If you have a child who is addicted to drugs or alcohol, or who is financially irresponsible, you already know the heartbreak associated with trying to help that child make healthy decisions. Perhaps your other adult children are living independent lives, but this child still turns to you to bail him out – either figuratively or literally – of trouble.
If these are your circumstances, you are probably already worrying about how to continue to help your child once you are gone. You predict that your child will misuse any lump sum of money left to him or her via your will. You don't want to completely cut this child out of your estate plan, but at the same time, you don't want to enable destructive behavior or throw good money after bad.
Trusts are an estate planning tool you can use to provide an inheritance to a worrisome heir while maintaining control over how, when, where, and why the heir accesses the funds. This type of trust is sometimes called a spendthrift trust.
As with all trusts, you designate a trustee who controls the funds that will be left to the heir. This trustee can be an independent third party (there are companies that specialize in this type of work) or a member of the family. It is often wise to opt for a third party as a trustee, to prevent accusations among family members about favoritism.
The trust can specify the exact circumstances under which money will be disbursed to the heir. Or, more simply, the trust can specify that the trustee has complete and sole discretion to disburse funds when the heir applies for money. Most parents in these circumstances discover that they wish to impose their own incentives and restrictions, rather than rely on the judgment of an unknown third party.
The types of conditions or incentives that can be used with a trust include:
- Drug or alcohol testing before funds are released
- Payments directly to landlords, colleges, etc., rather than payment to the heir
- Disbursement of a specified lump sum if the heir graduates from university or keeps the same job for a certain time period
- Payment only to a drug or alcohol rehab center if the child is in an active period of addiction
- Disbursement of a lump sum if the child remains drug free
- Payments that match the child's earned income
If you are considering writing this type of complex trust, it is advisable to seek assistance from a qualified and experienced estate planning attorney who can help you devise a plan that best accomplishes your wishes with respect to your child.