September is National Alcohol & Drug Addiction Recovery Month. In 2017 alone, 19.7 million adults in America experienced a substance use disorder. For people trying to support a family member struggling with addiction, estate planning can be particularly emotional.
What not to do
Outright gifts can be problematic when a beneficiary is experiencing a substance use disorder. The assets could be used to acquire drugs or alcohol, or they could be garnished by creditors as repayment for prior poor financial decisions.
Many families do not want to disinherit a family member who is struggling either. Beyond the emotional concerns, disinheriting a family member can open the estate up for litigation. Even when someone is legitimately disinherited, he or she may decide to fight the absence of a bequest in court.
While a trust is a good solution, placing a family member in charge of the inheritance of an individual with addiction issues is also problematic. Not only can the power sour what might otherwise be a good relationship between siblings or extended family, it can create a headache for the family member who is put in charge. As the trust will last for the life of the individual experiencing addiction, it will also, therefore, be a headache for life for the family member who serves as trustee.
What to do
A spendthrift trust is one of the best tools for this situation. Basically, a spendthrift trust allows you to place spending authority with a trustee, or a trusted person, rather than the beneficiary. You can specify what kinds of expenses are authorized under the trust, so you can ensure that the inheritance is only spent on necessary things, like education, food and shelter.
Spendthrift trusts can protect the inheritance from creditors. If the beneficiary has to declare bankruptcy, the funds in the trust are beyond the reach of creditors (though once funds are removed, they can be garnished by creditors).
Incentive or conditional trusts is another option. These trusts only make assets available to the beneficiary after he or she has completed certain requirements. Requirements could include completion of a certified treatment program, or remaining clean and sober for a year. You can also set up continuous milestones to help them maintain sobriety.
Using a professional fiduciary as the trustee is also recommended. Placing authority for spending on a sibling or family member can strain the relationship between that family member and the beneficiary who is battling addiction. It is a big job for a family member who may feel pressured to do it out of familial obligation. It may seem like a good solution, but resentment is likely to build for the family member who is serving as trustee.
If you are concerned about leaving an inheritance for a loved one who is experiencing a substance use disorder, contact me today.