With millions of American families grappling with the complex terrain of addiction, proactive estate planning is an important way to craft a safety net—-a framework of carefully considered strategies that provide stability and support in the face of uncertainty. For example, establishing a discretionary trust can be life saving.
Harsh Realities
Although estate planning tends to evoke the image of a calm and lucky family gathered to amicably plan for the transfer of ample wealth across generations, the reality for millions of families, is that resources are precious and addictions are known to wreak havoc. For perspective on the scale of addiction challenges families confront, consider the American Addiction Centers’ round up of statistics from the 2023 National Survey on Drug Use and Health:.
- 48.5 million (16.7%) Americans (aged 12 and older) battled a substance use disorder in the past year.
- 10.2% of Americans 12 and older had an alcohol use disorder in the past year.
- About 27.2 million Americans 12 or older (9.7%) reported battling a drug use disorder in the past year.
- That same year, 7.5 million (2.7%) of Americans 12 and older struggled with both alcohol and drug use disorders simultaneously.
- 20.4 million American adults (7.9%) suffered from both a mental health disorder and a substance use disorder, or co-occurring disorders in the past year.
Ensuring the future financial well being of a loved one struggling with addiction, without enabling harmful behaviors, requires extra careful estate planning. The Law Offices of Robert J. Varak advise against direct, lump sum inheritances, pointing out: “A sudden influx of wealth may fuel destructive behaviors, leading to financial instability, legal issues, and damaged family relationships. Additionally, addiction often impairs financial literacy and responsibility, making it challenging for individuals to manage large sums of money effectively.” Instead, when addiction is a factor, it’s wise to establish a discretionary trust, which includes incentive based provisions, and follows this guidance:
A discretionary trust is one of the most effective tools for safeguarding an inheritance. A designated trustee oversees distributions, ensuring that funds are used for essentials such as housing, education, and addiction treatment. This arrangement provides financial stability while minimizing the risk of misuse.
Include Incentive-Based Provisions
Incentive trusts encourage responsible behavior by linking distributions to positive milestones, such as:
- completing a rehabilitation program
- maintaining stable employment
- avoiding legal troubles.
By structuring the trust around specific achievements, parents can promote recovery and self-sufficiency.
Consider Lifetime Gifting
For parents who want to provide financial support while monitoring their child’s progress, lifetime gifting offers a flexible alternative. Small, controlled disbursements allow parents to adjust financial support based on their child’s needs and level of responsibility.
Collaborate with Addiction and Financial Professionals
Working with addiction specialists and financial advisors can help parents design an estate plan that supports their child’s recovery while preventing financial mismanagement.
Family discussions about the choices made when establishing a discretionary or spendthrift trust are likely to be difficult, but estate planners remind us that open communication is an important way to ensure all family members understand the plan and rationale behind it, as well as to curtail deep and long-running conflicts. Though not a legal document, a letter of intent can be included with the estate plan, allowing parents “to clarify their wishes and provide a personal message of love and support to their child.”
Trustee Appointment, Duties and Bonds
Although not required, when a discretionary trust is established, it may be wise to appoint a neutral and experienced professional fiduciary to serve as trustee, since doing so may ensure a higher degree of oversight than friends and loved ones are typically able to provide. A carefully selected professional fiduciary can “fulfill a variety of exacting requirements….” Given the significant responsibilities involved in serving in the fiduciary role of trustee, a type of bond, referred to as a fiduciary or trustee bond is frequently required. Essentially, fiduciary and trustee bonds serve as a guarantee that duties will be carried out in accordance with the law and in the best interests of beneficiaries.
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