Thursday, February 2, 2012

What if Your Heirs Become Hoarders?

Estate Planning Considerations for Heirs That May Have Addictive Behaviors or Mental Illnesses

Last week I was watching the intellectually stimulating program Hoarders, and it featured a gentleman named Kevin McCrary (Season 4, episode 53). Kevin is the son of famous parents and the beneficiary of a sizeable family trust. Kevin is also homeless because his Upper East Side apartment is completely full of trash.
Kevin McCrary is the perfect example of how trust beneficiaries can end up in a very different situation than the creators of the trusts intended, because of addictions or mental illness. Especially when trusts are created to benefit generations far removed from the creators of the trust, it is difficult to predict what provisions may be required. I’m pretty sure “hoarder” wasn’t even a term people used when his parents created their trust.
Two years ago, Casey Johnson, an heir to the Johnson & Johnson family fortune, died at the age of 30. Casey had a serious drug problem that was partially funded by access to her family’s wealth. Many of her trusts were able to turn off distributions and prevent her from paying for a lavish lifestyle of drug use, but not all of them could. She spent years estranged from her family, but living off the income of trusts to support her dangerous drug habit.
This is a problem that is appearing more and more in my practice. Parents or grandparents have executed complex estate plans that now benefit children or grandchildren, or they have even moved wealth during their lives through a variety of tax advantageous techniques that resulted in trusts for children or grandchildren. After those documents are in place, and are most likely irrevocable, the beneficiary develops a drug problem or a mental illness becomes more apparent. The trust terms often don’t anticipate these problems and may require a trustee to pay for any health or welfare related expense—including the twentieth time to rehab—or even to make mandatory income distributions to that beneficiary of significant amounts. Further, some trusts may lack the flexibility to assist a beneficiary in the appropriate treatment of a mental illness or to pay for psychotropic medications. 
It is very difficult to reform a trust after it is in place, especially if the reformation changes the interests of the beneficiaries. It is much simpler to add language from the beginning that provides flexibility if a drug addiction or mental illness should arise. I am finding that I recommend this language more and more to clients, especially if we are doing long-term legacy planning or funding irrevocable trusts with significant assets.

1 comment :

  1. Anne,

    Very pertinent advice. Legal docs are always playing catch-up in some respects - we cannot anticipate the future with certainty, so there needs to be some flexibility for someone to do that while simultaneously not giving them too much control. A very tricky balancing act.