Take-Away: It is important to address the potential for adoptions when class bequests are part of a Will or a Trust, and in particular, how adult adoptions will be treated under the governing instrument.

Background: Many trust instruments contain a definition of a descendant or heir,  and address the possibility that an individual will be adopted and become a beneficiary of the trust. Often a trust provision will indicate that an adopted individual will be included as a descendant or heir, or become a member of a class,  but only if the individual was adopted prior to reaching their 18th birthday.

EPIC: The Michigan Estates and Protected Individuals Code (EPIC) contains a provision with regard to the construction of class gifts and intestate succession that addresses adopted individuals.

MCL 700.2707: This provision deals with the construction of class gifts and bequests. It is based on Uniform Probate Code Section 2-705.

  • An adopted individual or an individual who is born out of wedlock, and his or her respective descendants if appropriate to the class, are included in class gifts and other terms of relationship in accordance with the rules for intestate succession. [MCL 700.2707(1).]
  • As an additional requirement,  construing a dispositive provision of a transferor who is not a natural parent, an individual born to the natural parent is not considered a child of that parent unless the individual lived while a minor as a regular member of the household of that natural parent or of that natural parent’s parent, brother, sister, spouse or surviving spouse. [MCL 700.2707(2).]
  • As yet another requirement,  construing a dispositive provision of a transferor who is not an adopting parent, an adopted individual is not considered the child of the adopting parent unless the adopted individual lived while a minor, either before or after the adopting, as a regular member of the household of the adopting parent. [MCL 700.2707(3).]

Adoptees Beyond Minority: Accordingly, subsections (2) and (3) of the statute of construction provide that an individual comes within class terms under a Will or Trust when the transfer is made by someone other than the natural parent of the adopting parent of the person in question; however, the rule of construction for such a transfer is that the adopted person is not within the class if they did not live, while a minor, as a regular member of the natural or adopted parent’s household. Thus, if a trust instrument is silent with regard to adoptions, EPIC would not include an adult adopted individual within a class gift or bequest. That is Michigan’s rule of construction. But what if the situs of a Michigan trust is subsequently moved to another state, with different rules of construction? Consider the following case from Georgia.

Morse v. Suntrust Bank, N.A. Georgia Court of Appeals, No. A22A0200, LEXIS 242 (May 16, 2022)

Facts: In 1967, a multi-generational testamentary trust was created. That testamentary trust provided that separate shares, i.e. subtrusts, would be created for each of the decedent’s 13 grandchildren. The trust also included language that the number of grandchildren would increase for any grandchildren “born to me, whether in lifetime or after my death,” with the understanding that the  number of grandchildren subtrusts would then increase. The trust also provided that if a grandchild died without any descendants, the deceased grandchild’s subtrust would then be divided and added equally to the other remaining subtrusts. The decedent’s Will was silent with regard to whether adult adoptees would be treated as descendants.

One of the decedent’s grandchildren, Molly, never had any children of her own. In 2018 Molly adopted two individuals, ages 34 and 36. Molly candidly admitted that she adopted these two adults so that they could receive distributions from her subtrust on her death.

Other subtrust beneficiaries objected to Molly’s inclusion of the two adopted adults as the potential residuary beneficiaries of her subtrust. They asserted the judicial theory of subterfuge. This little known legal doctrine involves committing a ‘fraud on the court’ by doing something the law allows, but creating a circumstance the law otherwise seeks to avoid.

Trial Court: The trial judge applied the doctrine of subterfuge and held for the other beneficiaries of the testamentary trust, preventing Molly’s adult adopted children as her descendants..

Appellate Court: The appeals court reversed the trial judge. This Court rejected the beneficiaries’ subterfuge legal theory and noted that the testamentary trust had failed to place any limits on an adult adoption. Nor did Georgia’s adult adoption statute include any language that was contrary to Molly’s inclusion of the two adopted adults as her descendants, so as to make them residuary beneficiaries of her subtrust.

Conclusion: Trust instruments need to address how adopted individuals are to be treated, either as ‘descendants’ of beneficiaries, or as members of a ‘class’ distribution. The same with regard to the potential class of appointees if a trust beneficiary is given a limited power of appointment over the trust’s corpus. As the Morse court case demonstrates, there can be a motivation to engage in adult adoptions to bring others into a trust as a beneficiary, perhaps inconsistent with the settlor’s intent. In sum, there can be impressive displays of creativity when it comes to the construction and administration of a trust, often lead to more probate and estate litigation.