Dealing with Addiction in Estate Planning
I have worked with a number of clients whose lives were impacted by alcoholism, chemical dependency, gambling and other self-destructive behaviors (collectively “addiction”.) Statistically, 43 percent of Americans have been exposed to alcoholism in their families and the outlook for the future is not improving. In a recent study, 1 in 8 Oregon children 12 and older reported using an illegal drug in the 30 days prior to the survey. How many will become addicts or alcoholics? Will they be your children or grandchildren?
Parents are concerned about protecting and preserving their children’s financial legacy and the dark horse of addiction could impact their design in three ways: First, even if there are no signs of addictive behaviors among family members it may be an unlikely put possible future problem. Second, if the family’s genetic history indicates a propensity for addiction, it s a more likely potential problem. And finally, known addiction may be affecting one or more immediate family members (parents or children). The addiction may be active or the family member may be in “recovery” after undergoing successful treatment. If the family member is in recovery, your planning should address the needs of a beneficiary who is 30 days clean and sober, one with 10, 20 or 30 years of continuous sobriety, and the possibility of relapse.
If your estate plan does not take these possibilities into account, it may not only fail to function as intended – the consequences could be fatal.
In the client interview, we ask clients to tell us about each of their children and listen carefully for the symptoms of addiction such as multiple marriages, an irregular employment history, habitual financial problems and minimal savings or retirement plans. Even if nothing is disclosed, before moving on we ask if there are any drug or alcohol issues we need to look at in planning for that child.
This is a sensitive, emotionally charged issue. A parent may feel it is somehow their fault or be ashamed to admit they don’t have a perfect family. It may be difficult for them to let you into the dark corner of their world where the skeletons are hiding. Building trust with our clients is critical, and our initial client meetings are not rushed. Our clients need to know they are in a safe space, that everything they share is confidential, and that to truly help them design an effective plan we need to know the good, the bad and the ugly about their family.
We embrace the concept of lifetime trusts for adult children. The more difficult task is selecting an appropriate trustee and drafting flexible, discretionary instructions that will allow the trustee to adapt to a dynamic rather than a static condition.
A family member may be able to exercise their discretion in making distributions as trustee with a higher degree of care and compassion than a corporate fiduciary. However, if the alcoholic consumed a disproportionate share of the family’s emotional and financial resources over the years, a resentful sibling would be a poor choice. In that case, the dispassionate professional fiduciary may be the better choice so it is important to ask the client how the other family members relate to the alcoholic.
In either case, it is essential to draft instructions which allow the trustee to develop creative solutions within a framework of recovery outcomes rather than fixed, inflexible situational responses. In our drafting we encourage trustees to seek outside assistance from qualified professionals in order to balance making recovery resources available against funding potentially destructive behaviors. For example, requiring the trustee to pay for treatment could result in nothing more than a revolving door to serial relapse with no long term benefit. We also learned that some addicts never recover and we may need to set a baseline distribution plan for medical care, food and shelter that will always be available for that child.
Like anything else in our practice, one size does not fit all when it comes to addiction.
