by: Begley Law Group
by Thomas D. Begley, Jr., Esquire, CELA
Unfortunately, many people have children who suffer from various addictions. Typically the addictions are drug or alcohol abuse. If the parent leaves money to the child suffering from those addictions, the money frequently will fuel the addiction making it worse, possibly even leading to death. Additionally the money will be dissipated quickly rather than used over time for worthwhile purposes. The solution is to leave the child’s inheritance in a trust that is specially designed to address these issues. It is important that the trust be carefully drafted to achieve exactly what the parent wants for the child.
The first step is to identify the behavior that is of concern. Generally parents are not concerned about all addictive behavior. For example, cigarette smoking is addictive, but while parents may not approve they tend to accept it. Generally, parents are more concerned with substance abuse. Substance abuse is defined in the “Diagnostic and Statistical Manual of Mental Disorders (DSM-5).” The definition includes recurrent substance use leading to a failure to fulfill major role obligations at work, school, or home, or where it is physically hazardous, or where the use leads to legal problems or to persistent or recurrent social or interpersonal problems. In addition to substance abuse, parents are sometimes concerned about gambling, hoarding, or criminal behavior. The National Council on Alcoholism and Drug Dependence estimates that 50% of all adults have a family history of alcohol problems, and that 8% of Americans over age 12 have used an illegal drug within the last 30 days. The Journal of American Medical Association has stated that 60% of patients who receive substance abuse treatment will relapse within one year.
Step two is to determine a parent’s goal. Once the parent identifies the behavior, the next question is whether the parent is concerned about use or abuse. Does the parent want to create an opportunity for rehabilitation and treatment or is the goal to be punitive? Do the parent want to make provision for relapses without punishment? Addiction is a chronic disease. Relapse is not failure, but instead a common part of recovery from addiction. Many recovering addicts have had one or more periods of relapse. Recovery is a life-long process.
Step three is to examine the parent’s options. Gifts to the child with addiction are unwise for the reasons stated above. Gifts to other family members usually are not a good idea. Sometimes the other family member does not use the money for the individual with the addiction and, if they do intend to use the money for that purpose, they are put in the position of having to say no to the addict when no is the proper answer. The best option is an Addiction Trust.
The fourth step is to design the mechanism of the trust. It is important to design the trust in such a way that the child with the addiction is protected from homelessness and starvation while at the same time offering greater reward if the addictive behavior is curtailed. The parent could establish a trust for the child’s inheritance and include provisions that the trustee use the income and principal of the trust for the child’s health, education, maintenance, and support, which basically means use the money broadly for the child’s wellbeing. However, the trust would contain a restriction that distributions would be significantly reduced, if the child engages in the addictive behavior. The trust document could require that the child be tested for substance abuse on a random basis, no less often than annually, and that if the child fails the test, distributions are curtailed. An opportunity can be given for subsequent retesting on a periodic basis and if the child passes the subsequent tests satisfactorily, then more generous distributions can resume.
Consideration should be given prohibiting the trustee to make cash distributions to the addicted individual and to pay third parties directly for items the individual needs but cannot be converted to cash.
The fifth and final step is to determine who would be an appropriate trustee. The two choices are a family member, usually a sibling, or a professional trustee. The professional trustee is usually not willing to serve unless the amount of money in the trust is significant. Generally this means a minimum amount of $500,000 to $1,000,000 or more. The advantage to the professional trustee is that they can administer the trust without emotion. The disadvantage to the professional trustee is that other than an objective drug test, it is difficult for the trustee to determine if the family member has an alcohol or gambling problem and may not be aware of a drug problem until the next periodic test is administered. On the other hand, a family member is in a better position to observe the conduct of the child suffering from addiction. A family member is often willing to administer a trust of any size. The disadvantage is that the family member is usually emotionally involved with the child suffering from addiction. The emotion can be positive can be positive or negative. If the emotion is negative, that family member is not generally going to serve well as trustee. If the emotion is positive, it makes it difficult for the family member to say no when the child suffering from addictions requests a distribution. In many cases, a professional trustee and a family member can serve as co-trustees.