Addiction has been known to drive even good people to steal and lie to get money to support their habits. Parents of children are wracked by guilt and anger. The stories of families spending hundreds of thousands of dollars in an effort to help their children are growing in number—as are the number of families who exhaust their retirement savings paying for rehabilitation and related services.
Trusted family advisors, including estate planning attorneys and financial advisors, find themselves working with families to protect the family finances and the well-being of their addicted family members. The fallout from addiction creates many secondary problems for families. Estate planning for a family grappling with addiction addresses many different issues, not just inheritance.
Lump sum distributions or full bequests to an adult struggling with addiction can be deadly, if the person uses the funds to purchase large quantities of drugs. At the same time, writing someone out of the will completely and withdrawing all support, can be devastating to the addicted adult and the family.
Creating a trust can help to protect assets and ensure that there is some degree of accountability in how the distributions are made. Incentive trusts, where a certain behavior or accomplishment markers are determined, can be used to encourage behaviors.
This may mean that the addicted adult does not receive funds, until after passing a drug test, attending a certain number of treatment sessions or entering a residential rehabilitation program.
Incentive trusts are part of a special area of estate planning. Therefore, it is necessary to work with an attorney who has experience with trusts and with incentive trusts. Ideally, the attorney who helps your family, will be one who is also familiar with the impact of addiction on families.
Creating incentives for positive outcomes includes having consequences when the person fails to meet the terms of the trust.
In this situation, a trustee who is extremely trustworthy and not prone to being manipulated is necessary. They will need to make sure the person adheres to the requirements and while they may be given certain levels of discretion, this person needs to be strong-willed enough to withstand an addict.
This kind of trust may require the beneficiary to submit to specific terms and provide access to their health records, which itself requires a HIPAA waiver for the trustee.
Creating an estate plan with an incentive trust presents many challenges for the family and the trustee. It may well become a highly charged, emotional process.
Reference: MarketWatch (Jan. 14, 2019) “How to leave money to a family member with an addiction”