If one of your loved ones has a substance abuse problem, an inheritance may make the addiction worse or even kill him or her. At the least, the inheritance is likely to be squandered. For anyone who has an addiction such as drugs or alcohol, it is best to pass the inheritance in trust, not outright.
How Outright Inheritances Work
Outright gifts pass into your beneficiary’s individual name. They are within your beneficiary’s full control, to be spent any way he deems appropriate. This may mean that the inheritance is spent on drugs, alcohol, or “friends.” Outright windfalls such as inheritances are typically gone within a matter of months.
In addition, an outright inheritance can be seized by creditors in divorce, bankruptcy, car accident, and medical crisis law suits.
How Inheritances in Trust Work
Inheritances in trust for a beneficiary, who has a substance abuse problem, are not given directly to the beneficiary. Instead, a trustee makes distributions for the beneficiary’s needs, but not to the beneficiary directly. The trustee can be a family member or friend or even a professional trustee.
The trustee may pay the beneficiary’s medical bills, rehab costs, tuition, landlord, grocery bills and the like. The money doesn’t go into the beneficiary’s hands so it’s not used to fuel an addiction.
In addition, the inheritance in trust is protected from divorce and lawsuits.
If you have a loved one who suffers from an addictive disease, consult with an experienced and qualified estate planning attorney to protect both your beneficiary and your money.