May 21, 2009
New York Times
By DEBORAH L. JACOBS
ADULT adoptions, an established though infrequently used financial planning tool, have attracted increased attention as a way for gay and lesbian couples to secure an inheritance.
It is not necessary to use this strategy to transfer your own assets, which can be left to anyone you choose. But trust fund beneficiaries who do not have children of their own may be able to use adult adoption to steer trust funds to the person of their choice, rather than having the money go to their siblings, the children of their siblings or other relatives.
The stakes, financial and emotional, can be high. Unlike marriages, adoptions are extremely difficult to reverse. The strategy can backfire if a relationship ends, leaving an outsider with a share of the family fortune. And adult adoption can alienate family members by leading to distributions of family wealth in ways never contemplated by the person who set up a trust.
“If you leave things in trust, which is a great estate-planning device, you give your children the ability to some degree to manipulate that by adoption,” said David G. Keyko, a lawyer with Pillsbury Winthrop Shaw Pittman in New York, who has successfully represented several adopted adults in their legal battles with families. One case, involving Chandi Gail Heffner, the companion adopted by the heiress Doris Duke in 1988, was settled in 1995 for more than $65 million.
Of course, not all adult adoptions end in court battles. While statistics are scarce and these cases are unusual, lawyers say successful adoptions generally proceed below the radar.
Citing privacy concerns, lawyers and clients are reluctant to share details. Adult adoptions include not only same-sex couples, but also others who want to provide for a stepchild, a loyal employee or a distant relative.
Still, for those contemplating adult adoption, the cases that go awry are more informative, teaching valuable lessons in how to avoid mistakes.
Trusts often have current beneficiaries — who are entitled to assets immediately — and future beneficiaries, who do not receive distributions until an event like the death of another beneficiary. Often a son or daughter, rather than a spouse or partner, is next in line to receive a share under a family trust, said Mary F. Radford, a professor at Georgia State University College of Law in Atlanta.
In some families, adult adoption leads to a struggle between blood relatives trying to keep an inheritance in the family and an adult whose legal status in the family has come through adoption.
The law requires trustees to honor the intentions of the person who created the trust. That means interpreting the trust’s wording, and when that is done in court there is often conflicting evidence about what parents or grandparents would have wanted.
“Not too many of them might even think of the possibility that somebody might adopt another adult with whom they were living,” said Joshua S. Rubenstein, a lawyer with Katten Muchin Rosenman in New York.
Almost half the states prohibit adult adoption, and laws, which vary by state, can be restrictive. Even in states that allow such adoptions, a trust’s creator can exclude people adopted after a certain age (say, 10 or 18), preventing adopted adults from becoming trust beneficiaries.
Given the complexities, those who want to explore adult adoption would do well to consult with both an adoption expert in the state where they might adopt and an estate-planning lawyer. Names can be found on the Web site of the American Academy of Adoption Attorneys and the site of the American College of Trust and Estate Counsel, a group of trust and estate lawyers.
Many of the challenges and pitfalls of adult adoption — and the passions that can surround it — are illustrated by two lawsuits involving Olive F. Watson, whose grandfather Thomas J. Watson Sr. founded I.B.M.
In 1991, Ms. Watson, then 43, adopted her lesbian partner, Patricia Ann Spado, who was then 44, after they had been together for 14 years. The relationship ended less than a year later, and Ms. Spado received $500,000 in cash from Ms. Watson but did not give up the right to inherit as her adopted child.
The lesson? Painful as it may be to contemplate an end to a relationship, consider the possibility and think about what rights you might want to retain for any children you may subsequently have.
After Ms. Watson’s mother died in 2004, Mr. Keyko, representing Ms. Spado, asserted in a letter to the family lawyer that she should share in three multimillion-dollar family trusts. The trustees disagreed and asked a probate judge in Greenwich, Conn., to decide whether the trusts, which included biological and adopted descendants, covered her. According to court papers, Thomas J. Watson Jr., who died in 1993, had not known about the adoption, and Olive Watson said in a deposition in a different suit that she had not told her father about it because he would not have approved.
The court ruled that the trusts were designed for grandchildren — by then there were 18 — who had a “typical parent/child relationship” with Mr. Watson’s children. “Watson did not intend to benefit someone who is adopted for no reason other than to obtain his money,” Judge David W. Hopper of the Greenwich probate court wrote in his decision in 2006. Ms. Spado has appealed.
Separately, the trustees filed a case in Maine, where the adoption took place, to have it annulled, and a probate judge in Rockland granted their request last year, 17 years after the adoption took place.
It is extremely rare for a court to annul an adoption; in this case, the judge ruled that the adoption was based on fraud because Ms. Spado did not live in Maine but went there only during the summer. (New York, where the couple spent most of their time, does not allow adoption of a sexual partner.) Ms. Spado has appealed that ruling, as well.
Her lawyer, Michael P. Koskoff, of Bridgeport, Conn., who estimated that Ms. Spado’s share of the trusts was $5 million to $15 million, called the suits a “multistate attack” against “this woman who was a partner in a gay relationship.”
Ms. Watson, who declined to comment, lives in Miami with her current partner and their two children, ages 8 and 10, beneficiaries of the same trusts to which Ms. Spado makes a claim. Not a party to either lawsuit, Ms. Watson said in a deposition for the Maine case that when she adopted Ms. Spado she had sought to make her the beneficiary of her own trusts, not the trusts for the Watson grandchildren.
The lessons here? Family opposition to an adult adoption should never be underestimated. And family members should be informed about your intentions; don’t surprise them.
Also, it is important to make sure that the lawyers advising you have all the facts. In wealthy families with multiple trusts, you need to consider the impact of an adult adoption on these documents. While parents and grandparents have no obligation to share every detail of their financial planning, it doesn’t hurt to ask. Communication is crucial to mutual understanding.
Over time, changes in the legal landscape might create other ways for gay couples to provide for each other, said Mary L. Bonauto, civil rights project director at Gay and Lesbian Advocates and Defenders, a legal advocacy group in Boston. The group is seeking to overturn the federal Defense of Marriage Act of 1996, which defines marriage as a union between a man and a woman, and thereby excludes same-sex couples from the financial benefits that spouses are entitled to under other federal laws.
For example, same-sex couples cannot file joint income tax returns, receive Social Security survivor benefits or postpone estate tax on assets inherited from each other. This is true even if they are married in one of the five states that allow same-sex marriages.
Were the federal law repealed by Congress or found to be unconstitutional, adoptions by same-sex partners could become “a historical anomaly,” said Keith Bradoc Gallant, a lawyer with Day Pitney in New Haven, Conn.
But that day will not come soon. Meanwhile, lawyers say same-sex partners will continue to struggle to find ways to provide for each other.
05/15/2007