relatively simple.  He and Agnes had no children, and his intent was to provide for Agnes during her lifetime and after her death the estate would go to charity.  There were several simple ways to accomplish this.  One way would have been to purchase a non-probate asset, such as an annuity, with Agnes as the beneficiary.  She could then have received structured payments immediately after his death.  

By naming a disinterested executor (he would instead name seven interested executors), such as a bank or law firm, Carvel could have assured the continuity needed to administer his large postmortem estate without controversy.  And while there are fees associated with this option, it may be a wiser course of action than the litigation costs associated with squabbling executors and beneficiaries. 

His Will would still have provided for the statutory spousal elective share.  Under New York Estates, Powers and Trusts Law (EPTL) § 5-1.1, a surviving spouse has the option of taking the the greater of $50,000 -or- 1/3 of the net estate. 

The rest of the estate could have been given to charity through an irrevocable charitable remainder trust. §664 of the Internal Revenue Code of 1986 as amended provides for either the payment of a fixed amount through a charitable remainder annuity trust (§664(d)(1)(D)), or a percentage of trust principal through a charitable remainder unitrust (§664(d)(2)(D)).  Carvel would have received two immediate benefits.  He could have claimed a charitable income tax deduction.  And given his sizable real estate portfolio, the estate would not have had to pay immediate capital gains taxes as the trust disposed of the trust property in its portfolio.

What Tom Carvel left behind instead when he died of a heart attack in 1990 was a chaotic estate.  Nine years later, the estate was still in litigation.  A lawsuit filed by his niece Pamela Carvel against the Thomas and Agnes Carvel Foundation in 1999 before the Second Circuit Court of Appeals (188 F.3d 83 (2nd Cir. 1999)) revealed that Tom and Agnes had executed "mirror wills," or two separate but identical Wills, each naming the Foundation as the beneficiary of their entire residuary estate.  At the same time, they executed a reciprocal agreement agreeing to refrain from changing their Wills or making certain transfers.

In addition to the Foundation, Carvel had created at least five other entities:  a Florida trust for his wife, a charitable remainder unitrust, two real estate holding companies, and the estate created by the mirror Will containing the statutory spousal election share and bequests to 83 different beneficiaries.

A year before his death, Tom Carvel sold his 700 stores to Middle East investors for a reported $80 million.  In the years following his death, a good portion of that sum was spent on litigation over the estate.  His widow Agnes, one of seven named original executors of his estate,  stepped down as executor and Foundation board member and fled to London in the wake of a call for a capacity hearing.  She died in London in 1998, having herself litigated against the estate to received the $600,000 quarterly payments stipulated in her husband's Will.  A well thought-out estate plan could have avoided this strife and achieved Tom Carvel's postmortem goals.

I invite you to join my list of subscribers to this blog by clicking on "Subscribe to" on the left-hand side of the page so that you can receive a notification when the next installment has been published. Thank you.

The Gottlieb Estate: When Dying without an Estate Plan Impacts Real Estate

New Yorkers are fond of telling real estate stories.  It's our urban past time.  But when they include a cast of characters seemingly ripped from the pages of a Dickens novel and some properties made extremely valuable as a result of gentrification, the mix is irresistible.  Add an estate controversy, and the story becomes even more compelling.

Labeled a "tightwad" by the New York Times, William Gottlieb learned about real estate from Harry Helmsley when he worked for him as a leasing representative.  Gottlieb observed how Helmsley made money by buying buildings and then cutting their operating costs.  When New York began experiencing tough economic times in the 1960,  Gottlieb went on a buying spree, purchasing foreclosed properties in what would become some of New York's trendiest neighborhoods.  Though he suffered from poor eyesight, William Gottlieb was blessed with great real estate foresight.

In 1972, Gottlieb had executed a Will leaving his entire estate to his sister Mollie, who had done clerical work in his office for years.  Together with their brother Arnold, she was named co-administrator of William's estate.  Mollie had two children:  Neil Bender and Cheryl Dier.  Dier had one son, Michael Corbett, from a previous marriage.  Michael Corbett had been raised by his grandparents.

