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When Heirs Need Guidance

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If you want to pass part of your estate to an heir with a known personal or financial challenge, there are solutions that let you control how your assets will be used.

Creating an estate strategy can pose unique challenges when coping with a family member with personal or financial issues.

Individuals with addictions, whether drugs or alcohol, shopping or eating, often tend to lead unstable lives. An inheritance would worsen their behavior but disinheriting them may not allow access to funds that could help address their problems.

Addictions are more common than many of us like to believe. A landmark study by the National Institute of Health found that 10 percent of US adults have had a drug-use disorder at some point in their lives. Put another way, 23 million adults have struggled with problematic drug use.¹

“Someone in the crowd said to Him, “Teacher, tell my brother to divide the inheritance with me.” But Jesus replied, “Man, who appointed me judge or executor between you?” And He said to them, “Watch out! Guard yourselves against every form of greed, for one’s life does not consist in the abundance of his possessions.” Luke 12:13-15

Creating an estate strategy that is designed to control how, when, where, and why funds may be accessed is one approach that may be appropriate.

These types of controls can be built into a trust. A trust is a legal arrangement under which one person, the trustee, manages property given by another party, the trustor, for the benefit of a third person or persons, the beneficiary. In some instances, a family member can serve as the trustee. But when a family member has issues, some believe that appointing a third-party trustee may be preferable.

Decision-making may be more straightforward for a third-party trustee, who will be less affected by an heir’s behavior. Family members may be in a better position to offer moral and emotional support than making the difficult decisions that may fall to the trustee.²

When considering adding a trust to your financial strategy, it’s important to remember that trusts involve a complex set of tax rules and regulations.

Here’s some initial questions to ask if you are considering a trust to help a family member who may have issues:³

  • What’s the timeframe? Will the trust last a lifetime? Will it be terminated if rehabilitation milestones are not met?
  • What financial needs are covered? Will basic needs like housing, medical care, and food be covered? Will funds be available for treatment?
  • How to explain to the family? Will only one person with the addiction be restricted through the trust?

¹ NIH.gov, 2023

² OCEstatePlanning.net, September 9, 2021

³ HG.org, 2023

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