When is a child not a child?

Sandra Duerden and Grace Cummings, ‘When is a child not a child?’, STEP Journal (Vol31 Iss5), p.79

Sandra Duerden, Partner and Advocate, and Grace Cummings, Associate, in Guernsey Litigation practice at Mourant, a law firm-led professional service business, examines the legal implications of properly defining children as beneficiaries in wills and trust deeds, exploring how surrogate born children fit into this, based on the current law in the UK and Guernsey.

As times change and our ideas of identity, family units and inter-generational relationships adapt to the myriad ways that people live, there is a growing tension between how we define people in language and how this relates to the law.

In particular, the ways in which we define beneficiaries in wills and in trust deeds must be carefully considered to avoid future confusion; in one such instance we must consider the complexities of the word ‘children’ and how it is defined, should it be used to describe beneficiaries.

For the word ‘children’ can mean many things – natural born children, adopted children, stepchildren, legitimate children or illegitimate children, or children born through surrogacy – all accepted definitions in many quarters; but what happens when a family’s or individual’s views of what constitutes ‘children’ differs?

Potential difficulties

Surrogacy is increasingly in the spotlight. Figures from the UK Ministry of Justice state that the number of parental orders (the usual mechanism permitting a person to become the legal parent of a child born via surrogacy) have quadrupled since 2011. The parental order is essential as until it is granted, the surrogate mother is treated by law as the child’s mother.

However – parental law rarely crosses international boundaries, and there is no equivalent legislation in Guernsey. This has the potential to cause difficulties for those with trusts settled in the Island.

The issue comes to a head when considering any trust deed that describes ‘children’ as the beneficiaries. For example, it may have been settled by a parent with ‘my children’ as beneficiaries, or their named child as a beneficiary but also including a reference to their child’s children (their grandchildren) as eventual beneficiaries of the trust.

With children born of surrogacy not wholly protected or defined by the law, this leaves them vulnerable to challenge by another party – a rival beneficiary for example – that would rather exclude them from the trust. It also creates risk for the trustee, as if they have previously made a distribution to the beneficiary whose status is subsequently challenged, they may be committing a breach of trust.

Advisors therefore need to consider this carefully at all steps of the process. It is most easily overcome at drafting stage, with new trusts able to take this into consideration to include any children intended to by the settlor – either by naming them specifically or carefully defining what the settlor means by ‘children’. It is important for advisors to be able to understand family nuances and have those sensitive conversations.

More complicated is reviewing existing trust structures for this issue. Older trusts will not, in all probability, have anticipated this issue and may include references to ‘children’ that could be challenged.

What options are available to trustees and advisors?

Potentially they could use their power as a trustee to vary the trust deed to ensure that the term "children" meets the wishes of the settlor. In conflict situations however this may not be possible. The trustee would then either approach the Court to receive directions or seek to resolve the situation without litigation eg by seeking appropriate indemnities and releases. It may also be possible to appoint the trust into a new trust vehicle with more flexible terms that also enable future changes to the definition of ‘children’.

Changes are coming that will standardise the way this issue is interpreted, with both the UK and the EU appointing commissions respectively to review the parental order process and to harmonise rules on parenthood across Europe, the latter with the goal of giving all children (including those born via surrogacy) the same rights under national law.

However as ever, legislation is slow to adapt to changing societal norms and so while we wait for legislation to change, we must be vigilant and stay on the lookout for issues that could affect beneficiaries and inheritance within the wealth management structures we look after.