How To Structure A Trust For A Family Member With Addiction Issues

In this article, you will discover:

• How to structure a discretionary trust for the benefit of someone with addiction
• The definition and benefits of a spendthrift clause
• How you can set aside funds in a trust for therapy or treatment

How Can A Discretionary Trust Work For Someone With Addiction?

A discretionary trust is set up for the benefit of a beneficiary, but no specific amount is set aside. Instead, the trustee controls when and how money should be given to the beneficiary. If the beneficiary has addiction problems, the trustee can withhold money until they feel the beneficiary can handle that money responsibly.

What Is A Spendthrift Clause, And What Are The Benefits Of Using It?

The spendthrift clause in a trust limits the power to pay creditors, which is its primary use. The trustee cannot pay creditors, and creditors cannot access the beneficiary’s interest in the trust because the spendthrift clause prohibits it. There can also be a provision in a spendthrift clause to limit the power of the trustee to pay money to a beneficiary, especially if that person has a substance abuse problem.

Can I Provide For Therapy Or Recovery Costs In The Trust?

Yes, you have broad authority to set the trust up any way you want, so long as it does not violate the law. For instance, you could put a provision in the trust to set aside funds for therapy and recovery.

Can I Make The Trust Conditional On Recovery?

The problem here is the definition of “recovery.” An alcoholic in recovery is never considered fully recovered, so a different condition would need to be specified. For instance, if the beneficiary is “drug-free” or “alcohol-free” for a specific period, then money can be released to them.

What Are The Tax Implications Of A Discretionary Trust?

The tax implications of a discretionary trust are the same as those of any family trust. The trust’s income will be passed off to the trustor’s tax return. Also, some capital gains tax might be due if assets are transferred into the trust.

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