In examining the current epidemic of addiction, many families encounter a child or other close relative addicted to drugs or alcohol. Estate planning with and for addicts can be emotionally taxing. You may not want to disown your relative; however, you must consider your relative will likely have special needs and considerations others in the family may not have.
Taking steps to create an estate plan that considers and accounts for your relative’s addiction can prevent them from receiving a lump sum of funds while they are battling their addiction. An addicted relative receiving a large inheritance would likely result in wasted money and could potentially add to the risk of harming themselves.
Fortunately, there are several steps that can be taken to leave your assets to your relative without increasing their risk of self-hard, as well as providing for their future.
Understanding Disinheritance – Disinheritance is often the “go to” option for those considering estate planning for an addicted relative. Depending upon your family situation, it may be the right decision.
Disinheritance is the process of essentially cutting a person out of your will so that, if you die, that individual will receive nothing. While it may be tempting for some, especially if you believe that your relative may likely never get better, this decision cannot be changed without rewriting your will, even if the relative goes into rehabilitation and maintains sobriety. Should you choose to do this, it is crucial that you do so with an attorney present, as well as the appropriate witnesses and proper execution of the documents, so that your relative cannot later contest your will.
Using a Special Needs Trust for Addicts – A trust is one of the best options when estate planning for addicted relatives. There are several forms trusts to consider and each has pros and cons. A trust will enable you to put spending authority in the hands of a trustee who will control any reckless spending by the addicted relative. This can prevent that relative from wasting funds and can prevent them from using funds to purchase drugs, alcohol or harmful items.
Spendthrift clauses in trusts are also valuable tools because they can be utilized to provide necessary funds for things such as medical care, food, and shelter to your addicted relative, without allowing the relative to spend anything additional. This enables you to offer support, even after you are deceased.
Additionally, trusts typically protect the funds in the estate from creditors. If the funds are in the trust, creditors cannot reach them. This is ideal in instances where your relative may be making poor financial decisions while under the influence of drugs or alcohol.
In some cases, you may be able to set up a discretionary spendthrift supplementary needs trust, which enables your relative to qualify for needs-based government benefits (SSI, Medicaid, housing, SNAP, etc.), while offering the other support and benefits of the trust.
Using a Conditional Trust – A conditional trust is a one in which estate assets are made available to the beneficiary only after they have completed certain requirements. In the case of an addiction, you could set requirements such as, your relative will not receive funds until they have completed rehab and have remained clean or sober for a designated period. These trusts distribute funds based on reaching milestones, and you can set continuous milestones to help ensure that your child stays clean or sober while they receive the funds.
Choosing the Right Trustee – While it may seem obvious to choose a sibling or other relative as a trustee, this is often a mistake. Family members may be too close to the addict to be able to make good decisions or may enable the addict. In line with that, the addict may spend a great deal of time begging the trustee for money, especially if they are a family member or close friend, which can negatively impact the family. It is best to assigning a trusted family attorney, CPA, or an independent or corporate trustee, to serve as a trustee.
No matter what your decision, it is important to remember that you are approaching it with the best interest of your relative. Taking steps to keep your estate from an addicted relative is not depriving them of their rightful inheritance, it is protecting them from what they might do with the money and helping plan for their future, even if they are unable to do so for themselves.
Set a goal is to discuss your specific situation and the available options with an attorney who has a strong background in estate planning in order to make an informed decision.