As we honor National Alcohol & Drug Addiction Recovery Month this September, we support families with loved ones who face substance abuse issues of many kinds. Do you have a loved one with substance abuse issues and are you concerned about providing for him or her, financially, in the future? You may wish to consider creating either a spendthrift trust or an incentive trust. Each type of trust can help your family provide for your loved one, while ensuring they are not able to use the funds in trust to further an existing addiction.
A spendthrift trust is a type of trust which prohibits the beneficiary from acquiring debt on the basis of the assets in the trust, and also prohibits creditors from reaching money held in trust. If your adult child or another loved one struggles with substance abuse issues, he or she may be in debt due to an inability to cover his or her expenses as a result of his or her addiction. Including a spendthrift provision in any trust you set up for his or her benefit can prevent creditors from taking money you intended to be used for his or her benefit.
If a trust includes a spendthrift clause, it can come into effect once you are deceased. Any funds moved into the trust will be controlled by the trustee and can be used for your child’s benefit without ever passing directly into your child’s hands. This can work particularly well if your child struggles with substance abuse issues, because he or she does not have access to cash that could be spent at-will. Instead, the trustee could pay rent or medical bills directly.
Another type of trust, an incentive trust, provides that the assets within it can be accessed by the trust beneficiary only after he or she has met specific goals. If your loved one struggles with substance abuse, these goals could be completing a rehabilitation program and remaining sober for at least a year. Goals do not need to be one-and-done; you could provide that money will be distributed on a monthly or bi-monthly basis to cover the beneficiary’s living expenses without them having access to a large amount all at once. The idea is that the trust funds provide an incentive for the beneficiary to get sober and stay sober. One thing to keep in mind may be that money is not always a factor that can, on its own, ensure long-term recovery, and if you choose to set up an incentive trust, it may be wise to keep the focus on developing personal motivation in your loved one.
If you think a spendthrift trust or an incentive trust could be the right choice for your family, it can be important to speak to an experienced estate planning attorney in your state to figure out exactly what you want to do and how the trust language should be written. Our office can provide you with options best suited for your family’s unique needs. Contact us today to schedule an appointment.