As I work with families on their estate plans, one of the more difficult issues that is raised is what to do when a family member has a substance abuse problem. Substance abuse effects people of every generation and takes on many forms. Whether it’s alcohol, prescription drugs, or illegal narcotics the affects on the family can be huge. Families facing this concern should consider the following questions when designing their estate plan:
- Has the beneficiary ever been diagnosed with a mental illness?
- Is the beneficiary having a particularly hard time – is divorce on the horizon? Has he lost his business? Does he gamble?
- What is his relationship with other family members?
- Who does he trust?
- Who is giving him money?
- Is he eligible for government assistance?
- Who is paying his health insurance?
- Is he employed? For how long? What types of jobs?
- Has he ever been treated for his addiction?
- Is he a member of Alcoholics Anonymous or a similar organization?
- Do these issues run in the family?
- Has there been a family intervention?
- Is he open to counseling? Has this topic been addressed?
- Where is he living? Can he live alone?
Substance abuse often masks other underlying mental health issues, including undiagnosed or untreated schizophrenia, bipolar disorder, and depression. That these issues are often part of a larger family pattern makes having the discussion much more difficult, but much more essential.
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As complex and emotional as these issues are, families must address them. Inevitably, an estate planning discussion will include disinheritance. While this subject is frequently discussed, it is less frequently implemented. At the end of the discussion most people still want to provide some type of assistance to their family member. However, the nature of the relationship may affect that desire. Parents, Grandparents and Siblings may all view the problem and solutions differently.
Rather than disinheritance, a common solution is to establish a trust. The difficult decision, however, is who will serve as trustee. If there are significant assets, then choosing a corporate trustee is the simple choice. The other family members or trusted friends can then have the right to remove or replace that trustee during the trust duration. If there are not sufficient assets to warrant a corporate trustee, then family members or friends must step up. The trustee should review the trust document to ensure that he has the right to resign from his office, and understand the mechanism for subsequent trustee appointments. The document should provide the trustee with the authority to expend funds for purposes such as counseling, detectives, drug testing, and private security.
After deciding on the line of succession and identifying who will operate the trust, you need to focus on the various purposes for which the trustee may or may not distribute income and/or principal from the trust to the beneficiary.
If the beneficiary is likely to require government assistance, then the terms of the trust must contemplate that. The trust document may also give the trustee authority to withhold payments if deemed advisable. This is often preferable to asking that trustee to determine whether a beneficiary is drug-free. Those suffering from substance abuse can be clever, and making such a determination is tricky.
Rather than withholding payments, another approach is to provide the beneficiary with incentives for staying clean. The trustee could provide additional distributions if the child holds a full-time job or regularly attends counseling sessions. Making the distribution provisions restrictive and under the trustee’s sole control can help protect those assets from the troubled child’s creditors, or from any of the many “friends” and acquaintances who might take advantage of him if they believe there is money in his pocket.
You may rightly choose not to make these troubles public, or put them in a trust document that others can access. I encourage my clients to write an annual side letter to the trustee that describes their observations and offers details that they are reluctant to share while living. This letter should be placed in a sealed envelope, kept with the original estate planning documents, and updated/revised as circumstances change. This will allow the successor trustee to act in a manner consistent with your goals and objectives.
Planning for the beneficiary with a substance abuse issue is complex and can have consequences that affect the entire family. A plan created now should be good enough to handle today’s circumstances, yet flexible enough to contemplate the unknown. Revisit the plan every few years as circumstances change and evolve and consider what changes may need to be made.