What to do with a Drug Addicted Beneficiary's Inheritance

Dear Len & Rosie,

Unfortunately, one of my two children is a victim of the opioid epidemic. He is a heroin addict who lives on the streets of San Francisco. I often don’t hear from him for months at a time and don’t know if he is dead or alive.

If he were to inherit a large sum of money (at this point in time his half would be $500,000, he would lose it or spend it all on drugs until it was gone or he was dead. I would rather throw the money out the window than have him inherit his portion in the current situation.

Can I structure his inheritance such that he would get money only if he were able to show a history of sobriety? How would this be done? Could I structure it so he would inherit only a certain amount each year while continuing to prove sobriety?

Tom,

Dear Tom,

We are glad that you wrote us because we have experienced trust administrations in which the parents neglected to take into account substance abuse and mental health issues with their children. There are lessons to be learned here that your family doesn’t have to learn the hard way after your death.

It is important to acknowledge that your son suffers an illness and should be treated with compassion whenever possible. But it’s equally important to look at his situation with eyes wide open. Your opioid addicted son should never be named as a trustee of your trust. Nor should he be named as an executor or agent under a power of attorney or health care directive. Under no circumstances should you give him any ability to access your funds. Even giving him your ATM pin number is too risky.

As for leaving him an inheritance, you have several options. The first is to leave him nothing at all, and instead leave it all to your other child with the understanding that he or she will chip in to help your son whenever appropriate. However, this plan may not work. It could be the case that your children are so set against one another that leaving it all to one means the other will never get anything.

A better although more completed alternative would be to leave your addicted son’s share in a trust for his benefit, with your child as trustee. You can give the trustee the power to appoint a replacement trustee, in case it’s too difficult to deal with an addicted beneficiary who wants money.

The trust can also allow the trustee to withhold payments if your son fails a drug screening test. Your other idea is fairly good. The trust could say your son gets, say, $2,000 a month, or any other amount you prefer, if he passes his drug screen. This would make it easier for the trustee, as your trustee wouldn’t have the discretion to give him more money beyond what is allowed for in the trust.

You should see an attorney soon to create an estate plan to take your son’s addiction into account.


Len & Rosie
 

What are the Legal Obligations of a Trustee?

Dear Len & Rosie,

Both of my parents are now deceased, the most recent being my step-dad. Are the four of us adult children legally due to receive a financial statement of how funds were spent during my dads illness? Are we entitled to a copy of the trust at no charge, along with the financial statement? The lawyer hired by the trustee is charging $1.000 for a copy of the trust, if we want it, and it has been stated that no one will receive a financial statement until after all funds are dispersed at the end of a waiting period. We were told the waiting period was 120 days but are now hearing it could be six months.

Bill

Dear Bill,

As beneficiaries of an irrevocable trust, the trustee is legally obligated to provide you a copy of the entire terms of the trust, at no cost. The trustee was supposed to provide you a notice pursuant to California Probate Code section 16061.7 within 60 days of your stepfather’s death telling you this.

Having said that, we find it hard to believe that the lawyer representing the trustee is telling you that it’ll cost you $1,000 for a copy of the trust document. This sounds more like a demand from trustee who thinks that he or she gets to make the rules.  Our best guess is that the $1,000 is a fee quote from a lawyer the trustee consulted with for some trust administration work and that the trustee thinks, incorrectly, that you ought to pay for it.

The trustee is required to provide an accounting to all of the beneficiaries presently entitled to distributions of trust income or principal. And by “accounting” we don’t mean a simple financial statement. We mean a formal accounting following the rules of the court which is really an exercise in double-entry bookkeeping that most people don’t know how to do themselves. This accounting usually runs from the date-of-death to the distribution of the trust assets. An accounting can be avoided if all of the beneficiaries agree, but your trustee isn’t creating an environment of trust and cooperation that would make a waiver of accounting likely.

The 120-day waiting period is mentioned in that notice you were supposed to have received. Once the notice is mailed out, a 120-day countdown begins. When it ends, you will lose your right to contest the trust. By “contest the trust” we mean filing a court petition asking the court to declare that the trust document is void. You will still be able to enforce your rights as a trust beneficiary, including the right to compel the trustee to provide you with an accounting.

The best thing for you to do is to have a lawyer write a letter to the trustee (or the trustee’s lawyer if there is one) demanding a copy of the trust and an accounting. If the trustee hasn’t got a lawyer, such a letter is usually enough to goad the trustee into hiring a lawyer who will help make sure the job is done correctly.

Len & Rosie