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Estate Planning for Families With Substance Abuse

by Webmaster Admin on January 1st, 2024

If you have a family member who is suffering from a substance abuse problem, your situation is far from rare. Over 20 million Americans are addicted to alcohol or non-prescription drugs. In addition, many others have loved ones with behavioral addictions such as gambling. 

As a result, we have seen clients spend tremendous emotional and financial resources over many years trying to help their loved ones to recover from substance abuse and other addictions.

Parents and grandparents in this situation often agonize over how to include their addicted family members in their estate plan, and often give serious consideration to  disinheriting them. While they may certainly love their family member who struggles with addiction issues, clients also recognize that it may do more harm than good to give an addict an outright distribution, in one lump sum, of assets or other property that can easily be liquidated for cash.  

They justifiable concern is that the family member who is struggling with substance abuse or other addictions will use all or part of their inheritance to purchase drugs, quickly depleting their share down to nothing.

While some clients choose to disinherit their child or grandchild, there are often viable and constructive options to provide financial resources for a family member struggling with substance addictions, safeguarding and preserving assets, without completely disinherited them. 

In most cases, we see clients who want to provide resources and a safety net for a child or grandchild with addictions, but desire to select another family member or trust company to make discretionary distributions to the beneficiary by placing restrictions on how the inheritance is used, in order to protect the child from quickly depleting their inheritance through poor choices. 

Fortunately, this goal can be accomplished by establishing a Trust that is properly structured and includes specific safeguards with respect to the distortion of income and principal to the family member with addictions. 

Following is a summary of how a Trust can be structured by a competent estate planning attorney in these situations for the benefit of a family member:

  • You select the beneficiary of your Trust and set aside funds, during your life or upon your passing, that will fund the Trust.
  • You designate the Trustee who will manage the assets and distribute funds to the child. The selection of the Trustee is a critical decision, which can be a family member, friend, professional corporate trustee, or a Co-Trustee appointment. Strong consideration should be given to appointing an independent third party trustee, instead of a sibling since it is far less likely that a professional trustee will be pressured by an addicted child to make unwise distributions to the beneficiary with addictions or to succumb to such pressure.
  • The nature of the discretionary distributions included in your Trust can be designed to meet the needs of the family member with addictions. For example, you may want to include provisions that authorize the trustee to pay only for the addicted beneficiary’s health, education, medical care, drug counseling and rehab programs. Payments from the Trust can be made directly to service providers, so reduce or eliminate the beneficiary’s direct control over inherited trust assets. Flexible Trust language can provide the trustee with the authority to use both income and principal under certain circumstances.
  • Your estate planning attorney can also include specific language in the Trust which often encourage or fosters healthier behavior. For example, as an incentive for the beneficiary to make better decisions, you may direct your trustee to release additional funds to the beneficiary on the condition that the beneficiary regularly attends drug counseling sessions. This provision could also provide that if the beneficiary misses a certain number of counseling sessions, distributions are reduced. If the child has proven to be recovered and that recovery is documented over a significant period of time, you could direct your trustee to release a specific portion of the principal of the Trust to the beneficiary. You may also want to build in monetary incentives if the beneficiary accomplishes certain goals – for example, graduates high school, college, or maintains a steady job for a certain number of years.
  • Your Trust can also include provisions for any funds which remain in the Trust when your beneficiary passes away. Those funds could be distributed to the trust beneficiary’s own heirs if there are any, or to your other children or grandchildren.

Drug addiction is a difficult problem to conquer and a frustrating one for many families. However, your personal estate plan can provide for a loved one with addictions in a manner that does not contribute to the problem, or which hopefully may even encourage the beneficiary to recover and lead a productive and meaningful life.

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