In 1985 Mollie executed a Will that left everything to her husband and her son Neil, and expressly disinherited her daughter Cheryl.  After falling and breaking her hip in 2007, Mollie appointed her son Neil as administrator of the Gottlieb estate. She passed away a week later.

Thereupon Dier and Corbett filed suit against Neil Bender in Surrogate's Court claiming Neil's incompetence as executor, citing over 500 violations against Gottlieb properties as evidence.  Corbett launched a website to attract attention to the neglect of Gottlieb properties.  Corbett also alleged undue influence by Neil over his grandmother and claimed that his grandmother had promised his 25% of the estate.  The Surrogate's Court held that Bender's actions did not rise to the level that would merit disqualification as executor, and that Corbett had no standing to dispute the Will.  Dier and Corbett appealed.

In May 2010, the Appellate Court upheld the Surrogate's Court, finding Neil Bender to be fit to serve as executor.  The ruling paved the way for a potential redevelopment of the properties.  Only time will tell the fate of these Manhattan properties and their tenants.

I invite you to join my list of subscribers to this blog by clicking on "Subscribe to" on the left-hand side of the page so that you can receive a notification when the next installment has been published. Thank you.

Can't Touch This: In Terrorem Clauses in Wills

Family squabbles over the estate of a decedent are the stuff of tragedy and of farce.  For this reason, testators often include in terrorem clauses that penalize with forfeiture of their testamentary gift any beneficiary of the Will who unsuccessfully contests its provisions in any court.  In terrorem clauses are also designed to safeguard carefully crafted estate plans from disruption.

New York law, however, provides for some limits on in terrorem clauses in order to prevent fraud, undue influence, or gross injustice.  These safe harbor provisions are found in Surrogate's Court Procedure Act (SCPA) § 1404 and Estates, Powers and Trusts Law (EPTL) § 3-3.5.  The purpose of these safe harbor provisions is to allow a beneficiary to inquire into the circumstances surrounding the drafting of a Will without risking forfeiture of the bequest.  Because courts must strictly construe in terrorem clauses, such safe harbor challenges are the only means a beneficiary has of evaluating the risk of contesting the Will.

EPTL § 3-3.5 provides for "[t]he preliminary examination, under SCPA 1404, of a proponent's witnesses, the person who prepared the will, the nominated executors and the proponents in a probate proceeding" (EPTL 3-3.5 [b] [3] [D]).   SCPA 1404 [4] states that these persons "may be examined as to all relevant matters which may be the basis of objections to the probate of the propounded instrument."  Did the Legislature intend that the safe harbor provisions apply only to those persons expressly mentioned in the companion statutes, or did the Legislature merely provide examples of the types of persons who could be examined and not an exhaustive list?

The New York Court of Appeals addressed the issue of safe harbor provisions as they relate to in terrorem clauses in Matter of Singer, 2009 NY Slip Op 09265 [13 NY3d 447].  On 15 April 2003 Rabbi Joseph Singer executed a Will leaving his Brooklyn home, much of his personal property, and $200,000 to his daughter Vivian who had given up her life to take care of her father's needs.  To his son Alexander he left half of the remaining estate (to be shared with Vivian who was also her father's executor), less the outright gifts of $15,000 to each of Alexander's two sons.

The Will contained an in terrorem clause addressed specifically at Alexander.  "I specifically direct that my son, Alexander I. Singer, not contest, object to or oppose this Will or The Joseph Singer Revocable Trust Agreement, or any part of my estate plan or any gifts made by me, and I specifically direct that my son not take my daughter, Vivian S. Singer, to a Bet Din (religious court) or to any other court for any reason whatsoever; and I specifically direct that if my son takes any such action or brings on any such proceeding, neither my son nor any of his issue shall receive any share of my estate, whether passing under this Will, under The Joseph Singer Revocable Trust Agreement or otherwise."

