Statistics show that 21.5 million adults in the United States battle with some kind of substance abuse disorder. Whether the addiction is alcoholism, drug abuse, or even behavioral addictions like gambling, leaving an inheritance to an adult child who is struggling often causes more harm than good. Fortunately, legal tools like Living Trusts can help ensure that the child’s money or assets stay protected when mom or dad is gone someday.
Establishing the Purpose of the Trust
A trust is an estate planning instrument by which the Grantor (or the trust maker) is able to appoint a third-party (called a trustee) to hold assets in the trust on behalf of a beneficiary. When creating the trust, the Grantor will also decide on specific instructions and guidelines on how the funds in the trust are to be used.
In cases of an adult child struggling with an addiction, parents can work with an attorney to create a plan that ensures any money left in the trust has only a positive impact on their adult child during difficult moments and will not be the gas that fuels their addictive behaviors. In some cases, the trust can be created in such a way to incentivize your loved one’s continued recovery.
Using a Trust to Manage Distributions
The beauty of a trust is that you are given the power to control how and when the distributions of funds are to be made. Trust guidelines can vary depending on the specific needs of your beneficiary. The following are examples of instructions that parents who have adult children with substance abuse problems may want to consider:
- “Pay directly for basic living requirements of the beneficiary (such as food, rent, mortgage, college tuition, etc.)”
- “Require the beneficiary to submit to random testing”
- “Provide access to additional funds to increase their quality of life in exchange for maintaining recovery”
- “Prevent the trustee from distributing cash to the beneficiary and avoid purchasing anything for the beneficiary that can be converted to cash”
- “Provide for the payment of rehabilitative and treatment programs”
Wholly Discretionary Trust
It may be advisable to establish a wholly discretionary trust in instances where loved ones have more severe addiction problems. Here, the trustee maintains sole discretion over distributions of trust income or assets, and the beneficiary cannot demand the trustee to make distributions. With this, parents can benefit from the assurance that their estate will not worsen their child’s condition.
Designating a Trustee
Selecting a trustee should be done with extreme caution. Given the situation, when you appoint a family member, you are exposing your family to inevitable conflicts. An alternative option is to appoint an independent person or corporate trustee such as a bank or trust company. Compared to a family member, an independent or corporate trustee has the financial expertise and professional experience in handling distributions to beneficiaries suffering from addiction. Though they may charge a fee for their services, the benefit may far outweigh the cost by avoiding the risk of family conflict.
Getting Started
Sometimes, protecting our loved ones means protecting them from themselves. An experienced estate planning attorney can help you devise a plan that accomplishes this objective. If you’d like guidance in getting started with creating this trust, contact our Brandon estate planning attorneys at (813) 438-8503 to schedule a consultation.