Humanity. Passion, emotion and imperfection personified. Sometimes, our family members can be a mess, or a mess waiting to happen. That doesn’t mean we don’t love them and doesn’t mean we want to write them out of our Wills. It means that when we do estate planning, we may be doing some planning for them as well as ourselves.
One of the most sensitive, and difficult, conversations I have with clients is what to do about a problematic beneficiary. For example, if you have a beneficiary who has a drug or alcohol addiction, should you leave them an inheritance outright which risks them throwing the assets away, or worse, using them to do themselves and others harm. The same concern applies to a beneficiary with a gambling problem, a reckless spending problem, a controlling spouse, or who simply never learned to manage money wisely. Although it is never an easy discussion, facing the reality of a problematic beneficiary when creating your estate plan is crucial to protecting your hard-earned assets.
The Reality of Addiction
If you have a child who is struggling with a drug or alcohol addiction, you are hardly alone. The Federal Reserve’s Report on the Well-Being of American Households in 2017 reveals that one in five Americans knows someone who is addicted to opioids or prescription painkillers – and that accounts for only one class of addiction. One of the realities of addiction is that addictions are typically not cheap. In fact, addicts often spend a considerable amount of their time trying to fund their addiction. Consequently, inheriting a large sum of money can do more harm than good for someone struggling with addiction.
What Can You Do to Protect an Inheritance?
To be honest, protecting an inheritance for those who will receive your estate is the low hanging fruit of estate planning. We can do this for a problem child or even an accomplished child who might need the protection because of the professions or business operations.
Disinheriting a child who is struggling with an addiction (or any other problem) is not the answer. Deciding how to handle them within your estate plan, however, can be difficult. You may be reluctant to just give them an inheritance, large or small, for fear it will be squandered on the addiction. At the same time, setting them up to squander their entire inheritance does not seem like a good idea. What can you do? The following tips may help:
- Be realistic and objective – step back and look at the situation realistically. Is giving assets directly to the beneficiary in question too much of a risk? If the answer is “yes” then do not do it.
- Use a trust to protect the inheritance –pass down your child’s inheritance using a trust instead of handing down a large sum of money. A trust will protect the assets, protect your child from his or her own self-destructive behavior, while still leaving the assets available for support.
- Choose your Trustee wisely – one of the biggest benefits of using a trust to pass down the inheritance is that a Trustee administers the trust. This can be a friend or family member, a professional, or a trust company. If you choose someone outside of the family, you can set up designated family advisors to guide the Trustee. Choose your Trustee wisely and work with your lawyers to get language in the Trust Agreement which guide the Trustee as to how to disburse trust assets to the beneficiary in question.
- Stagger distributions – only disburse small amounts at a time to the beneficiary. This could be a monthly “maintenance” amount, smaller amounts every few years, or amounts intended to provide for “needs” as defined in the Trust Agreement.
- Distributions can be for the benefit of a person rather than to the person – allow the trustee to pay bills or make purchases, rather than simply giving money to the beneficiary.
- Use the trust terms to create conditions – here is where the benefits of a trust can really be seen. Using the trust terms, you can create all kinds of conditions, if you choose to do so. You could require completion of a rehab program, monthly drug testing, continued education, or any other condition you wish to include as long as it is not something illegal or unconscionable.
Contact Raleigh, Durham Chapel Hill area Estate Planning Attorneys
If you have additional questions or concerns regarding how to handle a problematic beneficiary within your estate plan, please contact the Research Triangle Area estate planning attorneys at Clarity Legal Group by calling us at 919-484-0012 or contact us online.
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