Estate Planning When a Family Member Has a Substance Abuse Issue

by Jenny Ling, Esq.

Estate planning for a loved one who is an addict is difficult and complex.  It is an issue that a growing number of estate planning clients are talking about, and sadly, needing to address as they plan the disposition of their estates.  You need help from someone who is experienced in creating a plan to not only transfer wealth from one generation to another, but also address the unique issues of your family.

There are some common mistakes made in planning for an addicted loved one, including:

Not making a plan.  Everyone, no matter how much money they have, needs an estate plan.  This is especially important if you have a family member who is struggling with addiction.  If you make no plan, they will inherit any assets to which they are entitled upon your death, in a lump sum.

Outright gifts.  The last thing you want to do is to provide your addicted loved one with a lump sum cash inheritance.  This could lead to disastrous results.  Whether a squandered inheritance or worse, you could unknowingly be contributing to your child’s unhealthy lifestyle.

Gifts to other family members.  You may think that if you leave money to other family members, they will use that money to help your addicted family member.  However, there is no guarantee that they will actually use that money in the way you’ve intended.  Also, it can create conflict between your family members as one is seen as the “gate-keeper” to your money.  It is also unfair to that family member, as having to deal with an addicted individual who wants “their money” is asking a lot.

Disinherit the child.  Although many families may discuss disinheriting the addicted loved one, this is not an effective strategy if your goals are to protect your loved one and to help foster recovery from the addiction.

The addicted loved one who is specifically disinherited is likely to feel hurt and ashamed, and it may result in further alienation from the family.  While disinheriting the individual may prevent them from using their inheritance to further the addicted behavior, it may not help, and in fact may be detrimental, in achieving your goals and objectives.

What can you do?

If you have a family member that has a substance abuse issue and want to make an estate plan that provides for their needs but also takes into account their addiction, a trust may be the solution.  A trust can allow you to provide for the basic needs of your loved one, like housing so they do not end up homeless, without providing them direct money to feed their addiction.

When you create your trust, you can include specific instructions concerning how and when distributions are made to your loved one.  You may also consider an “incentive trust” which is a trust that prohibits any distributions to beneficiaries with a substance abuse issue unless they meet certain milestones.  For example, you could state that your loved one does not receive a distribution until they successfully complete a drug or alcohol abuse program, or they pass random drug testing for a period of time.  You can also direct your trust to pay for rehabilitation services and counseling.

You may also benefit from naming a Corporate Trustee to manage your trust.  Corporate trustees have experience dealing with individuals with disabilities and arranging and working with third party services to address the addicted individuals needs.  Unlike a family member, the corporate trustee is not subject to emotional and unreasonable demands by the addicted individual, thus allowing for better management of the trust while avoiding conflict issues within your family. 

If you have a family member who is struggling with addiction, make sure that you have an estate plan that will protect your heir from unrestricted access to an inheritance while providing a safety net and incentives for making responsible decisions.  Contact Us today to set up a complimentary 15-minute phone consultation so we can discuss how we can help you Make a Plan.

Jenny Ling is a partner at the Law Offices of Jenny Ling, PLLC.  She focuses her practices on estate planning, business succession planning, business and bankruptcy.