Garden State Trust Company

When it comes to financial and estate planning, it can be especially difficult to know what to do with a beneficiary who has previously demonstrated poor behavioral patterns. Questions emerge about whether a financial windfall might actually create more problems than it solves and about how to know who to trust with their care.

Love being blind often causes us to not realize problems are problems until it’s too late (or much more difficult) to solve them, which is why an outside perspective can be important.

An incentive trust is a trust that includes provisions requiring beneficiaries to meet certain conditions before the trustee can distribute funds. This means that the funds can only be accessed in specific situations or for specific needs. Some incentive trusts give the trustee the authority to spread distributions out so the beneficiary doesn’t receive them all at once, but the incentives can be much more varied.

Incentives don’t only need to target negative behavior, such as drug abuse, either. For example, a provision encouraging positive behavior might be to encourage charitable work or giving, offering to provide extra funds for a beneficiary as a reward for volunteer work or to match their charitable gifts.

Martin J. Hagan, J.D. wrote a three part guide for Kiplinger “Designing Trusts for Beneficiaries with Substance Abuse Problems” that goes over some of the incentive trust basics. The most important take-away from this article is that the trust is not a magical lamp that will necessarily solve the problem. It can provide additional structure for a beneficiary by using incentives, so as goals are accomplished within a treatment plan that includes caregivers, physicians, therapists, and others, the beneficiary will receive funds. The structure could be cash incentives, but a trust can also ensure that the money is spent in a particular way, avoiding the potential that the money itself is abused. For example, instead of making a cash distribution, the trustee could be in charge of paying for particular expenses such as a car, vacation, or club membership every year should the beneficiary remain sober.

Being a caregiver is a difficult job and being impartial toward those we care about can be nearly impossible. Care needs to be ongoing and responsive to changing circumstances. Being a trustee for a beneficiary with substance abuse issues isn’t easy either. One needs to be careful about distributions so as not to jeopardize other government benefits, one may face difficulties in verifying whether goals are met that would trigger distributions, and additional coordination may be needed to set up a treatment team beyond the standard team a trust department may work with.

Mr. Hagen notes that “Sometimes individual trustees end up resigning from the trust due to emotional fatigue.” The best trustee might end up being someone that is most familiar with the situation, but it may also be appropriate to have a co-trustee that deals with many cases of this nature. Mr. Hagen also notes that the best institutional trustee choice would likely be one that has familiarity with special needs trusts, such as Garden State Trust Company, since we are already familiar with social workers and case managers that have experience with the medical and health needs of disabled beneficiaries.

True independence and understanding are at the core of our unique value proposition. Caring for and thoughtfully guiding our clients has created the strong trusting relationships we have nurtured over many decades. That’s why so many people rely upon our independent company for wealth management and trustee & executor services:

Garden State Trust Company. To learn how we can focus on you and your family, contact Sean Rice today.

1236 Brace Road • Suite A Cherry Hill, NJ 08034 856.281.1300 | gstrustco.com