​Just as spending a day under the summer sun without proper protection can leave you with a painful sunburn, an estate plan that does not carefully consider nontraditional parent child relationships can harm you or your loved ones.

An effective estate plan will explore the parent-child relationship of everyone potentially involved.

While inheritance rights may arise from the legal relationship between the parent and child, the scope, size and shape of any inheritance will depend on whether the deceased person completed any actions to create an estate plan.  If no such plan exists or is invalid, then a child’s inheritance (or even a parent’s inheritance from a deceased child) will depend on the applicable laws prescribing a “one-size fits all” estate plan known as intestacy law.  Intestacy laws determine who is entitled to inherit and how much the person in entitled to inherit.   
 
A few of the immediate questions to explore are:

1. In what manner is there a parent child relationship?
2. Is the child biological, legally adopted or a stepchild? 
3. Is there some other basis for the relationship?  For example, a grandparent raised the grandchild, or an aunt raised her nephew as her own child.

 
When it comes to a child's legal ability to inherit from parents, adopted children and biological children are considered equal in the eyes of the law. However, situations involving stepchildren or presumed child can be more complicated.

​ In some cases, a person may be considered a presumed child, which means a court recognizes the person as the child of the deceased, even if the person was not adopted.  Legal recognition for presumed children is based on public policy that certain individuals should be treated as parents because of their relationship with a child and the role they assume in that child's life.
 
The criteria for being a presumed parent can vary by jurisdiction, but they often include the following:

1. Intent to parent. If an individual openly and actively takes on the role of a parent and demonstrates the intent to parent the child, the individual may be considered a presumed parent.  Determining whether an individual has the intent to parent a child will include factors such as receiving the child into his or her home, providing financial support, making important decisions regarding the child's upbringing, and establishing a parent-child relationship.
2. Length of time and stability. The length of time the person has been involved in the child's life and the stability of their relationship with the child may be considered when determining presumed parenthood.

In 2019, the DC Court of Appeals clarified, that the District of Columbia could recognize presumed children for intestacy purposes.  The court held:

if an individual seeks to establish that he is an intestate decedent's child and heir as a matter of equity, he must prove that the decedent objectively and subjectively stood in the shoes of his parent.

In Re: Estate of Rosa North Ford, 200 A.3d 1207, 1215 (D.C. 2019).  According to the Court, any person claiming to be the child of a deceased person and an heir as a matter of equity, “the putative child must prove that, as a minor, the decedent gave him a permanent home.”  The Court further instructed that the probate court should consider the following questions:

1. whether the decedent cared for the putative child (i.e., took charge of his health, education, and general welfare) until he reached the age of majority, as a parent would;
2. whether the putative child was incorporated into the decedent's broader family;
3. whether the decedent gave the putative child her surname; and
4. whether the decedent held herself out to others in the community as a parent to the putative child.

While the court seemed to believe that this decision would potentially affect very few people under the belief that children end up successfully in the foster care system and adoption services, where relationships are clearly defined, the court seemed to be unaware or failed or consider that many people in long-term relationships are raising other people’s children regularly without the involvement of the biological parent.  And these adults are the only parents these children may ever know.

Parent and child relationship can be even more problematic when an estate plan makes specific gifts to friends and individuals who are not well known.  These beneficiaries entitled to specific gifts are usually not the same as the residuary beneficiaries.  When a beneficiary to specific gift predeceases the testator, the administrator of the estate plan must consider whether the gift will lapse or will the specific gift go onto the descendants of the predeceased beneficiary.  

This distinction will have significant consequences – if the gift lapses, then the gift will remain part of the estate and will be distributed to the residuary beneficiaries.  If the gift goes onto the descendants of the predeceased beneficiary, then the residuary beneficiaries will not receive that potion of the estate constituting the gift.  Therefore, the administrator of the estate plan must inquire into whether the beneficiary had children, biological, adopted or even presumed children in order to determine whether the gift can still be made. In the absence of perfect knowledge then the default rule should be that such gifts will lapse.

​The relationship between a parent and child can take many forms. It is therefore important that you discuss with your estate planning and financial advisors the need to have an estate plan that clearly identifies your intended beneficiaries and the legal relationship of those beneficiaries to you. Your discussion should also examine relationships with any individuals who may not be immediate or obvious family members. With a well thought-out, comprehensive estate plan, you can rest assured that your wishes regarding inheritance will be clear and properly documented so they can be legally enforced.

On March 9, 2023, the Biden administration offered budgetary proposals that could, if enacted, affect estate planning, particularly for high-income taxpayers, the administration of post-mortem trusts and decedent’s estates and the tax rules for trusts.  These proposals are found in the Administration’s Green Book, which is an annual exercise explaining the administration’s budget for the next fiscal year.  This discussion of the proposals affecting estate planning will be divided int a series of three articles, and this first article will address the proposals that target

• Excessive accumulations of wealth by high-income taxpayers using tax-favored retirement accounts (Roth IRAs) and
• Use of “back door” Roth conversions by high-income taxpayers. 

 
The second and third articles will address the address the administration of post-mortem trusts and decedent’s estates and then the proposed changes to the tax rules governing trusts.

Because of the special tax treatment afforded retirement accounts, some high-income taxpayers use these accounts - not for retirement security – but as wealth transfer tools. 

In 2021, eighty-seven percent (87%) of taxpayers, sixty-years-old or older, had some type of retirement savings.

• In 2021, the average balance in these retirement accounts was $141,542.

​These retirement accounts are consistent with the law’s purpose that retirement accounts such as IRAs, 401Ks and Roth IRAs serve to provide retirement security.  However, as of 2022, the Joint Committee on Taxation estimates

• more than 28,000 retirement accounts hold $5 million or more, and
• roughly 500 taxpayers have retirement accounts worth $25 million or more.

The Administration believes that because high-income taxpayers have other sources of income, they are not inclined to take any distributions from their Roth IRAs.  While the law compels taxpayers to eventually take required minimum distributions (RMDs) from ordinary retirement accounts (non-Roth IRAs), the law exempts Roth retirement accounts from the yearly distribution mandate.  Consequently, these taxpayers - who have other sources of retirement income  - can choose not to withdraw any money from these accounts. This allows assets in the Roth retirement accounts to keep growing tax-free (i.e., no payment of taxes on investment earnings, such as dividends, interest or capital gains). 
The wealth transfer occurs when the taxpayer dies.  The taxpayer’s heirs will inherit the accumulated assets, which grew tax free, without having to pay any income taxes being owed if the heirs follow the rules.  (While not subject to income taxes, these inherited assets will still be included in the calculation of estate taxes.)

To curb the excessive accumulation, a high-income taxpayer with an aggregate vested account balance in a Roth retirement account exceeding $10 million would be required to distribute a minimum of 50 percent of the amount exceeding $10 million.
 
If the high-income taxpayer balance exceeds $20 million, then the taxpayer would be subject to minimum distribution amount (“floor”).  This floor amount would either be set by

1. the above proposal requiring a distribution of 50% of the amount in excess of $10 million or
   
2. the portion of retirement accounts held in a Roth IRA or designated Roth account. 

While these are just proposals, if they became law the proposals as currently drafted would affect only the "fortunate few."   Nevertheless, these proposals could become a trend that ultimately will touch ordinary people like us, our loved ones and our futures.