Dealing with an addict in the family is, to put it mildly, challenging. The impact on a family can range from mere nuisance to major disruption.
It is no wonder that the reaction of many is to cut the addict out of their estate plan.
There is a better way. Create a written revocable living trust naming the troubled relative as the beneficiary.
This is by no means a cookie-cutter document. Think of what you want to accomplish, and then draft the trust provisions around it. The bottom line is that your family member can get basic needs met but does not directly control the funds while he or she is still in the throes of the addiction.
You can require that the trustee make any payment for necessities directly to the provider. For lodging, pay the landlord or mortgage company. For health care, pay the provider or the insurance company. For groceries, the trustee can provide the family member a special type of debit card that is restricted to certain types of goods. The trick is to have no cash pass through the hands of the addict because, of course, the money would just be used to buy more alcohol or drugs.
You can give the trustee a specific standard for disbursements. A commonly used standard is HEMS: health, education, maintenance and support. This leaves enough discretion that your trustee can make decisions based on then-existing circumstances.
You can also be specific about the standard of living. Motel 6 or Marriott?
If you want to build in a motivator, then direct the trustee to disburse a monthly stipend to your family member only if he or she submits a clean drug or alcohol test. Leave the language loose enough to provide for new and better kinds of tests that may be developed.
Other common goals that can act as a motivator: attending school, being gainfully employed, not associating with other addicts, completing probate or parole, going through counseling. Make your goal something that can be independently verified.
You may want to include a provision allowing the trustee to expend funds for the benefit of a child of the addict. The kids are often the true victims of an addiction.
Consider adding special-needs language so that the addict is not disqualified from receiving needs-based government aid.
Include a provision that names the person or the entity who will receive any funds that remain in the trust if the addict dies.
You can fund a trust during your lifetime or at your death via a beneficiary designation.
How much should you fund into the trust? That depends upon a couple of factors: the addict’s age, life expectancy, identity of the trustee, and your wealth.
Who should serve as trustee? Most grantors (that’s you and maybe your spouse) name themselves as the original trustees, and then name a successor trustee for the time when they are no longer able to serve. For the successor, consider naming a corporate trustee like a bank or trust company so that you can keep family dynamics out of the decision-making. One note of caution: some corporate trustees require a minimum trust funding of $250,000 or $500,000.
Virginia Hammerle is a Texas attorney whose practice includes estate planning, guardianship and probate. Sign up for her newsletter at legaltalk@hammerle.com. Contact Hammerle Finley Law Firm to schedule a consultation at hammerle.com.
