Surrogacy reforms in the context of trusts and international families

In light of proposed reforms to the laws relating to surrogacy in England and Wales, Alexis Hille and Daisy Tarnowska consider the wider issue of when a child of the family may or may not fall within a trust’s defined beneficial class and provide a brief update for trustees on a few of the key proposals for modernising English surrogacy laws.

How exclusive is the trust’s beneficial class (intentionally or unintentionally)?

Trusts can be incredibly useful tools for families with international wealth: a well-drafted trust can offer long-term succession planning for multiple generations which is robust enough to protect the family wealth while being flexible enough to respond to changing circumstances.

Of course, no solution is perfect. Many existing family trusts, particularly those created by previous generations, were drafted at a time when the traditional expectation was that a child of the family would be the result of a biological, medically unassisted union between a married man and woman. Now, the key assumptions that form the basis of that view, ie genetic link to both parents, marriage, heterosexuality and the notion of a couple (rather than a single parent) seem (arguably) anachronistic, and risk the trust becoming less useful if it does not reflect the fact that modern-day families now come in all shapes and sizes. Just because a trust created several generations ago did not contemplate the possibility of surrogacy, for instance, does not mean that the settlor would have wanted children born as a result of surrogacy to be treated any differently than other children.

Even if the trustees do not intend to make immediate distributions, it is, of course, crucial for them to identify all potential members of the beneficial class, not only in order to fulfil their fiduciary obligations but also for tax, reporting and potentially trust governance purposes (eg where beneficiaries’ consent is required).

It is important to keep in mind that, subject to any express provision in the trust deed, the question of who is included, and who is excluded, from the definition of “child” or “issue” in a trust will depend on the position under the governing law in force at the time the trust was created. This may mean, for example, that for older trusts in certain jurisdictions illegitimate children will not fall within the beneficial class, even if they are not expressly excluded on the face of the trust deed.

Some trusts are purposefully exclusive in the way they define a “child”, “issue” or “descendant” who falls within the class of discretionary beneficiaries. For example, the settlor may have intended that only male children born from a heterosexual marriage should be able to benefit. Where the exclusion of other types of children is express and deliberate, the trustee is unlikely to have the power to support such children without applying to court to vary the trust deed, subject to the trust’s governing law.

However, there are other circumstances where there may simply be uncertainty as to whether or not a child falls within the discretionary class. For example, if the discretionary class includes legitimate and legitimated children only, would a child born to a married same-sex couple via a surrogacy arrangement fall within the meaning of “legitimate” for the purpose of identifying whether that child can benefit? The trustee may need to consider (and take local advice on) whether there is a “presumption of legitimacy” in the jurisdiction which governs the surrogacy agreement and / or in the jurisdiction where the family resides.

Even where a trust’s discretionary class is drafted widely without any exclusions, uncertainties can arise. If the beneficial class is limited to, for example, direct descendants of the settlor, where one of the descendants is the non-gestational parent and their unmarried partner is the parent who has contributed genetically to the child’s creation, the trustee may be unclear as to whether that child is a “direct descendant” of the settlor. Certain jurisdictions have enacted legislation specifically to address this point, but not all. Where such legislation exists, particularly where the parents are unmarried it is likely that there will need to be some sort of formal acknowledgment of parentage by the non-gestational parent in order for the child to be treated as a descendant.

It is possible, with some slightly convoluted wording, for new trusts to be drafted in such a way as to be inclusive of all children of the family howsoever conceived (with the option of including or excluding stepchildren, for example). Even for existing trusts, unless a child is specifically excluded the trustees may be able to exercise their power to add a beneficiary or class of beneficiary to achieve the desired result.

Modernising the law in England and Wales

Although surrogacy is legal in the UK, it is not as well-developed a route to parenthood in the UK when compared to, for example, certain US states. This is due in part to that fact that the law relating to surrogacy and parental rights has struggled to keep pace. As part of a long-running project on modernising the English legal position on surrogacy, the Law Commission recently published its final recommendations for reform, as well as a draft Surrogacy Bill. The overarching aim of the report is to offer “clarity, safeguards and support” for all parties, making it easier and more attractive for intended parents to rely on UK surrogacy arrangements, rather than looking abroad.

The current position under English law is that the surrogate, and her spouse or civil partner (if any), will be the child’s legal parents at birth rather than the intended parents. In order for the intended parents to acquire legal parenthood, they must obtain a parental order which they can only do once the child has been born. This process can take six to 12 months to complete and during that time the surrogate remains the legal parent of the child. This can be very unsettling for the intended parents who have the child living with them.

Under the proposed reforms, if the surrogacy arrangement falls within the new UK domestic “pathway”, it will be possible for the intended parents to become the child’s legal parents from birth. The proposed new rules will also offer greater clarity on the difficult issue of payments to surrogates. While surrogacy will remain an altruistic process, and commercial surrogacy will remain illegal, the rules will clearly set out what payments intended parents are permitted to make to the surrogate. These will include travel costs, pregnancy support, medical costs, wellbeing costs, and lost earnings. 

However, even under the proposed reforms, the position remains complicated for intended parents using international surrogacy arrangements, since the domestic “pathway” requires the surrogate to be domiciled or habitually resident in the UK, in addition to at least one of the intended parents. International surrogacy arrangements may therefore still require parental orders to be issued, or formal adoption proceedings, even if the intended parents are named on the child’s birth certificate. The intention behind this is protective, since not all jurisdictions offer the same levels of protection from exploitation as the UK. By offering an approved and regulated body that will support the parties in entering a surrogacy agreement there should be more security and protection for the parties. Although not perfect, the proposed reforms are undoubtedly a step in the right direction.

More detail on the proposed reforms is available in our colleague Alyson Morrell’s briefing, which you can read here.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, June 2023