Designing Trusts for Beneficiaries with Substance Abuse Problems

You can't just take the usual wording from a trust for a minor or a beneficiary with a disability and use it as a model. This type of trust needs to be designed to meet specific needs.

(Image credit: Petar Chernaev)

Editor’s note: This is the first part of a three-part series on trusts for people with substance use disorders. Click here for part two and here for part three.

When planning their estates, an increasing number of families find themselves needing legal advice on how to address the reality that one of their intended beneficiaries, typically a child or grandchild under age 40, is addicted to opioids or alcohol.

The idea of creating a trust for such a child is a given, but what type of trust is most suitable? Trusts to benefit a child who is a minor or has an intellectual disability, such as Down syndrome, will not work, because their purposes will differ greatly from those for a trust for a child with a substance use disorder. Most families will need help in learning the steps to take in this unique but, sadly, not so unusual process.

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Identifying the Purpose of the Trust

Every trust should have a purpose, the more clearly stated the better. To identify the parents’ purposes for creating a trust for their child with a substance use disorder, they should have an in-depth discussion with their attorney and other advisers to help them clarify what role they want the trust to play in their child’s recovery. For instance, they could decide to have the trust play a passive role, where it would operate independent of any recovery efforts. Trust distributions could be made for the child’s basic support, or they could be more limited to providing only the “extras” that, in the trustee’s discretion, would make the child’s life more enjoyable.

By contrast, the trust could be given an active role to play, with the trustee — the individual or institution designated to administer the use and distribution of the trust’s assets — being directed to work proactively with the child’s treatment team and to pay for the costs incurred in carrying out the treatment plan (for example, paying for the costs of a rehab facility and for the services of clinicians and therapists). With this model, no distributions would be allowed if they were not related to the child’s recovery.

Understanding the Stages of Recovery

If the parents want the trustee to be actively involved in the child’s recovery, it is important that the trustee has an understanding of what recovery from a substance use disorder will entail.

First, the notion that a person can completely change their addictive behavior by attending one 30-day or 60-day rehab program should be dispelled. A highly regarded model for change of behavior, referred to as the Transtheoretical Model, posits that people do not quickly or decisively change their behaviors. Rather, such changes occur gradually, in several stages, which can be described as follows:

  1. Precontemplation Stage (Not Ready): The child denies the existence of their addictive behavior and remains unmotivated and resistant to change.
  2. Contemplation Stage (Getting Ready): The child experiences feelings of ambivalence and conflicting emotions concerning their addictive behavior.
  3. Preparation Stage (Ready): The child begins to experiment with small changes in their behavior and settles on a plan of action.
  4. Action Stage: The child takes direct action toward changing their addictive behavior.
  5. Maintenance Stage: The child maintains their new behaviors and develops coping strategies to prevent relapse.
  6. Relapse Stage: This stage, which could be expected to occur one or more times, will be accompanied by feelings of disappointment, failure and frustration. But the child will experience a sense of progress as the time periods between each relapse become longer and longer.

Parents should keep this model of change in mind as they design the trust, especially in describing how it should treat the — perhaps inevitable — event of relapse. Rather than punishing the child for relapsing, the focus should be on how the trust can provide the resources that will help the child continue on the difficult road to changing their addictive behavior.

Creating a Treatment Plan

An essential component of the child’s recovery will be to follow the treatment plan that will be developed and revised from time to time by the child in coordination with a team consisting of their attending physician, care manager, therapist, rehabilitation specialist and other care providers. Examples of goals found in a treatment plan include:

  • Remaining drug-free and sober for a significant period.
  • Meeting on a continual basis with a CBT (Cognitive Behavior Therapy) therapist, physician and psychologist, and participating in AA or NA meetings.
  • Pursuing vocational training, and providing proof of continued employment in a job suitable for their skill level.
  • Submitting to random blood and urine testing to determine if they are engaged in addictive behavior.
  • Avoiding people and environments that are known triggers for a relapse.

Offering Incentives, NOT Cash

As an additional component of the trust, the trustee could be authorized to lay out a series of incentives, based on the same goals as stated in the treatment plan, that if met could result in discretionary rewards from the trust for the child’s direct benefit.

For beneficiaries with a substance use disorder, the rewards for achieving an incentive should be of a strictly non-monetary variety, such as paid vacations, club memberships, the use of a car, or personal services. Paying cash for meeting incentives will almost always be a bad choice, since having cash in hand may create too great of a risk of a relapse. In fact, it may be necessary to direct the trustees not to provide even tangible assets that could be sold for cash.

Practical issues will arise with the use of incentives. How burdensome will it be for the trustee to monitor the beneficiary’s achievements? Will the beneficiary be expected to self-report their successes and failures? How easy would it be for a clever beneficiary to rig blood and urine test results, or present the trustee with fake employment or therapy attendance records?

Rather than using a monitoring approach that relies on criteria susceptible to manipulation, an alternative would be to have the beneficiary provide evidence of their compliance, but always give the trustee the ultimate authority to determine if an incentive has been met, using whatever objective and subjective criteria deemed reasonable.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Martin J. Hagan, J.D.
Partner, Private Clients Group, Meyer, Unkovic and Scott

Martin J. Hagan, a partner at Meyer, Unkovic & Scott, has been serving clients in the areas of estate planning and administration, estate and gift taxation, special needs trusts, elder law, and estate and trust litigation for over 35 years. Hagan earned his Bachelor of Arts and Juris Doctor from the University of Notre Dame.