Parents fearing substance abuse by their beneficiaries can include instructions aimed at deterring addictive behavior and blocking the potential misuse of funds.
For many years, parents leaving substantial wealth in trusts for their children and grandchildren have included provisions that attempt to deter a beneficiary’s use of potentially addictive substances. For some, one or more family members have already abused such substances, with adverse-to-disastrous consequences. For others, this inclusion is purely prophylactic. It has become common practice for attorneys to include such a paragraph as boilerplate.
The key to the success of these kinds of provisions in positively impacting behavior is flexibility and tolerance. However, granting broad discretion to the trustee without proper context could result in fiduciary abuse of power. Here is an overly simplified example of a provision to deter harm from substance use (using plain language instead of conventional legalese):
The trustee may choose to withhold distributions at any time and for as long as the trustee wishes if a beneficiary is suspected of using any substance the trustee believes will cause or has caused harm. The trustee may conduct personal interviews, require substance testing, or use other means to verify suspicions. If a beneficiary won’t cooperate, the trustee may withhold distributions. The trustee may require any medical and therapeutic intervention or rehabilitation before distributions are reinstated. All related costs shall be paid from trust assets. No one may question the trustee’s decisions, and the trustee is protected from any costs incurred in defending decisions made in good faith.
Trust Provisions for Enhanced Protection
It’s important to note that a provision does not necessarily require that all distributions be stopped when suspicion of substance use exists. It also avoids alarming terms like “abuse,” “addiction,” “drugs,” or “alcohol.” Below is another simplified example of a provision that is intended to protect trust funds from various types of potential misuse:
The trustee may choose to withhold distributions to a beneficiary at any time and for as long as deemed necessary if the trustee suspects that a beneficiary is getting divorced, has a case in court, is ill or incapacitated, seeks bankruptcy protection, becomes insolvent, has lost or settled a lawsuit, is facing adverse financial circumstances, or if the distribution may be diverted under a claim by a spouse, a creditor, or any other person. Additionally, if the trustee suspects the beneficiary may be unable to manage the distribution wisely for any reason, distributions may be withheld. All related costs shall be paid from trust assets. No one may question the trustee’s decisions, and the trustee is protected from incurred costs in defending decisions made in good faith.
The Importance of Context
Provisions aimed at preventing substance misuse are often included in trusts as standard language, rather than being directed at any specific beneficiary. The complex language used in trust instruments can muddle the intent and depth of the power given to the trustee to withhold benefits. Fortunately, most professional trustees will not enforce these provisions unless a clear need to protect a beneficiary from significant harm arises.
It is recommended that drafters enhance context in these provisions. Many trust beneficiaries depend on regular distributions for housing, utilities, insurance premiums, car payments, and essential expenses. Withholding distributions could lead to severe losses for these beneficiaries, including denied services or eviction risks.
Communicating Intent with Clarity
Alternatively, the trust may empower the trustee to pay for essential services and obligations directly from trust resources. This approach allows the trustee to still withhold distributions that may be misused. Additionally, the trust document may articulate the settlor’s intent behind these provisions, regardless of their severity.
Consider this moderate example:
The purpose of this provision is to protect a beneficiary experiencing diminished capacity, engaging in criminal acts, such as stealing from friends and family, or who is chronically underemployed, with the suspicion of harmful substance use. The trustee should consider requiring direct payments to vendors for any beneficiary’s costs, expenses, and obligations as a primary measure, while withholding most or all distributions to encourage the beneficiary to seek help. However, the trustee may withhold distributions at any time if a beneficiary is suspected of substance use that may cause harm. The trustee is encouraged to conduct a personal interview, request substance testing, or explore other verification methods. Reasonable medical and therapeutic interventions may be required before reinstating distributions. All related costs shall be paid from trust assets, and the trustee’s decisions remain unquestioned, with protection from costs incurred in good faith.
A Severe Example for Known Substance Users
The purpose of this provision is to protect an individual who has experienced diminished capacity, engaged in criminal acts such as theft from acquaintances, and suffers long-term issues related to substance use. The trustee shall only make direct payments to vendors for the individual’s costs and obligations while withholding most or all distributions. The individual must avoid using any substances, including necessary prescriptions without prior approval, maintain therapy appointments, avoid associations with known substance users, and submit to monthly testing. The trustee may stop paying all costs related to housing, utilities, and household goods at any time if these requirements are not met. The trustee may also verify substance use through personal interviews, medical screenings, or other methods. All related costs shall be paid from trust assets, and the trustee’s decisions remain safeguarded from question, with protection from incurred costs.
Engagement of Trust Advisers
Ultimately, intervention is challenging if individuals struggling with substance use refuse help. Nevertheless, if supportive friends or family maintain a connection with the beneficiary, it may be beneficial to appoint trust advisers with the authority to consult with the trustee about the beneficiary’s distributions and potential trustee replacement.
Disclaimer
This article reflects the views of the contributing adviser, not iBestTravel’s editorial staff. You may check adviser records with the SEC or FINRA.
Author: Timothy Barrett, Trust Counsel and Senior Vice President, Argent Trust Company. Timothy Barrett is a graduate of the Louis D. Brandeis School of Law and an active member of several legal associations.
