Protecting a Legacy: Trusts for a Child Struggling with Addiction
An outright inheritance can be the worst thing that happens to a child in active addiction. A discretionary trust with the right trustee, clear guidance and spendthrift protection supports recovery without funding relapse.
Parents of a child with a substance use disorder face a planning question few others do. They want to provide for that child the same as the others. They also know that a lump sum arriving in the wrong month could be dangerous. The usual estate plan, equal shares outright at a stated age, does not fit. A trust designed for the situation does.
Why an outright inheritance is risky
Money is not the cause of addiction, but it removes the friction that often leads people toward treatment. A large inheritance can pay for the drug, pay off the people who would otherwise push for help, and end the financial pressure that makes recovery feel necessary. It can also be lost quickly to bad decisions, to people who take advantage, to creditors, or to a divorcing spouse. The child who inherits $1 million at 30 while using may have nothing at 35, and no parent left to help.
The discretionary trust
The foundation is a fully discretionary trust. The trustee, not the child, decides when and how much to distribute, and the document directs the trustee to consider the child's health, sobriety and circumstances. Distributions can be made directly to third parties, such as a landlord, a treatment center, a school or a health insurer, so that the child benefits without handling cash. A well drafted discretionary trust is also protected from the child's creditors, and under Florida law and the law of most states a creditor cannot compel a distribution the trustee has discretion to withhold.1
Spendthrift language should be included as well. It prevents the child from pledging or selling the interest in the trust and keeps most creditors from reaching it before distribution.2
Incentives, written carefully
Many parents want distributions tied to milestones: completing a treatment program, maintaining employment, passing drug tests, staying out of legal trouble. These provisions can help, and they can also backfire. Rigid tests invite disputes and put the trustee in the role of police officer. The better approach is to give the trustee discretion with guidance, so that the trustee can reward progress, pause distributions during relapse and respond to circumstances the parents did not foresee. The document can authorize the trustee to require testing, to consult treatment professionals and to pay for treatment directly, and it can relieve the trustee of liability for good faith decisions in this area.
A separate letter of wishes, not part of the trust itself, lets the parents explain their intent, describe the child's history and tell the trustee what they would want in situations the document cannot anticipate. That letter is often the most valuable document in the file.
Choosing the trustee
The trustee's job here is harder than in most trusts. A sibling may be the obvious choice and the worst one, because the role will strain the relationship and the sibling may be manipulated. A corporate trustee brings consistency, is not subject to family pressure and can be paired with a family member or an addiction professional as a distribution adviser who provides the personal knowledge. A trust protector with the power to replace the trustee and to amend administrative provisions gives the plan a way to adapt over decades.3
Public benefits and health information
If the child receives, or may later need, means tested benefits such as Medicaid or Supplemental Security Income, the trust should be drafted as a supplemental needs trust so that distributions do not disqualify him. The parents should also sign HIPAA releases and encourage the child to execute a release in favor of the trustee, so that the trustee can communicate with treatment providers when the document calls for it.
Lifetime giving and the conversation
Parents who begin controlled support during life, through the same trust or through direct payments, learn what works before they are gone, and the child learns that the structure is not punishment. The hardest step is explaining the plan to the child and to the siblings. It is also the step that most reduces litigation later. A plan that says, in writing, that this trust exists because we love you and want you to have a future, is one a child can eventually accept. A plan discovered after the funeral rarely is.
Notes
Terry L. (T. L.) Turnipseed, J.D., LL.M., CTFA, is a tax, trust and estate attorney in Fort Lauderdale, Florida, and Head of Estate and Tax Planning at Alta Trust Company. He is a former tenured professor of law at Syracuse University. Reach him at tl@turnipseed.law or on LinkedIn. This article is general information, not legal advice.