Estate Planning Beyond the Grave…..and Back
By: Mark E. House, Esq.
Let me start by answering the questions that I get asked most often when I start talking about cryonics – yes, Ted Williams was cryopreserved; no, Walt Disney was not. No, I am not worried about creating the zombie apocalypse. Yes, people really do this and they are not crazy. With an estimated 5,000 people as members of the various cryopreservation firms[i] and double digit annual increases in membership, this is an issue about which more planners are going to be asked in the future. This article takes a serious look at the planning process and how to provide for a client upon being revived from cryopreservation.
Cryonics is the process by which a dying human being is preserved in the hope that scientific advancements will allow them to be revived in the future. Contrary to popular belief, the process is not simply to freeze the body or the head. The true process, called “vitrification,” uses a method of removing most of the water from cells, then reducing the temperature to the point where cellular activity ceases. The idea is that, one day, advances in medical technology will allow for the human being to be restored to life.
When does death occur?
The Uniform Determination of Death Act provides that “an individual who has sustained either (1) irreversible cessation of circulatory and respiratory functions, or (2) irreversible cessation of all functions of the entire brain, including the brain stem, is dead.” It further states that “a determination of death must be made in accordance with accepted medical standards.” At present, it is clear that a body that has been cryopreserved will be treated as dead due to the complete cessation of bodily functions.
To date, no one has disputed that cryonics patients are, in fact, dead. See Alcor Life Extension Foundation, Inc. v. Mitchell, 7 Cal.App.4th 1287 (1992). In Mitchell, the issue was that the California Department of Health Services refused to issue death certificates and disposition certificates for bodies designated to pass to Alcor pursuant to the Uniform Anatomical Gift Act. The California Court of Appeals affirmed an injunction against the CDHS and compelled the agency to issue the certificates. Neither party in Mitchell asserted that the patients were not dead. The Mitchell court specifically raised many of the questions raised in these materials, such as whether such a person is really dead, what happens to the estate, and what happens if the person is successfully revived. The court, however, did not answer any of the questions, stating that, “we are confident that those persons who will then head our various branches of government will be far wiser than we and entirely capable of resolving such dilemmatic issues without our assistance.” Mitchell, at 1293. Therefore, determination of death is likely to remain a simple matter for the cryopreserved.
The Right to Dispose of Remains
The Revised Uniform Anatomical Gift Act (“RUAGA”) has been adopted in almost all jurisdictions. Although cryopreservation is a bargained-for exchange of services, RUAGA should still govern. See Alcor Life Extension Foundation, Inc. v. Richardson, 785 N.W.2d 717 (Iowa App. 2010) (ruling that RUAGA allowed for Alcor to take possession of Mr. Richardson’s head and providing a very well-articulated opinion regarding the application of RUAGA). RUAGA Section 11 provides that “an anatomical gift may be made to the following persons named in the document of gift: (1)…other appropriate person, for research or education.” In Richardson, the Iowa Court of Appeals ruled that Alcor is an “appropriate person for research,” relying on the RUAGA Section 11 comment, which provides, “[A]n anatomical gift of a body for research or education can be made to a named organization. These gifts typically occur as the result of a whole body donation to a particular institution in the donor’s will or as the result of a prior arrangement between a donor and a particular research or educational institution.” Because cryopreservation constitutes a prior arrangement between the donor and the cryopreservation firm, clients should not have an issue providing for the disposition of their body to a cryopreservation facility.
It is important for estate planners to have a basic understanding of the cost of cryonics when discussing it with interested clients. Although the comprehensive structure and variations in cost for cryopreservation are beyond the scope of this article, the prices range depending on whether a whole body preservation is sought (ranging from about $60,000 to $200,000) or a neurocryopreservation; that is, the head only (ranging from $40,000 – $80,000). All of the companies allocate the fee among (1) the costs of preservation; (2) the cost of maintaining cryopreservation (usually in the form of a common trust for all patients); and (3) the costs of medical standby and retrieval.
Funding the cost of cryopreservation can be accomplished using a life insurance policy or simply by the transfer of funds. Ongoing membership dues may also be payable while the patient is alive.
Saving for Revival – The Future Income Trust
In addition to the trust established for the care of the cryopreserved client during biostasis, attorneys must consider how to provide for clients when they are revived. After all, no one would want to be revived only to find they had no money or other assets.
The Future Income Trust is designed as a solution to this problem. The Future Income Trust should not be the primary estate planning vehicle in the estate plan. Rather, it should be separately funded – either directly during lifetime or by distribution from other estate planning instruments (i.e., life insurance, distribution from the revocable trust, or by beneficiary designation).
