Estate Planning for a Beneficiary with an Addiction

September is National Alcohol & Drug Addiction Recovery Month. Did you know that, while difficult, it can be important to talk openly with an attorney about your loved one’s addiction? This is because most families may not want to leave an outright gift or inheritance to him or her, as that could be seized by creditors or spent on alcohol or drugs. Similarly, most families do not want to disinherit a child who is struggling with substance abuse. Through employing certain estate planning tools, however, families may have a way to safely distribute an inheritance to a loved one struggling with an addiction.

For instance, a spendthrift trust could be a great tool for this situation. Basically, a spendthrift trust allows you to place spending authority with a trustee, or a trusted person, rather than the beneficiary. You can specify what kinds of expenses may be authorized under the trust, so you can ensure that the inheritance may only be spent on necessary things, like education, food, and shelter.

Spendthrift trusts can protect the inheritance from creditors. If the beneficiary has to declare bankruptcy, the funds in the trust can be beyond the reach of creditors, though once funds are removed, they may be garnished by creditors.

An incentive or conditional trust could be another option. These trusts only make assets available to the beneficiary after he or she has completed certain requirements. Requirements could include completion of a certified treatment program, or remaining clean and sober for a year. You can also set up continuous milestones to help him or her maintain sobriety.

Using a professional fiduciary as the trustee might be a preferred way to go. Placing authority for spending on a sibling or family member can strain the relationship between that family member and the beneficiary who is battling addiction. It can be a big job for a family member who may feel pressured to do it out of familial obligation. It may seem like a good solution, but resentment can easily build for the family member serving as trustee.

If you are concerned about leaving an inheritance for a loved one who is experiencing a substance use disorder, contact us today.