If someone you love struggles with substance abuse or other forms of addiction, it is essential that you discuss the issue with your estate planning attorney and find solutions that give you peace of mind and, when possible, provide responsible assistance to those suffering from addiction.
Below are three of the most common ways people use their estate plan to benefit loved ones with addictions.
The most straightforward way you can protect someone financially from their addiction is simply by disinheriting them. This sounds harsh to many people, but, as you probably know, one of the most dangerous things you can do for an addict is to give them money.
Disinheritance can be done whether you have a will or a trust, but it must be done clearly and intentionally. What does that mean?
Well, a common misconception is that a parent can disinherit a child simply by "leaving them out" of a will or a trust (that is, by not naming them as a child, heir, or beneficiary). If you use this strategy, the law treats the omission of your child as a mistake and then essentially "writes them in" to your will or trust, giving them a distribution.
If you wish to disinherit someone who would otherwise have the legal right to inherit from you - such as a child - then you must acknowledge their relationship to you in the will or trust and then specifically disinherit them. In other words, you must say something like, "I have three children, and their names are A, B, and C. However, I am specifically disinheriting child C. For purposes of my will or trust, child C will be considered to have predeceased me and will receive nothing."
That certainly sounds severe, which is why many people choose not to specifically disinherit someone. But that kind of rigid language is necessary to ensure that the law does not treat your disinheritance as a mistake.
Many of our clients have no desire to disinherit their loved ones, but they want to make sure that money cannot be used to feed an addiction or other destructive choices. In that case, a "spendthrift trust" is often utilized to make sure that a child receives the full benefit of their inheritance without any of the control over the assets.
It works like this. Again, you have three children - A, B, and C. Your trust states that you want to divide your assets equally among your three children; HOWEVER, child C, who is an addict, is to receive his share in a sprendthrift trust. He receives as much as your other children, but someone else - your trustee - has discretion over how and when he receives his money.
You may say, for instance, that you want the money to be available to help with his education expenses, medical costs, or support - like rent, utilities, food. The trustee can use child C's share to help pay these costs, but the child has no right to simply take money and do whatever he wants with it.
An added benefit of spendthrift trusts is asset protection. Often times, the money set aside for a child in a sprendthrift trust is outside the reach of the child's creditors. When your child is an addict, this can be a significant form of protection.
Finally, for our clients who want to make it possible for a child to gain control over their own assets, we can create incentive trusts. Unlike a spendthrift trust, an incentive trust creates some behavioral or lifestyle goals, after which a child can assume responsibility for his or her share.
For example, you might want to say that once a child has successfully completed rehab and stayed sober for five years, he can serve as his own trustee or obtain a withdrawal right over a portion of the money. These sorts of provisions are used to build and regain trust over time with a beneficiary who may be an addict but who is also working hard to remain clean and sober.
Regardless of which strategy fits your circumstances and values, it is critical that you discuss the matter with an attorney ahead of time.
The Basics: What's a "trust" and what does it do for me?