In a Dear Abby column sometime ago, there was a letter from Conflicted Sis In Maryland. Conflicted Sis explained that upon Grandmother’s death, Grandmother left some money to her grandson who was a life-long drug addict. That grandson was Conflicted Sis’ brother. Grandmother named Conflicted Sis as executor (personal representative in Michigan). Sister wanted to know if she had to give the money to her brother.
Sister wanted to control the funds for her brother because she knew Brother would not be able to handle Grandma’s inheritance on his own without assistance. Sister knew that if Brother received the money that he would squander it or spend it on drugs, possibly hurting himself or others. Although Grandma did not say so in her will, Sister knew that Grandma would not have wanted her money to be used for those purposes.
Dear Abby’s advice was for Sister to consult with a legal professional because there may be a way to provide a roof over Brother’s head and to make sure he does not starve. If this was in Michigan, because Grandmother put her wishes down in writing, Sister would have to distribute the inheritance to her brother. About the only way that Sister could hold the funds for her brother against his wishes would be to prove that Brother’s drug use was so bad that he was legally incapacitated and required a court ordered conservator to manage the inheritance.
In Michigan, if you leave a gift to a beneficiary in a will, that gift must be distributed to the beneficiary unless the beneficiary is a minor or there has been a court determination that the beneficiary lacks the ability to manage property and business affairs.
If the beneficiary is a minor, the court will hold the inheritance in a conservatorship to be used for the minor until the age of 18. When the minor reaches age 18, he or she miraculously gains all the wisdom and insight of adulthood and the court releases the inheritance. Oftentimes, an 18 year old beneficiary receiving large sums of money goes to college, the University of Corvette.
When the beneficiary is an adult, Michigan statute provides that the court can appoint a conservator to manage his or her finances if the court determines both of the following:
The individual is unable to manage property and business affairs effectively for reasons such as mental illness, mental deficiency, physical illness or disability, chronic use of drugs, chronic intoxication, confinement, detention by a foreign power or disappearance.
The individual has property that will be wasted or dissipated unless proper management is provided, or money is needed for the individual’s support, care, and welfare or for those entitled to the individual’s support, and that protection is necessary to obtain or provide money.
If you are a personal representative of a will and you believe one of the beneficiaries is unable to manage property, you could file a petition in probate court for a conservator to manage his or her property and financial affairs. That petition must be personally served on the beneficiary. You then have to attend a court hearing and in front of the beneficiary, you have to present evidence that a conservator is necessary to take care of the beneficiary’s finances.
If the beneficiary is only making poor life choices or what you may consider inappropriate or stupid decisions, there may be nothing the court can do. The court can’t stop stupid. Without prior written instructions, you cannot withhold the distribution of funds. The beneficiary could force you to distribute the entire inheritance.
I have had a number of clients over the years who had children who were addicts, either drugs, alcohol or gambling. Without proper protections, the addicts would have the freedom to spend the inheritance on anything, including drugs. When addicts have access to large sums of money, they tend to buy large quantities of their drug of choice, to the point of excess. The addicts could then injure or kill themselves with an overdose.
Most people would not want their funds to be used to promote an addictive lifestyle. However, if you have a child with those issues and you do not put protective provisions in your estate plan while you are alive and well, your trustee or personal representative may not be able to put those options in after you are gone.
You can put provisions in your trust that state if a beneficiary has some sort of alcohol, drug, gambling or other addiction, they cannot take control of those funds. Your trustee then would have the authority to dole it out as needed for that beneficiary.
You can have provisions that would allow your trustee to pay for rehab for a certain period of time, say 4 years. If, after 4 years, your beneficiary does not kick the habit, then their inheritance will go to the next level of beneficiaries, such as their children or their siblings.
You can also put provisions in your trust that allows the trustee to do random drug testing of a beneficiary and if the beneficiary refuses or tests positive, then the trustee can withhold distributions from the trust. If the beneficiary disagrees with the trustee, the beneficiary can always petition the court to make the determination that they are in fact, not an addict. That is why it is so important to pick a trustee whom you trust and who can make those types of decisions.
You have a lot more options for your estate planning now while you are alive an well, than after you are dead. Similarly, you have a lot more options now while you are alive and well than after you are mentally incapacitated.
However, if you do not put those options in your plan now to protect your beneficiaries, your personal representative or trustee may not have the ability to do so after you are gone. You can put just about any protection you want into your trust, so long as it is not illegal, immoral or against public policy. Your estate planning attorney just has to figure out how to say it.
By Matthew M. Wallace, CPA, JD
Published edited January 26, 2014 in The Times Herald newspaper, Port Huron, Michigan as:The court can’t stop stupidity