Take-Away: Addiction is a reality in our society today. Parents and grandparents often turn to trusts to hold and administer an addicted family member’s inheritance. If a trustee is called upon to use trust assets to deal with a beneficiary’s addiction, then a trustee should require that certain provisions be included in the trust instrument,  beyond a purely discretionary distribution standard.

Background: The concerns about addictions are obvious. Recent statistics on addiction are staggering. Examples include: (i) more than 130 people a day die of opioid overdoses; (ii) The US Department of Transportation reports that 30 people a day die in drunk driving crashes each day- one person every 48 minutes; and (iii) the National Survey on Drug Use and Health notes that in 2017 38% of Americans age 12 and older battled some illicit substance abuse disorder. Many types of dependencies can undermine, or even destroy, a family member’s quality of life.

A person with an addiction who spends 30 to 90 days in a rehabilitation facility can expect to incur costs ranging between $20,000 and $80,000 a month!

Sadly, inherited wealth often may put beneficiaries at even greater risk for addictions, anxiety, depression, and possibly even suicide.

If a trust is use to receive, hold, and administer an addicted beneficiary’s inheritance, more needs to go into the provisions of that trust instrument to assist the trustee to make sure that the trust functions as the settlor intends it to function, to address the beneficiary’ substance abuse, get them help if needed, and monitor the success of their rehabilitation journey.

Trust Provisions to Address a Beneficiary’s Addiction: If a beneficiary has an addiction, a trustee should be comfortable asking that additional provisions be included in an otherwise common discretionary trust.

  1. Define Dependence: The trust instrument should include a fairly expansive definition of a beneficiary’s dependence or substance abuse. Example: If the trustee reasonably believes that a beneficiary of any trust created under this instrument (i) routinely or frequently uses or consumes any illegal drugs or other illegal chemical substance so as to be physicially or psychologically dependent upon that drug or substance; or (ii) is clinically dependent upon the use or consumption of alcohol or any other legal drug or chemical substance that is not prescribed by a licensed medical doctor or psychiatrist in a current program or treatment supervised by the doctor or psychiatrist, and as a result of such consumption the beneficiary is incapable of caring for himself or herself, or is likely to dissipate the beneficiary’s financial resources, then the trustee must follow the procedures described below. No trustee shall be held liable for holding such belief if made in good faith, even if it is determined that belief is not reasonable.
  2. Hire Consultants: A trustee should be authorized to hire at the expense of the trust,  a licensed mental health or substance abuse counselor, or a case manager, to guide the trustee in establishing reasonable expectations and compliance protocols to deal with the beneficiary’s treatment, including various options for treatment.
  3. Medical Releases: The trustee should be able to compel a medical release, e.g. HIPAA, from the beneficiary in order to consult with the medical treatment consultants in order to fashion a treatment plan. Distributions from the trust to the beneficiary may be made dependent upon the beneficiary periodically furnishing to the trustee some broad medical release.
  4. Compel Drug or Alcohol Testing: A trustee should be authorized to compel the beneficiary to submit to alcohol or drug testing by an agency or physician selected by the trustee and paid for by the trust. In addition, the trustee should be able to compel periodic face-to-face meetings with the beneficiary. Example: The trustee will request the beneficiary to submit to one or more examinations (including laboratory tests of hair, tissue or bodily fluids) determined to be appropriate by the medical doctor selected by the trustee. The trustee will request the beneficiary to consent to full disclosure by the examining doctor or facility to the trustee of the results of all examinations. The trustee shall maintain strict confidentiality of those results and will not without the beneficiary’s written permission, disclose those results to any person other than the beneficiary. 
  5. Withhold Distributions: A trustee should be authorized to withhold distributions that are otherwise required by the trust if the beneficiary fails a drug or alcohol test, or the beneficiary refuses to submit to such a test. Example: The trustee may totally or partially suspend all distributions otherwise required or permitted to be made to a beneficiary until that beneficiary consents to the examination or disclosure to the trustee.
  6. Suspend Mandatory Distributions: If the trust instrument initially provides for some type of mandatory distributions or income or principal, and a trustee later becomes aware of the beneficiary’s dependency problem, a trustee should be authorized to suspend any mandatory distributions: Example: If the examination indicates current or recent use of a drug or other substance as described above, all mandatory distributions and all withdrawal rights from the trust estate with respect to the beneficiary during the beneficiary’s lifetime (including distributions upon termination of the trust for reasons other than the death of the beneficiary) will be suspended until: (i) in the case of use or consumption of an illegal drug or illegal substance, examinations indicate no such use ; and (ii) in all cases of dependence, until the trustee, in the trustee’s judgment, determines that the beneficiary is fully capable of caring for himself or herself and is no longer likely to dissipate his or her financial resources. While mandatory distributions are suspended, the trust will be administered as a discretionary trust to provide for the beneficiary.

Note that suspending a beneficiary’s rights under the trust instrument could interfere with intended federal tax treatment. Consequently, if the trustee is to be given the right to suspend withdrawal and other beneficiary rights, there should also be a savings clause included in the trust instrument. Example: Notwithstanding the provisions of the prior provisions of this trust, the trustee shall not suspend any mandatory distributions required for a trust to qualify, in whole or in part, for any federal or state marital deduction or charitable deduction or as a qualified subchapter S trust (QSST.)

  1. Suspension of Other Rights: If the beneficiary is serving in some other role, like a co-trustee, or the beneficiary possesses other rights under the trust instrument, such as the right to remove the trustee, those other rights held by the beneficiary may also need to be suspended. Example: If mandatory distributions to a beneficiary are suspended as provided above, then as of such suspension the beneficiary shall automatically be disqualified from serving, and if applicable shall immediately cease serving, as a co-trustee, trust director, or in any other capacity in which the beneficiary would serve as, or participate in the removal or appointment of any trustee or trust director under this instrument.
  2. Exoneration: A trustee will probably be reluctant to address a beneficiary’s dependency problems without some assurance that the trustee will not be removed or threatened with litigation for breach of trust. Similarly, if a trustee suspends distributions due to perceived substance abuse issues, and then later resumes making distributions, the trustee may perceive some liability arising from the beneficiary’s future addictions or dependence issues. Consequently, a strong exoneration provision should be included in the trust instrument: Example: It is not my [the settlor] intention to make the trustee, or any physician or consultant retained by the trustee, responsible or liable to anyone for a beneficiary’s actions or welfare. The trustee has no duty to inquire whether a beneficiary uses drugs or other substances. The trustee, and any physician or consultant retained by the trustee, will be indemnified from the trust estate for any liability in the exercise of the trustee’s judgment and authority under this trust instrument with regard to a beneficiary’s dependence. This indemnification shall extend to any failure of the trustee to request a beneficiary subject to medical examination and a decision to distribute suspended amounts to a beneficiary.

Conclusion: Clients look to trustees to help their family members deal with addictions, dependence issues, anxiety, impulse control and poor decision-making skills. Those skills wlll be required for their family members to recover from their addictions and dependence, in order to enjoy happy and self-fulfilling lives. In order for a trustee to carry out this tremendous responsibility, the trustee will have to have the necessary tools. Some of the provisions outlined above will go a long way to giving the trustee the necessary tools to meet the settlor’s expectations for the their trust.