Dothan, AL Law Blog

Wednesday, September 23, 2020

Using Trusts in Planning for Beneficiaries with Addictions

September is National Alcohol & Drug Addiction Recovery Month. When you have a family member struggling with addiction, many things can seem more difficult. For instance, have you considered that, for those trying to support a family member struggling with addiction, estate planning can be particularly stressful? Let us discuss how to employ tools, such as trusts, to help plan for beneficiaries struggling with addictions.

When considering your plan for beneficiaries with addictions, there may be several things you should or should not do. For instance, you should think about how to avoid leaving an outright gift. An outright gift can be problematic because the assets could be used to acquire drugs or alcohol, or they could be garnished by creditors as repayment for prior poor financial decisions. This does not, however, mean you need to disinherit the struggling family member either. Beyond the emotional trauma to parents of excluding a child, disinheriting a family member can open the estate up to costly litigation.

Instead, consider using a spendthrift trust, which allows you to place spending authority with a trustee, or a trusted person, rather than the beneficiary. You can specify what kinds of expenses are authorized under the trust, so you can help 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 may be beyond the reach of creditors. Once funds are removed, however, they can be garnished by creditors.

Additionally, you may want to consider using incentive or conditional trusts, either combined with a spendthrift trust or as a stand-alone trust. Incentive trusts only make assets available to the beneficiary after he or she has completed certain requirements. For example, 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 them maintain sobriety.

Using a professional fiduciary as the trustee may also be a good thing to consider. Placing authority for spending on a sibling or family member can strain the relationship between that person and the beneficiary who is battling addiction. It can be a big job for a 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.

Reginald A. Rhodes, JD, LL.M. has an office in Dothan, AL and serves clients nationwide.

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214 Perry Avenue, Dothan, AL 36303
| Phone: 334-792-6213

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