On 5 March 2004 Rabbi Singer died and Vivian submitted the Will for probate shortly thereafter.  Alexander then served a notice of discovery seeking, among other things, to depose Joseph Katz, Rabbi Singer's previous attorney who had drafted seven Wills for the Rabbi but not the one in question.  Mr. Katz was subsequently deposed by Alexander's attorney.  Thereupon, it was revealed that Rabbi Singer had inserted an in terrorem clause in a prior 2002 Will drafted by Katz.  Alexander did not challenge the Will.

Was the deposition of Mr. Katz sufficient clause to trigger the in terrorem clause?  After all, Katz did not belong the the class of persons expressly mentioned in the safe harbor statutes.  The safe harbor provisions do not include a former attorney.  Or was the testator's intent, that Alexander not challenge the Will in any way, satisfied because Alexander never challenged the Will?

The Court of Appeals balanced the testator's intent with the public policy concern that Wills be valid and authentic before being admitted to probate.  The court reasoned that only by examining Katz could Alexander properly conclude that he lacked a basis for a successful Wills contest.  "A broader construction of these clauses as manifesting testator's intent to preclude the examination of this witness would essentially cut off all other persons from being asked for information, no matter the potential value or relevance of that information—even as to the medical or psychological condition of the testator at the time the will was executed. Interpreting these clauses narrowly will allow surrogates to address on a case-by-case basis whether the conduct undertaken is in keeping with the testator's intent."  

With Matter of Singer,  the Court of Appeals set a standard for the case-by-case construction of in terrorem clauses:  whether the conduct undertaken is in keeping with the testator's intent.   Had the court ruled in Vivian's favor, then Alexander and his sons would have been stripped of their bequests.  Clearly, that was not Rabbi Singer's intent with the in terrorem clause.  He merely wished to protect Vivian's bulk share from a challenge.  He did not wish to disinherit his son or his grandsons.

Matter of Singer is an object lesson about the use (and possible misuse) of in terrorem clauses.  As Judge Graffeo noted in his concurrence, "in terrorem clauses are not favored since they may result in a total forfeiture of a bequest and—because of this serious consequence—they must be strictly construed to conform to the testator's expressed intent."   An in terrorem clause must be drafted very carefully to reflect the testator's intent.  Your attorney can advise you as to whether an in terrorem clause is the best strategy based upon your unique circumstances.

I invite you to join my list of subscribers to this blog by clicking on "Subscribe to" on the left-hand side of the page so that you can receive a notification when the next installment has been published. Thank you.

The Federal Estate Tax: A Brief History

In many ways, the United States inherited the model for the federal estate tax from the British.  In feudal England, the monarch owned all of the real property and granted use of real estate to his nobles during their lifetime (life estate).  When the nobleman died, his heir could continue to use the land upon payment of an estate tax to the sovereign.  These death taxes provided needed income to the Crown to pay for war debts.   In default of heirs, the estate reverted to the Crown (escheat).  The statute Quia Emptores passed in 1290 finally granted the right to of an individual to hold an estate in land in fee simple (freehold) and to sell it (alienation), but it left the matter of the estate tax in the hands of the Crown.

The original Thirteen Colonies were the result of real estate grants and licences from the British Crown founded on the principles of Quia Emptores.  Whether New York still retained vestiges of Quia Emptores in its real estate law was  the subject of debate in the 19th century.  The court in De Peyster v. Michael, 6 NY 467 (1852), held that Quia Emptores had never been in effect in the colonies, meaning that land was not freely alienable in New York.  Seven years later, in Van Rensselaer v. Hays, 19 NY 68 (1859), the court in that case held that Quia Emptores had always been in effect in New York.  The question was settled in New York State Constitution Article 1 §12 which states "all lands within this state are declared allodial, so that, subject only to liability to escheat, the entire and absolute property is vested in the owners, according to the nature of their respective estates."  In a prior post, I have addressed the issue of the possibility of an estate escheating to the State when an individual dies without a Will (intestate). 

