Assisted Reproductive Technology (ART) Escrow Explained by SeedTrust
The journey to grow a family through third-party fertility can be lengthy, complicated and expensive, requiring the parties to make a myriad of important decisions in short periods of time. At times, the process may leave some feeling overwhelmed and exhausted.
Once it is finally time to choose an escrow provider, many intended parents underestimate the significance of this choice, but an escrow provider plays a critical and impactful role in the management and outcome of the journey.
This article outlines what an ART escrow provider does, how escrow providers differ, and how those provider differences may affect the journey for the people involved.
What is an Escrow Fund Management Company?
Escrow fund management companies are often referred to as “escrow providers.” They are the third party entities that maintain and manage how and when funds are disbursed to the parties contractually involved throughout a surrogacy and/or an egg donor journey. The escrow provider is responsible for holding the money in a secure account and ensuring that the money is distributed in accordance with the provisions of the parties’ gestational and/or egg donor agreements.
Why is escrow established for third-party ART cases?
Intended parents designate an escrow provider to protect everyone involved financially throughout their journeys. The escrow process ensures that every request and every transaction is reviewed and acted on by a neutral and unemotional third party. The escrow provider is bound by a legally recognized entity and has a fiduciary duty to securely hold and properly administer the funds pursuant to the terms agreed to in the parties’ surrogacy and/or egg donor agreements.
How do escrow providers differ?
The services that escrow providers offer vary greatly between providers. Some of the most significant differences fall into one or more of the following areas:
1. Fund Management vs. Fund Holding
How is the escrow arrangement structured? Who has disbursement approval authority and liability?
Fund Management is an escrow arrangement in which the escrow provider managing the funds establishes a service agreement with the parties bound by the surrogacy and/or egg donor agreement(s). In this scenario, disbursement requests are submitted to the escrow provider by the parties, the parties’ representatives, or the agency case managers. Once requested, the escrow provider takes on the responsibility and liability of ensuring that the disbursements made are accurate, comply with the terms of the underlying egg donor and/or surrogacy agreement(s) and are accompanied by adequate supporting documentation, which is verified by the escrow provider.
Fund Holding is an escrow arrangement where a designated person or class of people (e.g., case managers, agency owners, attorneys) who are not direct parties to the surrogacy and/or egg donor agreement(s) take full responsibility and liability for submitting the disbursement requests for the parties. In this scenario, the escrow provider is under no obligation to question the accuracy of the disbursement request, verify the supporting documentation associated with the requests or ensure that the disbursement request complies with the surrogacy and/or egg donor agreement(s). It is simply a pay-upon-demand arrangement where the escrow provider does little more than hold the funds in a secure account and disburses the funds when directed to do so by the designated person(s).
2. Specialized or General Escrow Provider
Surrogacy and Egg Donor Agreements are inherently complex and unique. They in no way resemble your ordinary real estate transactions or commercial acquisitions, which only require the escrow provider to hold the funds until it’s time to send them to the appropriate party. Egg Donor and Surrogacy Agreements cover a multitude of issues, ranging from mileage reimbursement, to establishing parentage, to setting out health care directives for the Surrogate and Egg Donor.
Moreover, general escrow is hardly a controlled or predictable environment. The laws pertaining to compensation and a complex healthcare system are variable and often conflicting, so it’s not difficult to imagine issues that may arise along the way. Responses require quick, appropriate action that only a team of experienced, specialized professionals can deliver.
3. Independent versus Affiliated
Some agencies and attorneys offer escrow services in-house. Intended parents, surrogates, and egg donors should consider that choosing an agency or attorney to hold escrow creates a whole new set of issues that include but are not limited to the following:
Agencies are familiar with the process, but they often do not have the legal, accounting, or escrow expertise to manage the funds. There is also an inherent conflict of interest, as they may use the funds to pay themselves, related parties, and third-party providers with whom they have a relationship during the journey. Moreover, agencies have no direct or specific Federal or State entity setting rules and regulations they must follow. Consequently, this renders most agencies unable to secure the necessary insurance coverage to protect their clients’ funds adequately. This is particularly pertinent, since nearly all cases of stolen escrow funds from intended parents were held with the agency representing both parties in the journey.
Drafting Attorney Escrow
Attorneys are obligated by their respective State Bar Association’s Rules of Conduct to always act in their clients’ best interest. If the Attorney holding escrow also represents the intended parent, then that attorney is obligated to defer to her client’s position any time a dispute over whether to disburse funds arises between the intended parent and surrogate and/or egg donor — even to the detriment of that surrogate and/or egg donor. The same is true if the attorney holding escrow represents the agency; they must defer to the agency and act in its best interest, even if that action is detrimental to one or more of the contracting parties. Additionally, most attorney escrow holders do not specialize in escrow and only offer fund holding arrangements as a result.
As discussed above, Fund Holding arrangements vest the liability and control over the funds with the agency, which in turn provides very little oversight and protection to the contracted parties. An independent third-party escrow provider, on the other hand, remains beholden only to its fiduciary obligation to administer the funds in complete compliance in the expressed terms of the underlying contract between the parties. A neutral and independent escrow provider is under no professional or legal obligation to defer to any single party or agency when disputes or issues arise. In fact, the independent provider is duty-bound to base all decisions on an unbiased interpretation of the underlining contracts.
Do all escrow providers offer the same level of fund security?
No. Not all escrow companies/entities are bonded and insured. Intended parents, agencies, surrogates, and egg donors are advised to carefully scrutinize all prospective escrow companies, including their structure, processes, and insurance policies. While some states enforce strict guidelines on anyone holding escrow funds, most do not. When tragedies or thefts occur, this leaves the parties with no means of recouping their money and could terminate the journey altogether. The only way to have complete confidence that your funds will be totally secure throughout a third-party journey is to confirm that the escrow provider satisfies the following fund security standards:
Bonded and Insured
When funds are bonded and insured, in the event of theft or misuse a claim can be filed on the company’s bond. Parents and agencies should inquire as to the amount for which the company is bonded. Does it protect every dollar they hold and/or manage? If not, in the case of theft or misuse, funds may not be replaced. Be sure to ask for the insurance information and check the date to ensure the bond is active.
Attorney-Managed Trust Account
Tying an attorney to the trust account adds an essential extra layer of oversight and accountability that simply does not exist on cases where the trust account is managed by non-lawyers. The Bar Association has the ability to monitor the account to ensure complete compliance with applicable laws and regulations. If issues arise, it could result in the attorney being disbarred and losing their privilege to practice law in the United States.
A Critical Choice
Selecting an escrow fund management company is a critical decision — one which should be made only after careful consideration of all facts and information. Ask questions, demand documents, and take the time to investigate all available options thoroughly. It’s the only way you will feel completely confident that the choice you made will provide you with the highest levels of security, transparency, service, and the peace of mind that you deserve.
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