Addiction and Estate Planning

Answer: Substance abuse is a deeply painful and sensitive issue, especially when it affects those we love. It’s completely natural to feel uneasy about addressing these concerns in your estate plan. Thinking about the time when you won’t be present to guide your family can be both heartbreaking and overwhelming. You’re not alone. There are ways to thoughtfully incorporate safeguards into your plan.

The National Health Institute estimates that nearly 46 million adults have substance abuse issues related to alcohol, prescription and illegal drugs, and cannabis. Determining how to provide for loved ones who have a history of substance abuse, or may be at risk, while not enabling destructive behavior, is challenging and a core consideration when drafting or updating documents.

Distribution and Discretion

The use of a properly drafted trust may offer legal and tax protection to beneficiaries. Decisions on the amounts and timing of distributions are typically given to the trustee. Discretion can be either absolute or limited. For instance, making distributions for the “health, education, maintenance, and support” of a beneficiary is a common consideration. This is often in the context of a beneficiary’s possible substance abuse being considered.

Specific provisions on substance abuse could wrongly stigmatize the beneficiaries, suggesting a problem exists where there may not be one. The difficulty in this is for a trustee to determine whether someone is in active addiction, and if there’s a need to withhold distributions, or to make distributions to help them get into a treatment program. Also, placing different standards in your documents for siblings could be problematic. The question remains, is trustee discretion enough to address substance abuse issues amongst beneficiaries?

Specific Provisions

Trustees and fiduciaries may be hesitant to forcefully intervene and cut off distributions to a beneficiary with an addiction problem; they may be concerned about possible long-term disputes and litigation. Even professional trustees like trust companies and attorneys may be unwilling to forcefully intervene with a substance-abusing trust beneficiary or completely refrain from acting as a fiduciary for a beneficiary with a known addiction problem. A trustee chosen for financial expertise or family knowledge may not be equipped to deal with alcoholism or an opiate addiction in a 20-year-old beneficiary living in another state. This is why families with known issues often insist on having specific provisions in their planning documents to address these issues.

Middle Ground

Addiction can impair judgement, increase vulnerability to exploitation, and lead to reckless financial decision-making. If a beneficiary in active addiction receives assets outright, it could contribute to their downfall, leaving families torn between disinheriting a loved one or risk enabling destructive behaviors if leaving them a lump sum. Proper estate planning may provide a middle ground to protect your intentions and the well-being of your beneficiary.

You could provide instructions in your Trust document with a definition of substance abuse and how it will be evaluated. A trustee is often given discretion to determine whether the beneficiary’s behavior could lead to actual harm to them or their assets.

If substance abuse is suspected, the trustee may request or require testing to qualify for distributions with consent to disclose results usually required to resume distributions. Until tests are received with no adverse findings, the trustee may be authorized to withhold distributions. There may be provisions that funds could be released for treatment or counseling programs. Understandably, Trustees may be given a wide latitude in determining what constitutes successful completion of a treatment program. Provisions usually require the fiduciary to make a number of very difficult determinations that may fall outside their area of expertise.

Decision Maker

Protections for a beneficiary dealing with addiction are only as strong as the individual or group responsible for administering the trust. Results depend on the willingness of the decision-maker to interact with the beneficiary, obtain professional advice, and remain involved.

Deciding who will serve in this role can be overwhelming. Many families don’t have one individual with the knowledge, ability, and willingness to act as fiduciary for someone with a substance abuse problem. Families can gather input from legal counsel, financial advisors, treatment professionals, and others to be a team of decision makers for families wrestling with drug and alcohol addiction.

In spite of these challenges, any concerns you may have on the subject of substance abuse and addiction should be raised openly and honestly in planning discussions with your financial advisor, attorney, and other professionals. Open communication will help lead to a more thoughtful plan and outcome reflecting what matters most to you. You’re not alone. Stay focused and plan accordingly.