During lifetime, the Future Income Trust is a simple revocable trust. To the extent assets are funded into the Future Income Trust, those assets would be subject to the same rules, and treated the same for tax purposes, as any other revocable trust. At legal death, the trust would become irrevocable.
In order to limit the possibility of premature termination of the Future Income Trust, express language regarding the material purpose of the trust should be included. Section 404 of the Uniform Trust Code provides that “A trust may be created only to the extent its purposes are lawful, not contrary to public policy, and possible to achieve.” This provision cannot be waived. The Restatement (Third) of Trusts § 30 provides that “If all of the purposes for which a private trust is created are or become impossible of accomplishment, the trust will be terminated.” The material purpose clause of the Trust should address that the Grantor believes the purpose will become possible; therefore, the trust should not be terminated due to impossibility.
Because the Future Income Trust is a revocable trust during the grantor’s life, if the remaining assets of the client’s gross estate are insufficient to pay expenses of administration, taxes, etc., the assets would be available to pay those items. An express provision that the assets of the Future Income Trust be used last would be ideal. There is a concern that the family may not wholly support the idea of funding the Future Income Trust to the exclusion of a trust for the benefit of the family, such that if the probate assets were not sufficient to cover administration expenses, the personal representative may seek to utilize the assets in the Future Income Trust prior to the assets that pass to the family. At a minimum, a discussion about abatement is appropriate.
Administration During Biostasis
Given that the Future Income Trust will likely be administered for over a century, there are a variety of options for its administration during the grantor’s biostasis. The first option is an accumulation trust, without any current distributions. The clear advantage of this is that the growth of the trust would be solely for the benefit of the settlor once revived. Although this is certainly possible, the likelihood of a challenge becomes greater, although surviving the challenge should not be a problem. The Restatement (Second) of Trusts, Section 62, comment (k), provides that enforcing a trust which vests at too remote a time may be a violation of public policy. Comment (l) provides, however, that as long as a definite beneficiary is ascertainable within the period of the rule against perpetuities, there is a purpose. This is echoed in the Restatement (Third) of Trusts, Section 29, comment (g). As there will be a definite beneficiary within the applicable rule against perpetuities, the remoteness issue should not be a problem. There is nothing to indicate that the trust would be deemed “capricious,” so that should not be a viable challenge either. See also Restatement (Third) of Trusts, Section 30 regarding impossibility. Without a current beneficiary, a skeptical judge could rule that revival is impossible and terminate the trust.
The second option is an accumulation trust with current distributions, either by reference to an ascertainable standard or by a percentage of assets (i.e., a unitrust). This would clearly be allowed under current law. The trustee would be given discretion to make payments to the descendants or whomever else the settlor designated. This would resemble a standard dynasty trust, with the revived grantor becoming a beneficiary at a later date. The advantage of this option is that a challenge is less likely to occur, and if it does occur, is not likely to be successful even with the most skeptical judge. The disadvantages, however, are numerous. One major disadvantage is that there would be a class of beneficiaries who have standing to object to the failure of the trustee to make distributions. Thus, although the validity of the trust itself will not be an issue, a skeptical judge may order the trustee to make distributions that reduce the assets available to the settlor once revived, thereby impairing the growth of the assets for the benefit of the settlor. Furthermore, the administrative burden on the trustee would be much higher.
A third option is to draft a simple trust with payment of income only. While possible, this has all the disadvantages of the accumulation trust that allows for distributions. Finally, a fourth possibility is to use a charitable lead annuity trust, so that the Future Income Trust would have a current beneficiary.
Duty to account?
Section 105 of the Uniform Trust Code allows for a trust instrument to restrict information to qualified beneficiaries; however, the duty to respond to requests from qualified beneficiaries for “trustee’s reports and other information reasonably related to the administration of a trust” cannot be waived. UTC Section 105(b)(9). Given the breadth of the definition of “qualified beneficiary,” which includes all those beneficiaries who would be distributees if the trust were to terminate (UTC Section 103(13)(B)), the scope of the potential requests could be overwhelming. Of course, this assumes that the Grantor elects to have the trust distributed to family and/or other specified beneficiaries should the trust terminate without a revival. To avoid this issue, the trust agreement could provide the Trust Protector with the ability to approve an accounting.
From a tax standpoint, because the grantor is deceased, there should be nothing special about the tax status during the Biostasis phase. The trust would be treated as any other irrevocable trust.
