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Leaving money to addicts
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March 30, 2000: 10:50 a.m. ET
Protecting your child's inheritance can be tough if he has a substance problem
By Staff Writer Jeanne Sahadi
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NEW YORK (CNNfn) - As parents with a substantive estate, you want to distribute your wealth equally among your kids. But the truth is your offspring are different people and not everybody manages money responsibly.
That means you may have to make hard choices if a son or daughter has a drug habit and cannot be trusted to handle an inheritance well.
That's the situation for one couple with three adult children and a $1.2 million estate. One son is an addict and his parents know whatever money he gets may be smoked, injected, swallowed, snorted or otherwise squandered. To complicate matters, he has a daughter whom his parents would like to take care of financially.
 Bill Darden, general counsel for the National Association of Financial and Estate Planning, said the first thing parents need to realize is that they are in control. Most people say, "I have to give Johnny the money because he is my son," Darden said. "But people need to realize it's their money. The kids have no rights to it. It's OK to say 'No' to someone."
But that doesn't mean you have to leave Johnny out on the street.
Darden suggests the couple set up a trust for their son's inheritance. For instance, if they set up a life estate with $400,000, they can mandate a) that he only be given the income from the estate; and b) that the income only be used to pay for specific costs such as living expenses. They also can name the granddaughter as the remainder beneficiary, which means when their son dies she inherits the entire trust, including the principal.
If they expect their child may not live long due to his drug habit, a life estate may be the best choice.
They also have the option of setting up a term estate, specifying the number of years the trust will be in effect and what should happen to the money after the term is up.
In either case, Darden advises that the parents appoint a corporate trustee such as a bank to administer the trust. That way, they involve a truly objective third party who, unlike a family member or friend, will not succumb to emotional pleadings to use the money in a manner for which it is not earmarked. Plus, he said, "It's a hassle to be a trustee. And maybe a family member doesn't want to deal with it."
Trustees, remember, have a fiduciary obligation to make sure the money is handled in the way the benefactor mandated. In the case of a life estate with a remainder beneficiary, the trustee must give equal weight to the interests of the granddaughter and the son.
If you are concerned your child might mishandle the payments from a trust, you can also insure that the trustee pays the bills for your child's living costs or other expenses directly.
Earmarking education funds
Darden had another suggestion. If the couple wants to insure their granddaughter has money for her education when she needs it, they could divide the $400,000 intended for their son, and place half in a trust for him and half in a trust for her.
But what if the granddaughter decides she would rather skip college and devote her life to cabaret singing? The grandparents can specify that the money be used for educational purposes only before she turns 25 and if not, it reverts back to her parents' estate.
Whatever their preference, "they must decide where they want the money to go in the event of a contingency," Darden said. 
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