If your beneficiary has a substance abuse problem, an inheritance may make the addiction worse or even kill them. At the least, the inheritance is likely to be squandered. If your beneficiary has an addiction such as drugs or alcohol, pass the inheritance in trust, never outright.
How Outright Inheritances Work
Outright gifts pass into your beneficiarys individual name. They are within your beneficiarys full control, to be spent any way he deems appropriate. This may mean that the inheritance is spent on drugs, alcohol, or friends. Outright windfalls such as inheritances are typically gone within 18 months.
In addition, an outright inheritance can be seized by creditors in divorce, bankruptcy, malpractice, car accident, and medical crisis law suits.
How Inheritances in Trust Work
Inheritances in trust for a beneficiary, who has a substance abuse problem, are not given directly to the beneficiary. Instead, an independent professional trustee makes distributions for the beneficiarys needs, but not to the beneficiary directly.
The trustee may pay the beneficiarys medical bills, rehab costs, tuition, landlord, grocery bills and the like. The money doesnt go into the beneficiarys hands so its not used to fuel an addiction.
In addition, the inheritance in trust is protected from divorce and lawsuits.
If you have a beneficiary who suffers from an addictive disease, consult with a qualified estate planning attorney to protect both your beneficiary and your money.
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