Author: Lauren Heide

Stopping the Biological (Tax) Clock: ART & Generational Tax Assignments

Medical innovation in Assisted
Reproductive Technology (ART) has rapidly outpaced the statutory Estate and Tax
guidance that governs the inheritance rights of children conceived by such
technology. The use of cryopreserved reproductive material and embryos poses a significant
challenge for estate planning: how must we draft and administer
multi-generational trusts to protect the wealth of families created by such

to the 1992 Fertility
Clinic Success Rate and Certification Act
, ART is defined as fertility
treatments in which both eggs and embryos are handled, specifically, medical
procedures that surgically remove eggs from a woman’s ovaries, combine them
with sperm, and return them to a woman’s uterus. The most common types of ART
include in
vitro fertilization-embryo transfer
(IVF-ET), gamete intrafallopian
transfer (GIFT), zygote intrafallopian transfer (ZIFT), and frozen embryo
transfer (FET).

advancement of reproductive technology has enabled reproductive material to
remain viable decades later. In fact, embryos can be preserved and used to
conceive a child years after both of the genetic parents are deceased. While
this may seem like an exceedingly rare circumstance, as of 2011, “the
Social Security Administration reported receiving more than 100 applications
for Social Security survivor benefits on behalf of posthumously
conceived children
.” It is unsurprising that this type of medical innovation
has prompted innumerable estate
planning questions to which applicable statutory guidance is yet to exist.
Thus, courts are tasked with interpreting the wills and trusts of decedents who
would have likely considered ART to be the subject of science fiction at the
time of executing their wills or trusts.

core task of estate planning is to create documents that secure the future
transfers of a family’s wealth, while protecting the inheritance from unfriendly
or uncertain tax environments. An estate planning tool that seeks to accomplish
such a task is called a multi-generational trust, which allows a grandparent to
transfer money or property to his or her grandchild without transferring it to
the grandchild’s parent first, thus skipping a generation of estate tax
liability. However, such transfers will incur an astronomical generation-skipping
(GST) rate of 40% on the value of the transferred money or property that
exceeds the $11.8
million exemption
, per the Tax Cuts and Jobs Act (TCJA) of 2018. Put
simply, an individual’s generational assignment has remarkable tax

collision between traditional estate law notions and current tax code begets
the question: what is the generational assignment for children born
posthumously by ART? The Internal Revenue Code offers rudimentary guidance:

  • 26 U.S. Code § 2651(f)(2) provides that if an estate or trust has an interest
    in property, each individual having a beneficial interest in such entity shall
    be assigned to a generation.
  • § 2651(f)(1) provides that when an individual is
    assigned to more than one generation, he or she is assigned to the youngest
    such generation.
  • §
    2651(d)(2) states that the GST applies to gifts or transfers made to
    individuals at least 37.5 years younger than the donor, meaning that the
    individual need not be a lineal descendant.
  • §
    2651(e) creates an exception for persons with a deceased parent, stating that
    if an individual’s
    parent who is a lineal descendant of the donor is dead at the time of the
    transfer, such individual shall be treated as if she was a member of the
    generation which is 1 generation below the lower of the transferor’s generation
    (i.e., a grandchild).

a parent
who seeks to use the cryopreserved eggs, sperm or embryos of a deceased child
to give life to his or her own grandchildren. To what generation does that
conceived child belong? Would the child be the child of the parent or would the
child be the grandchild? Would the predeceased parent exception apply? Would § 2651(f)(1)
treat such a child as a grandchild? If the reproductive material was preserved
for enough time, perhaps the 37.5-year threshold would trigger a generational
shift regardless.

             The staggering legal uncertainty surrounding
ART signals courts and legislatures to adopt reliable methods of administering
the inheritance rights of children conceived by evolving technology. Without
sophisticated models, fiduciaries are left stretching age-old principles of
estate law to fit the needs of unimaginable and ever-changing family