Addiction leaves tragedy and pain in its wake.
When parents welcome their children into the world, they do not plan for them to become addicted to substances or harmful behaviors.
Unfortunately, despite the best efforts and intentions of parents, children can find themselves under the control of their impulses.
Addiction often impacts the ability of a person to manage their finances wisely.
Money is funneled to support the addictions rather than paying for food or bills.
Fearful of inheritances being squandered, parents often feel stuck on how to provide for the needs of their children with addictions while protecting funds from negative behaviors.
Having heirs with addiction issues requires strategic estate planning.
Leaving an inheritance directly to an addicted child can lead to significant issues.
The money can fuel the addictive actions of your loved one.
This could plunge your loved one into legal troubles, financial instability, and strained relationships.
Even if the money is not funneled to drugs, gambling, or other negative behaviors, addicts often struggle with executive functioning and financial literacy.
Finances may be mismanaged, leading to struggles with creditors or lawsuits.
Yikes!
Parents must give greater thought to their estate planning when an heir with addictions is involved.
Trusts are essential if you want to control an inheritance for an addicted child.
Parents can provide detailed instructions for managing inheritance funds and appoint a trustee to oversee distributions.
With a discretionary trust, trustees can oversee payments for treatment, education, and housing while reducing the risk of inherited funds being misused by your heir.
Many parents choose to include incentives in their trust by allowing distributions after specified achievements or milestones are reached.
For those with addictions, common incentives include completion of a rehabilitation program, maintained sobriety, sustained stable employment, and avoidance of legal troubles.
Incentive trusts allow parents to promote both recovery from addiction and responsible living.
When spendthrift provisions are included in a trust, they limit how a beneficiary can access funds from the trust.
Ultimately, this can shield assets from impulsive spending, lawsuits, and creditors.
These are particularly beneficial when heirs include children with addictions because their poor decisions can lead to issues with other parties.
Lifetime giving may be an option if you prefer to avoid using a trust.
By providing inheritances in smaller amounts while you are alive, you can monitor the use of funds and adjust what you provide based on the needs and progress of your child.
Some parents find it helpful to seek advice from financial therapists or addiction specialists to tailor their solutions to the specific challenges faced by their children.
These specialties can provide directions and advice on behavioral incentives, treatment resources, and effective trust structures.
Communication helps manage family expectations.
Although open conversations around inheritance and addiction can be uncomfortable, it is helpful for family members to understand the reasons for decisions.
A letter of intent can also help parents communicate the context and intentions behind their planning decisions.
Attempting estate planning alone is always risky.
This is especially true when addiction is a factor in the family dynamics.
An experienced estate planning attorney can create a trust and incorporate the necessary provisions to meet your goals for providing for loved ones with addiction while protecting them from themselves.
Trusts can provide greater levels of necessary controls and protections when a child has an addiction.
Discretionary trusts with incentive or spendthrift provisions provide flexibility and structure to shield assets from poor decisions made by an addict while simultaneously encouraging a responsible lifestyle.
Working with addiction specialists and estate planning attorneys enables parents to tailor their plans to account for the addicted child.
While conversations around addiction and money can be uncomfortable, transparency around planning can reduce the chances of disputes and misunderstandings.
This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.
Reference: The Guardian (June 19, 2010) "Experience: I blew my million dollar inheritance"
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