How to Leave Assets to a Loved One who Struggles with Addiction

In the United States, 21.5 million adults (aged 12 or older) battle with some kind of substance abuse disorder. The opioid epidemic is on the rise, and addiction affects many families nationwide. Decades of research show that addiction is a chronic illness, and many in recovery have one or more relapses (60% of patients relapse within one year of receiving treatment, according to the Journal of the American Medical Association). Relapse, rather than a failure, is a common part of recovery.

For families with loved ones who struggle with addiction, finding the right way to show caring and compassion can be a challenge, especially in the form of financial support. When planning to distribute your hard-earned assets to your heirs, having a loved one with addiction can make things a little more complex.  However, there are ways to structure your estate plan to ensure that your loved one is cared for. All estate plans should be carefully tailored to suit the unique needs of each individual -- providing for a loved one with addiction is no different.

If You Have a Beneficiary Who Struggles with Addiction, No Estate Plan is Not an Option

If you have a loved one or beneficiary who struggles with addiction, you need an estate plan. Without one, your heir will likely receive any assets they would be entitled to upon your death in a lump sum payment. This inheritance can pose a challenge for someone who is struggling with substance abuse and for some individuals who are in recovery. Receiving a large amount of money all at once can make your loved one vulnerable to overdose, relapse, and being taken advantage of by others. Leaving assets to another family member with an understanding that they will provide for the beneficiary with addiction is not a great option, either. There is no way to enforce such an understanding, and it puts the family member responsible for making distributions in an awkward, or even dangerous, position.

Use a Trust to Manage Distributions

A trust allows you to exercise more control over how and when the distributions of assets are made. Trusts are endlessly customizable and can be specifically designed to provide for your beneficiary. You know your loved one best, and you want to act in their best interest.

You could choose to create a simple trust that slowly distributes your loved one’s inheritance over time, without any restrictions on how the money is used. Or, you could create an “Addiction Trust,” an incentive trust designed to provide the minimum living needs for the beneficiary while also providing financial incentives to seek help and maintain recovery.

Depending on the specific needs of your beneficiary, trust instructions can

• Pay directly for the basic requirements of the beneficiary (including rent, mortgage, college tuition, food, etc.)

• Require the beneficiary submit to random testing

• Provide access to additional funds or services that increase their quality of life in exchange for maintaining recovery

• Prevent the trustee from ever making cash distributions to the beneficiary and avoid purchasing anything for the beneficiary that can be converted to cash

• Provide for the payment of rehabilitative and treatment programs

Like any trust, an Addiction Trust is overseen by whomever you appoint as trustee. However, it is especially important that the trustee be a dispassionate, third party, rather than a family member or close friend. Many trust grantors choose to name a trusted family member or friend to administer a trust. However, in the case of an Addiction Trust, a personal relationship between the trustee and the beneficiary may not be the best idea. Instead, you can choose a professional fiduciary (such as an attorney or a bank) to represent your beneficiary’s interests. If you are unsure how to find an appropriate trustee, your estate planning attorney can help.

An Addiction Trust is about More than Control

If a loved one struggles with an addiction or substance abuse, it can be stressful to imagine what will happen to them after you are gone. You want to plan for and provide for their wellbeing, and you want to ensure they have the means to provide for themselves, but you don’t want any support they receive to be misused or to support any destructive behaviors. So, what do you do? Creating an Addiction Trust or other estate planning mechanism is not about exercising control or punishing your loved one. Truly, this is about compassion, caring, and recognizing that every individuals’ needs are different.

At Stewart + Gordon, our experienced, compassionate estate planning team is prepared to help you design a unique, one-of-a-kind estate plan for your family. We believe that every client’s legacy is important and should be carefully protected and preserved. To do this, we take our time getting to know you and working alongside you to craft an estate plan that works for you. Feel free to give us a call at (303) 337-2400.