In our estate planning practice, we regularly have parents or grandparents who are concerned about leaving an inheritance to a beneficiary who has a substance abuse problem. The concern is real in that a beneficiary who suddenly comes into a sum of money could use it for purchasing drugs. It could also mean that the beneficiary who has impaired judgment due to drug use will waste the inheritance away. Substance abuse is itself a nightmare and the thought of contributing to it by giving the addicted person funds to fuel their habit makes it even worse. Equally troubling would be that the person burns through their inheritance and it is gone as quickly as it came.
Recent statistics show that drug abuse is running rampant. Over 20-million Americans are believed to suffer from drug abuse problems. In 2018, there were over 60,000 deaths caused by drug abuse. With drug abuse comes broken lives, health issues, and in the worst cases, death by overdose. Most families have either been touched by drug abuse or they know someone who has.
We often run into clients who want to know their alternatives if they have a substance abusing beneficiary. The client loves the beneficiary and wants to leave them something but does not want to contribute to their habit. In such a situation, the client does not have to resort to the two undesirable extremes: (1) leave it to the beneficiary and hope that he or she gets their act together; or (2) cut them out altogether. When a client identifies a drug abuse issue with someone to whom they want to name as beneficiary, there are estate planning tools that make it possible to leave the person an inheritance all-the-while protecting the beneficiary from misusing the inherited funds due to their drug abuse problem.
Most often, the planning tool used by experienced estate planning lawyers in this situation is a Revocable Living Trust—also sometimes called a Revocable Trust or a Living Trust (“Trust”). A Trust is a written document like a Will but it is set up in such a way that it puts someone in charge of the assets—called the Trustee—and leaves directions on how and under what circumstances the assets are to be distributed or to be withheld.
When leaving assets to a beneficiary who has a substance abuse problem, the Trust can set out certain criteria which allow distribution under controlled conditions. The beneficiary does not get a large distribution all at once and if the beneficiary is abusing drugs at a time when distribution is to be made, the Trustee may withhold distribution until the addicted person demonstrates that he or she is in recovery.
In establishing a Trust in this circumstance, there are several things to consider. First, the Trust should have some incentive provisions that can reward the beneficiary if he or she controls (or preferably quits) their drug use. On a related note, the Trust can include some restrictive provisions specifying that if the beneficiary relapses into drug use, distributions will cease. In other words, the Trust should reward the beneficiary for good behavior and if the beneficiary abuses drugs, withhold distributions from the Trust.
The Trust typically should give the Trustee broad discretion on when or whether to make distributions for a beneficiary. Because an addict can be quite persuasive and/or persistent, the Trust should allow the Trustee’s discretion to be absolute and not subject to the beneficiary “second guessing” the Trustee.
The Trust could also contain provisions addressing the following:
- The Trust may authorize the Trustee to require that the beneficiary submit to periodic drug testing, the results of which are to be provided to and may be relied upon by, the Trustee;
- The Trust may require the beneficiary to cooperate with and participate in drug testing;
- The Trust may authorize the Trustee to hire, confer with, and rely upon substance abuse experts such as counselors and medical personnel;
- The Trust may authorize the Trustee to pay for substance abuse treatment for the beneficiary;
- If a beneficiary lapses into drug use, the Trust may include provisions for what the beneficiary must demonstrate in order to show that he or she is in recovery;
- The Trust may direct that the Trustee make distributions to third parties directly—not to the beneficiary;
- The Trust may allow the Trustee to make distribution to the beneficiary’s spouse or nearest relative to be used for the beneficiary.
Setting up a Trust for the purposes we’ve discussed is not something that you should do yourself. The provisions must be well-drafted and thorough. You should consult not only an attorney but one with experience drafting these types of Trusts. Furthermore, you should tell the attorney about your concerns for a substance abusing beneficiary and discuss the alternatives available to attain your objectives.
