How estate planning can help families overcome addiction and substance abuse

Families are often full of changing dynamics and relationships. When a loved one deals with substance abuse, it can further complicate creating a successful estate plan.

Difficult conversations about addiction continue to crop up frequently among investors and, by extension, among recipients. report from Pew Research Center It found that 46% of Americans have a family member or close friend who has had a substance use problem at some point or been diagnosed with a substance use disorder.

It is not an easy subject to deal with, and planning for it financially does not come with clear rules.

While navigating sensitive areas, I ran into situations where the client’s goals were broad and emotionally charged.

Some concerns may be that their assets are passed on to the next generation for use in a way that enables destructive or addictive behavior, some addictions may cause capacity problems that hinder the beneficiaries’ ability to manage funds appropriately, or the susceptibility of the heir to undue influence by ill-intentioned individuals may raise Privacy concerns.

It is often the role of both the drafting attorney and the financial planning professional to identify these concerns and then help narrow the focus of the client’s goals to create a solid estate plan that weaves right into beneficiaries who have substance abuse issues.

The inclusion or exclusion of certain provisions can help ensure that loved ones’ remaining assets are used for their benefit rather than their detriment. But family breakdown is a major fear for investors.

In response to a conversation Survey of Wealthy Investors 60% of respondents to the survey conducted by Raymond James said that maintaining family harmony is extremely important when it comes to planning the transmission of wealth between generations. Understandably, families like to tread carefully. (sSurvey respondents are investors with at least $500,000 in investable assets.)

However, overly simplistic planning should be avoided when it comes to heirs with addiction, such as disinheriting the beneficiary entirely because of the addiction or leaving the responsibility to a sibling or other relative with a “handshake deal” that this person will take care of. the individual facing these challenges.

No matter how well-intentioned a sibling or relative is, a reductionist approach can create problems of its own.

An estate plan can be viewed in its entirety as a set of important documents. It consists of a financial power of attorney, power of attorney for health care, and a last will—which includes the basic estate plan. For more complex estate plans, especially those with fringe issues like substance abuse and addiction, a trust is generally offered.

issues with confidence

A trust can be a good way to bequeath assets that lead to positive outcomes for the beneficiary. For the grantor, choosing the right trustees to act in a fiduciary capacity, ensuring that assets are invested wisely and that the terms of the trust are followed is essential to success.

Trustees can be an individual who is eligible to serve based on state or probate laws, a legal entity, or a combination of the two where the individual acts as a form of “boot on the ground” for a corporate trustee who communicates directly with the beneficiary.

Trustees of a trust may also be appointed as third parties with certain authority over the trustees to ensure that they act in the best interest of the beneficiary and follow the provisions of the trust.

If the grantor has concerns about misuse of materials by a particular beneficiary, it may choose to add provisions in the trust to combat those concerns. This is particularly useful in providing specific instructions when the trustee is not as aware of or involved in the challenges the beneficiary is facing as the donor.

By adding provisions to the trust to address this concern, the grantor can provide specific guidelines for distributions and take some of the burden of decision-making off the trustee.

For example, the grantor may empower the trustee with authority to utilize the trust assets to retain health care professionals, therapy, or other rehabilitation services to assist the beneficiary.

There may be a provision in the event of relapse that establishes a period of sobriety before the distribution is made directly to the beneficiary, which includes the ability for the trustee to request ongoing testing and receive relevant treatment information. This can be a disincentive tactic to discourage destructive behavior.

However, from the practitioner’s perspective, it can be argued that if the trust is discretionary, the trustee does indeed have sole discretion over income and/or principal distributions. If the trustee is supposed to be aware of and sensitive to the donor’s concerns, the trustee can exercise its right to withhold distribution if necessary, and no additional provisions may be required.

Ultimately, financial advisors must work with attorneys and other professionals on their client team to help address these complex situations.

play quarterback

The counselor is uniquely positioned to support the process, provide guidance and recommendations, ensure the correct documents are in place, facilitate family conversations, and act as a sounding board for difficult decisions.

Of those who choose to work with a consultant, 84% have a documented plan (vs. 66% of those who don’t work with an advisor), 52% feel very prepared when it comes to a plan to transfer wealth between generations (vs. 37%), and 68% have strategies. tax-efficient built into their estate plans (for up to 50%), according to the results of a Raymond James survey.

There is no perfect family. But perfection is not a requirement for creating a successful wealth transfer plan. Williams Group Reports indicate that poor trust and communication are the two main reasons for the failure of intergenerational wealth transfer (which accounts for 60% of wealth transfers).

to treat Serious challenges such as addiction among heirs require thoughtful planning that is tailored to tactfully address substance abuse.

***

Will Lucius is the Chief Trust Officer at Raymond James Trust. He is also licensed to practice law in Florida, Michigan, and Wisconsin, and prior to entering fiduciary services, he focused his practice on estate planning, senior law, credit management, and more.