Administration During the Revival Phase
Revival should be defined in the trust agreement. The purpose of the revival language is to establish that, even if the revival is only mostly successful (that is, the settlor is brought back, but is incapacitated in some form), the terms of the trust still apply. Revival is likely to be determined by the Trust Protector or by cryopreservation firm. In discussions with corporate trustees, they have been very reluctant to make decisions about when to revive someone and making a decision about whether the person is revived. As such, the trust agreement may need to be drafted to leave this decision to the Trust Protector.
The role of the trust protector is greatly expanded in the Future Income Trust. The trust protector is in place to ensure that the Grantor is placed in, maintained, and revived from biostasis. Additional useful powers that the trust protector should have are: (1) trustee removal powers; (2) power to change domicile; and (3) general amendment powers. Given the expansive powers, including the power to approve accountings, a strong argument can be made that the trust protector be treated as a fiduciary, which it is not the case under current law in many states.
Ongoing Trust After Revival
Although several types of trust are possible here, the Trust for the revived grantor should be a mandatory income, discretionary principal trust. Such a trust would allow the revived grantor access to the funds in the Trust. The reason for an ongoing trust, rather than an outright distribution upon revival, is twofold: (1) holding the assets in further trust allows for the possibility that the revival is not completely successful; and (2) to the extent possible, the revival trust would not be treated as a grantor trust, and therefore not be subject to creditors’ claims. The revived grantor would then have a limited power of appointment at death (assuming a revived person will face death again).
There is a question as to whether an asset protection trust might also make sense. If the determination is made that the revived grantor is legally the same person, an asset protection trust should solve any creditor issues (for creditors established by the revived person).
Status of the Revived Grantor
Under current law, the status of the grantor prior to being revived is clear: the grantor is deceased. As discussed above, there is nothing in the law that would give rise to an argument otherwise.
The interesting issue, however, is what the status of the revived grantor would be. Are they a new “person”? The closest current analogy would be the treatment of an individual who was presumed dead under a disappearance statute (i.e., Uniform Probate Code Section 1107(5)) and was later found to be alive. This analogy, however, breaks down quickly. Under most existing law, a person found to be alive is revested with the property that was part of his or her estate. See 140 A.L.R. 1403, Administration of Estate of One the Fact of Whose Death Rests upon a Presumption or Circumstantial Evidence (1942). This is not a uniform result. But since all of the “reappearance” cases are premised on the fact that the decedent was, in fact, not dead, the application is limited when compared to the cryonics situation, where there is no legal doubt under current law that the grantor is deceased. That is, under the “reappearance” cases, the presumed decedent was not treated as a new “person,” nor should they be.
Without some guidance from the legislature, the status of a revived grantor should be determined by the fact that such person was declared dead, the estate fully administered, and all property rights were addressed.
The tax status of a revived grantor is undetermined. As expected, there is currently nothing in the Internal Revenue Code that addresses this issue, so we can only speculate how the IRS might treat a revived grantor. On one hand, there is a possibility that the IRS could consider a revived body as the same person, while instituting a statute of limitations to prevent such revived persons from filing any potential claim for refund. The more likely result is that the IRS would not accept the revived grantor as the same person because the IRS would challenge any claim that a cryopreserved individual was not deceased. In fact, the Richardson and Mitchell cases do not dispute the fact that a cryopreserved person is deceased. The grantor would thus be considered deceased and, as such, any estate taxes and final income taxes would be payable upon legal death. That determination should also be applicable to pension plans, social security, life insurance, etc. Any other treatment would result in significant chaos. As such, the conclusion should be that any person who is revived should be treated as a new “person” for purposes of the Internal Revenue Code.
Tax Status – The GST Issue
Assuming that the revived grantor would be treated as a new person, the revived grantor would also be treated as an unrelated person for purposes of the Generation-Skipping Transfer Tax. This would be by default because the revived grantor could not be assigned to a generation based on being a lineal descendant. The generation assignment from Internal Revenue Code Section 2651(d) would be determined by the time when the grantor is revived. Assuming the grantor is revived more than 37.5 years after being placed in biostasis, the revived grantor would be treated as a skip person.
If instead we assume that the revived grantor is the same person, there would be no GST tax issue at all. The Trust Agreement provides for permission to divide into exempt and non-exempt trusts, but nothing more. Depending on the variations of the trust during the biostasis phase, GST allocation may vary. Alternatively, there may be a legislative answer. If and when the science of cryonics catches up to the theory, legislatures will have to address these issues. In the meantime, the trust should be drafted under the assumption that the revived grantor will not be treated as the grantor under state and federal law.
Regardless of whether one believes in the possibility of being revived, there are significant numbers of clients who do. Therefore, as more people become interested in cryopreservation, attorneys will have to be able to address some complex issues related to cryonics and estate planning.