by Robert W. Buechner, Shareholder, and John J. Venturella, C.P.A. (Shareholder and Tax Services Chair at Clark, Schaefer, Hackett & Co.)
What do you, as trustee, do when a relative of a beneficiary tells you that the beneficiary is in rehab and needs special care for an addiction? Further compounding this hypothetical, what do you do if the beneficiary is out of state? We recently advised a client who faced this exact situation. Perhaps our experience can offer a blueprint.
First, you have to look at the trust document, which in this case provides the following:
After the Grantor's death, the Trustee at all times shall have discretion not to make an otherwise required distribution to a given beneficiary if that beneficiary:
1) Is suffering from a mental or physical impairment which the Trustee reasonably believes makes the beneficiary unable to
attend to his or her affairs.
2) Is, in the Trustee's reasonable belief, using illegal drugs.
3) Is a party to an imminent or pending proceeding for divorce or separation.
4) Is, in the Trustee's reasonable belief, in or imminently to be in severe financial difficulties.
Second, you need to obtain a HIPAA consent form from the beneficiary to be able to obtain any information from the rehabbing institution. This is an early litmus test - is the beneficiary going to be cooperative or a challenge?
Third, it is beneficial to talk with Neil Tilow, President and CEO of Talbert House, an organization that successfully addresses addiction issues in our community. He can tell you that going through a rehab program does not guarantee success - that often times individuals have to go through such treatment two or three times, and they need to be watched regularly. Furthermore, Neil will insist that you, as the trustee, do everything you can to support and promote the beneficiary's recovery and not their addiction.
Taking Neil's advice to heart, we searched high and low for assistance from a counselor with the facility that the beneficiary attended, and second, for a trust and estate lawyer who could help us with disbursing money. We had to prepare for the possibility that in the future, we may not trust the beneficiary with spending money in a productive way.
We understood and acted on the fact that we have a fiduciary duty to spend money in the beneficiary's best interest and not to ignore the important signs of drug and alcohol addiction. Proper and prompt action by the trustees does not guarantee a good result, but it does discharge the trustees of their fiduciary duty to act reasonably and in the best interest of the beneficiary.
How has it worked? It is an ongoing responsibility and not a situation that allows us to feel "mission accomplished". So far we have not had to use the threat of withholding money (or giving it to someone else to disburse) - but we are prepared to do so if the beneficiary does not follow through with the required drug testing.
As always, should you require advice in the estate planning, estate administration, and taxation areas, please do not hesitate to contact Bob Buechner or any other BHMK attorney.