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  • TRUST BENEFICIARIES AND SUBSTANCE ABUSE

    TRUST BENEFICIARIES AND SUBSTANCE ABUSE

    This week’s question:
    My wife and I are in the process of setting up our living trust, wills, and related documents. A big problem is that one of our daughters is into heroin big time. She has three children, two heroin felony convictions, and we do not want to cut out our daughter and grandchildren from our trust. How can we deal with that appropriately?
    /s/ Wayne W.
    Almaden Valley
    Dear Wayne—
    You are not unique in facing a problem of potential substance abuse by a possible beneficiary, Wayne. It would be terrible if your and your wife’s hard-earned money would go down the drain in the form of heroin.
    The good news is that several provisions are possible to include in your new living trust so as to try to protect against substance abuse. There is no guarantee, of course, but some language in your new living trust may help.
    For example, you may specify that you and your wife as Trustees and your Successor Trustees (after you and your wife are gone) may suspend the beneficiary’s withdrawal rights and all of the beneficiary’s rights to participate in decisions concerning the removal and appointment of Trustees in the future.
    The suspension rights mentioned above may be exercised if the Trustee reasonably believes that a beneficiary of any trust routinely or frequently uses or consumes any illegal substance so as to be physically or psychologically dependent upon that substance, or is clinically dependent upon the use or consumption of alcohol or any other legal drug or chemical substance that is not prescribed by a board certified medical doctor or psychiatrist in a current program of treatment supervised by such doctor or psychiatrist.
    Another aspect is that the Trustee must reasonably believe that as a result, the beneficiary is unable to care for himself or herself, or is unable to manage his or her financial affairs. If those factors exist, then the living trust language may state that the Trustee has the power to suspend all mandatory distributions to the beneficiary, including distributions upon termination of the trust.
    If the above circumstances exist, the trust language may also state that the Trustee has the authority to require the beneficiary to submit to one or more physical examinations, including laboratory tests of bodily fluids determined to be appropriate by a board certified medical doctor.
    The living trust language may also specify that if, in the opinion of the examining doctor, the examination indicates current or recent use of a drug or substance as mentioned above, the examining doctor will determine an appropriate method of treatment for the beneficiary.
    Such treatment could include counseling or treatment on an in-patient basis in a rehabilitation facility that is acceptable to the Trustee. Your living trust may also provide that if the beneficiary consents to the treatment, the Trustee shall pay the costs of treatment directly to the provider of those services.
    It would be good to state that monetary distributions may be resumed by the Trustee to the beneficiary when examinations indicate no improper use of the substances for 12 months and/or when the Trustee in his or her discretion determines that the beneficiary is able to care for himself or herself and is able to manage his or her financial affairs.
    Your new living trust might also specify that no Trustee, nor any doctor retained by the Trustee, will be responsible or liable to anyone for a beneficiary’s actions or welfare. Also, it may be stated that the Trustee has no duty to inquire whether a beneficiary uses drugs or other substances as described in the trust.
    Along the same lines as the above paragraph, you may state in your living trust that the Trustee and any doctor retained by the Trustee is to be indemnified from the trust estate and held harmless from any liability of any nature in exercising his or her judgment and authority under the trust, including any failure to request a beneficiary to submit to medical examinations, and including a decision to distribute suspended amounts to a beneficiary.
    The living trust may also provide that if monetary distributions are resumed, the suspended amounts may be distributed to the beneficiary at that time. If, by that time, the beneficiary has passed on, the trust should specify where such amounts should be distributed.
    There are a few instances where a Trustee cannot suspend distributions to a beneficiary, but you need to see your own lawyer or CPA concerning those technical exceptions.
    So, there you go, Wayne. I hope this information proves helpful in your goal to do the right thing for your family.
    /s/Donald J. DeVries
    Almaden Valley

    You can reach Mr. DeVries with your questions by email at don@almadenvalleylawyers.com, with “Almaden Times” in the subject line, fax at (408)268-6502, telephone at (408)268-9500, or mail at DeVries Law Office at 6475 Camden Avenue, Suite 200, San Jose, CA 95120. Your name will not be used. No attorney-client relationship is created by these articles.

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