ESTATE PLANNING FOR CHILDREN STRUGGLING WITH ADDICTION
Many parents who have children struggling with addiction or mental illness are often too consumed with caring for those children in the present to given thoughts about who and how those children will be cared for when they are gone.
It’s a question I ask just about all of my estate planning clients who have children…do your children now or have they struggled in the past with alcohol, drugs, gambling or mental illness? I’ll remind those clients that there is no stigma about their children’s addiction in my office. I’m there to help and frank discussion of this issue is unavoidable for proper estate planning.
So how might estate planning differ in this situation?
We start with a couple of baseline rules. First, we acknowledge that an addicted child may never recover. Second, because the child may never recover, we must ensure that the child never has easy access to funds, even if non-addicted children do have easy access.
A special purpose trust is often the answer. They offer traditional estate planning goals such as avoiding probate, minimizing taxes and ensuring the intended beneficiaries are named, but also can be tailored for unique family situations involving addiction. Parents can include language that allows the trustee to deal with both the good and bad, including incentivizing the child to meet certain goals or requirements to receive a distribution from the trust. An example would be staying sober as evidenced by a drug test or staying on a certain medication that helps the child control their addiction.
In 2017, delaying distributions of principal, as I’ve discussed in prior articles, is not always a bad thing. As with estate planning for children who are spendthrifts, not distributing assets means they will be invested with a competent financial advisor instead, meaning the money should grow. If the addiction problem worsens, this provides more resources to fight the addiction. If the addiction problem recedes, the trustee has more resources to support the child and to encourage their growth through education and career changes.
Another consideration for proper planning should be to have the child execute a healthcare power of attorney and HIPAA release after they reach 18. These documents could allow you to help a child in crisis. Without these documents, you have no legal authority to speak with doctors and discuss medical records and decisions. While these documents can of course be revoked by your child, having them in place first is preferable to not having them at all.
Estate planning for addictive children is different but much the same. With careful consideration you can ensure that you protect your child from their addiction and from themselves.