Should a beneficiary with an addiction to drugs, alcohol and/or gambling receive an outright inheritance? In most cases the answer is clearly no. Doing so would likely enable the self-destructive addiction.
Instead, holding the inheritance in further trust, managed by a responsible trustee, may prove more beneficial. For discussion purposes, let”s consider some basics regarding how the trust might work.
An ongoing trust may last for years up to the entire lifetime(s) of one or more beneficiaries. It may be terminated when the beneficiary is rehabilitated, dies or the trust is no longer feasible to maintain.
Usually, the trust is established at death of a parent, spouse or other relative wishing to leave an inheritance. Alternatively, they may establish the trust during their lifetime. The trust might then be available to receive contributions from other caring people who wish to make responsible gifts to the same beneficiary.
Preferably, no distributions of money are made to a beneficiary while still an addict. At most, a minimal cash allowance might be allowed as pocket money; even pocket money should be at the trustee”s discretion or on condition that the beneficiary does not abuse the allowance.
Depending on the terms of the trust, the trustee might be allowed to use the assets in the following ways: (1) To help rehabilitate the beneficiary through counseling or a rehabilitation program; (2) to make direct payments to third parties in furtherance of the beneficiary”s health, education, maintenance or support and (3) to pay for travel, recreation and entertainment.
Would there ever be any distributions to the beneficiary? If and when the beneficiary proves to be rehabilitated for a sufficient time period, typically six consecutive months, then direct distributions to the beneficiary, including perhaps monetary distributions, could either be allowed, at the trustee”s discretion, or else required. Otherwise, until then, only direct support payments to providers and non-cash assets, such as furniture and furnishings, would be allowed.
The trust would require the beneficiary both to take drug and/or alcohol tests and to sign all legal waivers needed to by trustee to receive confidential information. Failure to cooperate would be a bar to receiving distributions.
Who should manage the trust distributions? The trustee needs to be someone who can say no to the beneficiary and who can do what is right. Often, family members either do not want to serve or are not well suited to serve. Thus, provided sufficient resources, a professional private fiduciary or a bank can be utilized.
When is this feasible? The trust needs to have the resources to afford professional management and to assist the beneficiary. Typically, this means liquid assets worth above $100,000.
The trust may allow for a family member to act either as a trust advisor or as a trust protector. A trust advisor is someone whom the trustee either may or must consult regarding distributions. A trust protector is someone who has the power to remove and replace a trustee, often without cause. A trust protector is not involved with daily management but oversees the trustee”s performance with regards to asset management and beneficiary distributions.
People with addictions cannot control certain impulses. For this reason, it is important that any inheritance left to them be given with safeguards. Naturally, before reaching any conclusion regarding any particular person”s own estate planning, consult with a qualified estate planning attorney.
Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar-certified specialist in estate planning, probate and trust law. His office is at 870 S. Main St. in Lakeport. He can be reached by email at dennis@dennisfordhamlaw.com or call 263-3235.
