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Recovery Trust: How Estate Planning Should Handle the Addiction of a Beneficiary

February 28, 2019 • Posted By • Trusts and Estates

The New York Law Journal published David E. Siegfeld’s, “Addiction, Disinheritance and Enabling: An Avoidable Outcome” on January 18, 2019.

Siegfeld discusses implementing certain estate planning strategies, such as a Recovery Trust, to help clients concerned with leaving direct income or assets to family members suffering with addiction. A client’s fear of enabling a family member’s addiction can be cured through “ensuring that carefully managed funds will still be available when help is desired and honestly sought through rehabilitation, treatment, and recovery.”  Most clients do not wish to disinherit their loved one, but they struggle with how to ensure bequeathing assets without fueling their family member’s addiction.  

Disinheriting a loved one may “create conflicts among family members, potential delays and costs due to legal challenges in the implementation of an estate plan.” Additionally, “resentment might fuel or accelerate the self-destructive path of the loved one suffering from addiction.” The best way to avoid disinheriting a loved one is to create a Recovery Trust. A Recovery Trust includes “provisions tying the beneficiary’s receipt of principal or income distributions to the beneficiary meeting and maintaining certain benchmarks.”

“A recovery trust could be structured to tie any principal or income distributions to completing or maintaining one or all of the following milestones:

  • Detox and Continued Sobriety: Commitment to seek recovery from the physical symptoms which could be followed-up with periodic blood/urine screening to ensure ongoing sobriety (as recommended in consultation with a counselor).
  • A Treatment Plan: Commitment to an in-patient/out-patient program followed by group/individual therapy to assist with the mental addiction which can be verified by reports from physicians and/or counselors with specific experience in addiction care.
  • A Recovery Plan: Commitment to a 12-step program, mindfulness, readings, yoga, etc. to bring about a lifestyle change to help ensure long-term sobriety. Being part of a fellowship and sharing the common peril of addiction is key to ensuring long-term sobriety. An addict left to their own devices will most likely relapse.”

 A Recovery Trust will be administered by a trustee who is granted the responsibility and authority to ensure that distributions will only be for the benefit of beneficiary to: “(1) seek treatment and recovery as deemed necessary and/or advisable by the trustee after consultation with professionals who may or may not be directly counseling the beneficiary; (2) ensure that a recovery program is maintained, evidenced by periodic chemical screening and reports from counselors or other medical professionals; (3) provide for the personal needs of the beneficiary, especially in early sobriety or in case of relapse. This a list of some of the basic expenditures which the trustee can be authorized to satisfy.” The Recovery Trust can give the trustee the right to verify health care information and test results directly from health care providers. Additionally, the trust can require that the beneficiary execute HIPAA authorizations to receive any benefits and assets.

A Recovery Trust can provide for the termination and final distribution to the beneficiary with a showing of a long-term commitment to recovery. However, the trust can also allow the trustee to “withhold payments or terminate the trust in favor of alternate beneficiaries.” The trust can terminate if the beneficiary fails to meet the “objectives within a designated period of time or upon a significant event,” such as a conviction due to a crime related to his or her addiction. The decision to terminate can be within the absolute discretion of the trustee, with a majority consensus of family members, or the guidiance of a counselor.  

The trustee of a Recovery Trust must be appointed with careful consideration and deliberation. A trustee will be tasked with making difficult decisions regarding the health of the beneficiary suffering from addiction. The burden can be too heavy for a family member or family friend appointed as trustee, when any decision made impacts a loved one. The best remedy is appointing an independent party as trustee or co-trustee to ease the burden a family member faces when tasked with difficult decisions.

“The estate plan needs to be flexible enough to meet the ever challenging and changing needs of the beneficiary.” A Recovery Trust is the best estate planning strategy to protect the client’s wishes and the beneficiary suffering from addiction. The trust will ensure that the distribution of income or assets will not enable the beneficiary’s addiction. Instead a Recovery Trust will make the distributions of income and principal conditional on the beneficiary’s road to rehabilitation, treatment, and recovery.