In 1765 the British Crown had imposed the Stamp Act specifically on the American colonies, the purpose of which was to help defray the military expenses, mainly troop salaries,  for the recently-fought Seven Year's War with France.  Among the provisions of the Stamp Act was a requirement that legal documents, such as Wills, be produced on special stamped paper produced in London and containing a revenue stamp.  Thus any colonist wishing to make a Will had to pay a tax.  Colonial discontent with taxes such as these would lead to the Revolutionary War.

Ironically the new government did not abandon this practice of enacting a tax on Wills to raise money to pay for military debts.  In an article published in the Journal of Business & Economics Research,  Eddie Metrejean and Cheryl Metrejean demonstrate an historical pattern whereby federal inheritance taxes began to be enacted to pay for wartime expenses.  Just a few years after the Revolution, the new Congress passed the Stamp Act of 1797 establishing a tax on Wills related to the transfer of property after death, once again to pay for a war in 1794 (albeit undeclared) with France.  But the law was quickly abolished before it could take effect.

The issue of an inheritance tax would not arise again until the Civil War.  A wartime inheritance tax was passed as part of the Revenue Act of 1862 affecting only the northern states, whose purpose was to raise over $1 million from estates valued at over $1000.  After the war, the inheritance tax was abolished by the Revenue Act of 1870.  Another short-lived inheritance tax was passed in 1898 to raise revenue for the Spanish-American War.  It was repealed in 1902.

Congress passed its first permanent estate tax with the Revenue Act of 1916, three years after the passage of the 16th Amendment and the institution of the federal income tax.  The constitutionality of new federal estate tax was challenged in New York Trust Co. v. Eisner, 256 U.S. 345 (1921), and in an opinion delivered by Oliver Wendell Holmes the Supreme Court held that the new law posed no "unconstitutional interference with the rights of the states to regulate descent and distribution" (256 U.S. 345, 348 (1921).

In order to close the loophole in the tax that allowed people to escape the inheritance tax by giving away their property, Congress passed a gift tax in 1932 that was declared constitutional by the Supreme Court in Heiner v. Donnan, 285 U.S. 312 (1932).  In 1948, the marital deduction became law, allowing property to pass to one's spouse without paying any estate tax.

The most significant changes to the federal estate tax occurred with the Tax Reform Act of 1976.  The Act enacted the following changes:

• a single unified rate structure for transfers of property at death;
• a single unified rate structure for lifetime property transfers;
• a unified exemption from taxes for certain transfers made either during one's lifetime or at death;
• a generation-skipping tax, taxing the transfer at the unified rate of the "skipped" generation if the beneficiary was two or more generations younger than the donor.

There have been other significant additions to the law.  In 1980, the "stepped-up" basis restored to the pre-1976 provisions, giving the beneficiaries a significant break in the amount of capital gains they would pay on transferred property that they later sold. 

In 1981, the martial deduction became unlimited, but with a catch.  With proper estate planning, the surviving spouse can escape paying any estate tax.  Without estate planning, the surviving spouse is left with a much larger estate on which the estate tax will be imposed.

In 2001 President Bush signed into law the Economic Growth and Tax Relief Reconciliation Act of 2001.  The law repealed the federal estate, gift, and generation-skipping taxes after 2009, meaning that anyone dying during 2010 is able to pass on his or her estate free of any federal estate, gift, or generation-skipping taxes.  However, state inheritance taxes may still be in effect.  But the 2001 law contained an expiration date:  all of the provisions of the 2001 law are set to expire on December 31, 2010.  Should Congress not act, then the pre-2001 estate tax will automatically reappear in 2011.

I invite you to join my list of subscribers to this blog by clicking on "Subscribe to" on the left-hand side of the page so that you can receive a notification when the next installment has been published. Thank you.