Should a beneficiary with an addiction to drugs, alcohol and/or gambling receive an outright inheritance?
In most cases the answer is clearly, “no.” Doing so would likely enable the self-destructive addiction.
Instead, holding the inheritance in further trust, managed by a responsible trustee, may prove more beneficial.
For discussion purposes, let’s consider some basic questions regarding how the trust might work.
How long is an ongoing trust?
An ongoing trust may last for years up to the entire lifetime of one or more beneficiaries. It may be terminated when the beneficiary is rehabilitated, dies or the trust is no longer feasible to maintain.
When is the trust established?
Usually the trust is established at death of a parent, spouse or other relative wishing to leave an inheritance. Alternatively, they may establish the trust during their lifetime.
The trust might then be available to receive contributions from other caring people who wish to make responsible gifts to the same beneficiary.
Would the trust distribute money to the beneficiary?
Preferably no distributions of money are made to a beneficiary while still an addict. At most a minimal cash allowance might be allowed as pocket money; even pocket money should be at the trustee’s discretion or on condition that the beneficiary not abuse the allowance.
How would the beneficiary be assisted?
Depending on the terms of the trust, the trustee might be allowed to use the assets in the following ways: (1) To help rehabilitate the beneficiary through counseling or a rehabilitation program; (2) to make direct payments to third parties in furtherance of the beneficiary’s health, education, maintenance or support; and (3) to pay for travel, recreation and entertainment.
Would there ever be any distributions to the beneficiary?
If and when the beneficiary proves to be rehabilitated for a sufficient time period, typically six consecutive months, then direct distributions to the beneficiary, including perhaps monetary distributions, could either be allowed, at the trustee’s discretion, or else required.
Otherwise, until then, only direct support payments to providers and non cash assets, like furniture and furnishings, would be allowed.
How would the trustee evaluate a beneficiary’s addiction?
The trust would require the beneficiary both to take drug and/or alcohol tests and to sign all legal waivers needed to by trustee to receive confidential information. Failure to cooperate would be a bar to receiving distributions.
Who should manage the trust distributions?
The trustee needs to be someone who can say “no” to the beneficiary and who can do what is right. Often family members either do not want to serve or are not well suited to serve. Thus, provided sufficient resources, a professional private fiduciary or a bank can be utilized.
When is this feasible?
The trust needs to have the resources to afford professional management and to assist the beneficiary. Typically this means liquid assets worth above $100.
What control does the family have when a third party acts as trustee?
The trust may allow for a family member to act either as a trust advisor or as a trust protector.
A trust advisor is someone whom the trustee either may or must consult regarding distributions. A trust protector is someone who has the power to remove and replace a trustee, often without cause.
A trust protector is not involved with daily management but oversees the trustee’s performance with regards to asset management and beneficiary distributions.
People with addictions cannot control certain impulses. For this reason it is important that any inheritance left to them be given with safeguards.
Naturally, before reaching any conclusion regarding any particular person’s own estate planning, consult with a qualified estate planning attorney.
Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 870 S. Main St., Lakeport, California. Fordham can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235. Visit his Web site at www.dennisfordhamlaw.com .