Do I Need Escrow for My Surrogacy Journey?

When starting a surrogacy journey, one important decision is whether you need an escrow account. Let’s explain what an escrow account is and why it’s helpful for surrogacy.

Escrow accounts are common in surrogacy journeys because of its safety measures. In surrogacy, intended parents deposit funds into an account either handled by a licensed escrow company or an attorney trust account (sometimes called a trust not an escrow). The escrow account is typically set up at the matching stage of a surrogacy when an agency is involved, or later in independent cases. The funds deposited in escrow are used to pay the surrogate’s compensation and other surrogacy expenses like medical bills, legal fees and reimbursements. The escrow account holder will issue payments following the agreed contract. 

Is an Escrow Account required?

You may be required to have an escrow account depending on the state law that applies to your surrogacy agreement. Sometimes the parties use the state laws where the intended parents live, the state of the surrogate, or the law of another state that is related to the match in some way. 

Here is a map of the states that require escrow or an attorney trust account for surrogacy.

California and Washington’s laws are unique in that independent journeys do not require escrow but ones involving a matching agency do. Virginia requires a gestational surrogacy agreement to address how expenses will be paid and guaranteed either through escrow, cash, or bonds. 

Why Is Escrow Important?

Whether your contract is in a state that requires escrow or not, escrow is still advisable for most journeys, even though it adds to the cost of the journey.

1. When managed by the escrow company, having an escrow account ensures that all payments under the surrogacy agreement are made in a timely manner. This reduces the time that intended parents need to spend on the case making and monitoring payments.

   
   

2. Escrow accounts reduce risk in most cases, such as late payments, insufficient funds, or funds being misused if entrusted to the agency. By entrusting a neutral third party to manage the account, both parties can avoid potential disputes or financial mismanagement. For surrogates, escrow is very important because it means intended parents cannot withhold payments that are due, nor will the surrogate need to go to court to receive a payment she is due if the escrow is still open. With international intended parents, surrogates will have a very hard time getting bills paid or compensation due if the intended parents do not pay and no escrow is in place. The escrow is usually kept open for sufficient time to ensure that money is available months after the journey is completed. 

   
   

What about the downsides?

The downsides for some intended parents is the cost. However, escrow companies do not charge extra for the length of the journey, and the amount escrow companies charge is relatively low compared to the length of time escrow is in place and the amount of work the escrow does. 

Another downside to many is the fear that placing the money with a third party is not safe. We understand it would be devastating if funds in escrow were lost or stolen. For tips on how to choose an escrow company to avoid the risk of theft by the escrow, check out our recent blog, Worst Case Scenario: Problems with Your Escrow Company.

Another downside to some is the fear that money will be tied up in escrow and the journey may not be successful, and then these funds cannot be used. Despite this fear, the parties can agree to keep minimum balances lower after the journey, or have a shorter time frame for closing the escrow if there was no successful pregnancy. 

For the surrogate, an escrow account should be on her checklist of requirements for a match. For intended parents, the cost is low and with adequate research, a trustworthy escrow account can be chosen. 

Conclusion

Using an escrow account for your surrogacy journey is a smart way to keep track of funds and ensure that payments under the surrogacy agreement are made and funding is there for the whole journey. In some states, it is required you have an escrow account.

Intended parents and surrogates should both have a dependable attorney that is knowledgeable about what is required and optimal for escrow accounts in surrogacy. Reach out to Tsong Law Group today as you start your surrogacy journey.