Estate planning can be complicated, especially when a family member has a toxic obsession
Estate planning is a complex issue for every family; discussing how family affairs will be divided when the head of a household passes away tends to create friction and revive buried grudges. And it gets even thornier when a potential beneficiary has an addiction.
“All addictions tend to produce feelings of failure, guilt and embarrassment on the part of our clients,” Kevin Johns, a partner at US-based firm Wyatt, Tarrant, and Combs, wrote in an article on WealthManagement.com. “Practitioners must be able to effectively advise clients dealing with a family member suffering from addiction.”
Johns noted that people living with addiction place emotional and financial strain on their families. Family members will argue over how to deal with an affected relative’s unpredictable behaviour, which will lead to marital problems and other family struggles. Siblings of an afflicted child will also often be unsympathetic and resentful toward the addicted person and their parents, whom they typically see as enablers.
Disinheritance is one option for parents who don’t want to fund destructive and dangerous behaviour, but it could also leave an addicted child destitute and unable to seek help. Johns also warned that a disinherited child could contest the estate plan, which would lead to further alienation and potentially drain assets into unnecessary litigation.
A less drastic option, he suggested, is to leave the addicted child a smaller outright bequest, which would be left over after the child’s “inheritance” is spent over the parent’s lifetime. But in this case, the child would have the means to fund their unhealthy habit or challenge the estate plan.
“[S]ome clients elect to give the addicted child’s inheritance to a sibling [who can make decisions] for the addict’s benefit,” Johns said. But this approach also entails risks, including possible mismanagement of funds, defiance of the parents’ wishes, divorce or death of the sibling, and the inevitable strain on the siblings’ relationship.
The best option practitioners may wish to consider, Johns suggested, is to use a purely discretionary trust. The trustee would have the “sole and absolute discretion to make (or suspend) distributions to or on behalf of the beneficiary.” However, choosing a trustee for an addicted beneficiary is difficult; even a corporate entity like a bank or trust company may be reluctant to take up the task, especially when an illegal substance is involved.
Under a trust arrangement, the addicted beneficiary should be given the chance to review the trust and then required to provide his written consent to its terms. The terms Johns suggested include requiring the addicted beneficiary to allow the release of information — such as drug test results, medical reports, and information from treatment centres — to the trustee (or someone designated by the trustee). If the beneficiary refuses to agree, Johns said, trust distributions should be suspended.
Related stories:
How to start the estate talk with aging parents
How to help clients leave a meaningful legacy
“All addictions tend to produce feelings of failure, guilt and embarrassment on the part of our clients,” Kevin Johns, a partner at US-based firm Wyatt, Tarrant, and Combs, wrote in an article on WealthManagement.com. “Practitioners must be able to effectively advise clients dealing with a family member suffering from addiction.”
Johns noted that people living with addiction place emotional and financial strain on their families. Family members will argue over how to deal with an affected relative’s unpredictable behaviour, which will lead to marital problems and other family struggles. Siblings of an afflicted child will also often be unsympathetic and resentful toward the addicted person and their parents, whom they typically see as enablers.
Disinheritance is one option for parents who don’t want to fund destructive and dangerous behaviour, but it could also leave an addicted child destitute and unable to seek help. Johns also warned that a disinherited child could contest the estate plan, which would lead to further alienation and potentially drain assets into unnecessary litigation.
A less drastic option, he suggested, is to leave the addicted child a smaller outright bequest, which would be left over after the child’s “inheritance” is spent over the parent’s lifetime. But in this case, the child would have the means to fund their unhealthy habit or challenge the estate plan.
“[S]ome clients elect to give the addicted child’s inheritance to a sibling [who can make decisions] for the addict’s benefit,” Johns said. But this approach also entails risks, including possible mismanagement of funds, defiance of the parents’ wishes, divorce or death of the sibling, and the inevitable strain on the siblings’ relationship.
The best option practitioners may wish to consider, Johns suggested, is to use a purely discretionary trust. The trustee would have the “sole and absolute discretion to make (or suspend) distributions to or on behalf of the beneficiary.” However, choosing a trustee for an addicted beneficiary is difficult; even a corporate entity like a bank or trust company may be reluctant to take up the task, especially when an illegal substance is involved.
Under a trust arrangement, the addicted beneficiary should be given the chance to review the trust and then required to provide his written consent to its terms. The terms Johns suggested include requiring the addicted beneficiary to allow the release of information — such as drug test results, medical reports, and information from treatment centres — to the trustee (or someone designated by the trustee). If the beneficiary refuses to agree, Johns said, trust distributions should be suspended.
Related stories:
How to start the estate talk with aging parents
How to help clients leave a meaningful legacy
