02 Aug 5 Ways To Plan Your Estate For A Child With A Drug Issue
The opioid crisis is real. Fentanyl is in the news seemingly on a daily basis. Drug and alcohol addiction of a family member or relative is an issue often discussed in estate planning. A beneficiary with an addiction who receives assets outright will often simply use the funds on the addiction. The following are common ways in estate planning to address the child or other potential beneficiary with a substance abuse problem:
- Disinheritance
Many parents feel like they have already spent too much on the child with the substance problem. Often that child has had other issues (debt, divorce, theft, etc.) resulting from an addiction. Parents often bail the child who has drug or substance abuse issues out of their problems. Furthermore, many say those with an addiction have to hit “rock bottom” before they recover. As a result, many parents simply disinherit their child with an addiction or substance abuse problem. On the other hand, the child could be impoverished whereas an inheritance could be used to help solve the problem as set forth below.
- Discretionary Trusts
In any will or trust there can be a trust that is established (i.e, after the death of a parent) whereby a trustee is given the discretion whether to make distributions for the benefit of the child or beneficiary with the substance abuse problem. The trust can dictate how the funds are distributed. For example, funds can be distributed directly only on items that are necessary (i.e., food, housing, rehab center, doctors, etc.) for the beneficiary. Payments would not be made directly to the beneficiary with the drug or alcohol problem. The beneficiary would not have access to the trust, and the trust would have protection from creditors.
- Provisions for Drug Testing in the Trust
It is not unusual that a trust set up for the benefit of a beneficiary with a drug problem has a testing requirement (i.e., urine, hair follicle, etc.). The trust would have provisions on how often testing is done and the type of test should be made before there is a distribution. The trustee would be in charge of distributions and would be responsible for confirming requirements are met.
- Distributions Over Time
Sometimes parents think a child has a drug issue that will only be temporary, and that the child will mature over time without a drug issue. For example, a child can get a 1/3 distribution at age 30, 1/3 at age 40 and 1/3 at age 50. Of course, this can be combined with drug testing or other provisions to confirm there is not a problem before the trustee makes the distribution.
- Incentive Trust with Disincentive Provisions
There can be various incentives in a trust before a distribution can be made. As an example, distributions are made only after meeting with drug counselors or therapists and completion of a plan before a distribution is made. Random drug tests over time can also be part of the plan before a distribution is made.
A disincentive provision could be if performance or testing levels to be drug free are not met within the terms of the trust, then the funds in the trust would instead be distributed to someone else (i.e., other children, grandchildren) or to a charity.
Estate planning for a beneficiary with a drug addiction is challenging. Options should be discussed on the best ways an inheritance can be protected from waste by the beneficiary with a substance abuse problem.
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