An incentive or conditional trust is a one in which estate and assets are made available to the beneficiary only after they have completed certain requirements. In the case of an addiction, you could set requirements such as, the beneficiary will not receive funds until they have completed rehab and have remained clean or sober for no less than one total calendar year. These trusts distribute funds based on reaching milestones, and you can set continuous milestones to help ensure that your child stays clean or sober while they receive the funds.
However, while these trusts can be motivating in encouraging an addict to get clean or sober, they will not provide the deep personal motivation often required to ensure long-term recovery. Working in limitations to ensure that your child cannot start using again once they receive the funds is crucial to the success of incentive trusts.
Disinheritance is often the first option for those considering estate planning for an addict. Depending on your situation, it may be the right decision, but you most likely don’t want to consider it. Even if you are estranged from your addicted child, you likely still care for them deeply and want the best for them. Disinheritance is the process of cutting a person out of your will so that if you die, they receive nothing. While it may be tempting for some, especially if you believe that your child will likely never get better, this decision cannot be changed without rewriting your will, even if your child goes into rehabilitation and becomes clean or sober. If you choose to disinherit your child, you must leave specific instructions stating that they receive nothing. Should you choose to do this, it is crucial that you do so with a lawyer present, so that your child cannot contest the will.
Disinheritance is most often used when there are multiple potential beneficiaries, such as other children, and often with the intent that the sibling give some of the estate once the addict is back on his or her feet. However, this may or may not work out depending on family dynamics.
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A spendthrift trust is one of the best options when estate planning for addicts. There are several forms of this trust you can consider, and each has pros and cons. At its most basic, the spendthrift trust enables you to put spending authority in the hands of a trustee, or a trusted person who will control the reckless spending of your child. This can prevent them from wasting funds and can prevent them from using funds to purchase drugs.
Spendthrift clauses in trusts are also valuable because you can use them to provide necessary funds such as child support, alimony, food, and shelter to the beneficiary, without allowing them to spend anything else. This enables you to offer support, even after you are deceased.
Finally, spendthrift clauses typically protect the funds in the estate from creditors. So long as the funds are in the trust, creditors cannot reach them. This is ideal in instances where your child may have to declare bankruptcy due to poor financial decisions while under the influence of drugs or alcohol, has a large amount of debt, or is likely to accrue a large amount of debt. However, once funds are taken out of the trust, they can be garnished by creditors.
In some cases, you may be able to set up a discretionary spendthrift supplementary needs trust, which enables your child to qualify for needs-based government benefits (SSI, Medicaid, housing, SNAP, etc.), while offering the other benefits of the trust.
The best way to set this up is to create a Testamentary Discretionary Trust with a spendthrift clause, which will come into effect after you are deceased. Then, the funds will be moved into trust and spending will be controlled by the trustee for the benefit of your child (the beneficiary).
Given the current epidemic of addiction in our society, it’s natural that many families have a child who is addicted to drugs or alcohol. Estate planning for addicts can be emotionally and mentally difficult, because you likely do not want to disown your child. However, as responsible parents, you likely want to ensure that any inheritance your child receives is not made available to them until they are clean or sober.
Taking steps to create an estate plan that considers and accounts for your child’s addiction can prevent them from receiving a lump sum of funds while they are under the influence. By preventing your child from receiving too-large an inheritance at one time, you reduce the possibility of hard-earned family assets being wasted and protect your child from harming him or herself because of their lack of control regarding their substance and access to a large amount of money.
Fortunately, there are several steps you can take which can help you to leave your assets to your child without giving them assets they could use to harm themselves.
While you should always discuss your situation and theirs with a professional estate planner or tax professional, the following include ways that you can make estate planning work for you and your child.
Estate planning for addicts is difficult and there are often several choices you need to make, some of which may seem hurtful to your child or children. You should take the time to understand your options and make the best decisions with what you have.
Dividing Inheritance – Estate planning is difficult when addicts are involved, but much more so when the inheritance must be divided between multiple children. While it is often tempting to disinherit the addicted child in favor of the sibling(s) who are making good choices for themselves, there are other options. For example, you can divide the inheritance normally, and place the addict’s portion into a trust. If you are unsure if the addict will be deserving of those funds, creating a clause that will absolve the trust or place it into the hands of the clean and sober siblings after a certain period may be a better solution.
Choosing a Trustee – While it may seem obvious to choose a sibling or other relative as a trustee, this is often a mistake. Family members are too close to the addict to be able to make good decisions, and could eventually give the addict money which they waste or even overdose on. In addition, the addict may spend a great deal of time begging the trustee for money if they are a family member or friend, which can negatively impact the family relationship. Assigning a trusted family lawyer or attorney, or an independent or corporate trustee, as a trustee is often a much better decision.
No matter what your decision, it is important to remember that you are approaching it with the best interest of your child or children in mind. Taking steps to keep your estate from an addicted child is not depriving them of their inheritance, it is protecting them from what they might do with the money.
Your goal should be to discuss your options with an estate planner so that you can make an informed decision based on taxes, distribution of funds, cost of the trust or solution, and the quality of the solution. With the right planning, you can protect your child and your estate.
If you or a loved one needs more information about Estate Planning and Addiction Treatment Options, please contact Nemat Law to speak with an experienced Estate Planning Attorney. Contact us today!