Recovery from addiction can be a lifelong process - so how to handle this in your estate plan?
Is this your dilemma?
Your beneficiary suffers from addiction (e.g., drugs, alcohol, gambling, shopping, eating, sex, etc.). He/she may not fully acknowledge it and likely believes that the impact is far less than the reality, which you can clearly see. As part of your estate plan, you want to ensure that this loved one is cared for in the event of your passing.
Your concern is that an inheritance of cash or other assets can make the problem even worse. However, disinheriting the person doesn’t allow access to funds necessary for recovery. You’ve thought of doing a trust but aren’t sure how to structure it, much less finding the right person to burden with administration. What do you do?
What are typical options?
- Lump sum cash inheritance: An addict’s decision-making can be impaired and irrational, so having a large inheritance can prove disastrous, actually contributing to an unhealthy lifestyle, relapse, or bad relationships that feed off the inheritance.
- Disinheritance: While often discussed, this strategy can lead to hurt, shame, further addiction, and alienation from other family members.
- Establishing a trust: Holding the inheritance in a trust, managed by a responsible trust, can be the best option. A trust can be used as a safety net while protecting assets from immediate access by an addicted beneficiary, as well as from creditors.
Recovery from an addiction is likely a lifelong healing process for your loved one. Further, as a disease, relapse from addiction is common, so remember that your long-term goals are likely to protect your loved one and to foster recovery.
How to select a trustee?
Managing a trust for an addicted person can be extremely difficult, both in time expenditure and the emotional toll. As such, careful consideration should be given to trustee selection. If financial resources allow, consider a professional fiduciary. It is easier for a third-party to make rational decisions, and he/she will is less likely to be unaffected by an addict’s manipulative or otherwise bad behavior. While family members may offer emotional and moral support, their history of dealing with the addict may affect them and hinder effective decision-making if selected as trustee.
How should the trust be structured?
There are numerous questions to be addressed with your estate planning attorney in designing the correct structure for your situation. Here are a few:
- Timeframe: An ongoing trust may last for years, up to the entire lifetime(s) of your beneficiaries. It may be terminated upon full rehabilitation, death, or if the trust is no longer feasible to maintain.
- What financial needs should the trust cover? Many trusts include provisions for basic needs, such as medical care, food and shelter. The trust might also provide for rehabilitation, counseling, and other forms of treatment. In some situations, no distributions are made to a beneficiary while an addict.
- Who controls the funds? Usually, the trustee controls distribution of funds to creditors, rather than handing funds directly to the beneficiary. This can be a time-consuming activity and is another reason why a professional fiduciary trustee should be considered. Also, incentives can be provided to motivate the beneficiary to seek treatment or meet other “life skills” goals.
Since every situation is unique, discuss your needs with a qualified estate planning attorney. In addition to the above, the attorney might discuss factors such as:
- Should the trust be established while you are living or take effect upon your death?
- How to explain the trust to the addict?
- How can the trust be designed to not interfere with the beneficiary’s eligibility for government benefits?
- How would the trustee evaluate a beneficiary’s addiction?
- What control does the family have when a third-party acts as trustee?
- Should there be both a trust advisor and a trust protector?
Obtaining Professional Guidance
Addictive behavior can impact every aspect of life, not just of the addict but those who love him or her the most. Our attorneys have extensive experience in estate planning involving beneficiaries with addictions. Please contact Mortensen & Reinheimer, PC at (714) 384-6053 or use our online contact form. Our website is http://www.ocestateplanning.net.
About the author:
Weily Yang is an attorney at Mortensen & Reinheimer, PC, an estate planning and probate law corporation in Irvine. Weily is a zealous advocate for individuals with special needs. His primary focus is special needs trusts and probate conservatorships together with estate planning, trust administration, and probate. He can be reached at firstname.lastname@example.org.