Family Trusts: “Bill, in your years of working with families and trustees, what are some of the major pitfalls you've seen them fall into when it comes to addiction management?”
Bill Messinger: “The first and biggest problem is with the treatment model most people use in dealing with addiction. They allow the alcoholic or addict to pick the treatment program and manage his or her recovery program. While the intention in doing so is kind-hearted, it is, unfortunately, often a recipe for failure and relapse. Also, when it comes to trusts, the language in trusts and other governance documents is usually ineffective in dealing with addiction, even when the trustee has broad discretionary authority. Finally, trustees and professionals advising families often lack training and understanding regarding addiction.”
FT: “It sounds like a basic problem is the lack of understanding of effective treatment. So what works?”
BM: “The key is to apply leverage to encourage treatment compliance. The basis for this approach is the highly successful treatment programs for pilots and physicians. I will tell you a short story. My interest in developing and using the concept of leverage for trusts and families dealing with addiction began when I saw this headline in the Hazelden Voice in 1998: ‘Airline Pilots Soar to Success in Recovery.’ It turned out that 92 percent of airline pilots in the Hazelden program were 100 percent abstinent for two years. I did some digging and I found out that doctors also had very high recovery rates—almost 80 percent over five years. It turned out that addiction is the only field of medicine where physicians are treated differently than the rest of the population! Since that time, it has become clear to me that replicating the pilot-physician model for inclusion in trusts and other governance documents is by far the most effective way to combat substance use disorders.”
FT: “Everyone has heard about high-profile cases of addiction in celebrities or high-profile families with wealth. Are the horror stories the norm? Can you say a bit about the context for addiction in families with wealth?”
BM: “Alcoholism, drug dependence, other addictions, and significant mental health disorders are statistically probable and will occur in affluent families at an estimated minimum rate of 20 percent—often much higher. These disorders will undermine the best family mission statements and succession plans and result in the loss of both financial wealth and family cohesion. Addicts and alcoholics are people with an illness. They need educated, active family members to help them find effective treatment and encourage them to engage in post-treatment recovery activities, just like relatives who are sick with other chronic, life-threatening diseases.”
FT: “Why do you stress the concept of ‘leverage’?”
BM: “Because without it usually nothing changes. When a doctor is addicted, the state medical board will use his or her license as leverage: comply with a treatment plan or you can't practice medicine! It is all well and good to discuss highly successful recovery programs, systems transformation, and clinically appropriate and respectful treatment to improve outcomes. But, first, a family must first overcome a basic problem: how do we get the addict to enter treatment and remain active in a post-treatment program? Without applying leverage, most addicts will continue to drink, use drugs, and continue other addictive behavior because their money and other resources buffer them from the consequences of their addiction. Unfortunately, I know people in these situations who stop only when they are institutionalized or dead.”
FT: “Does using leverage mean cutting someone off?”
BM: “It may mean cutting them off from all funds except for funds to be used for treatment and support, as directed by a licensed counselor. Leverage never means cutting someone off from support or from contact. As painful as it may be, it is important for a family to remain engaged with an addict.”
FT: “How would you recommend families approach the challenge of making their trusts secure in the face of addiction?”
BM: “First, I would say don't wait: it is not necessary to wait until someone is deeply addicted before taking action. In fact, it may be nearly impossible to help once an addiction has become deeply ingrained. Second, I do think it is important to include specific provisions regarding addiction in planning documents or to reform trusts in order to include such provisions. Third, families should use experts to evaluate members with a problem and make objective recommendations. Fourth, use requests for funds as an opportunity to learn about the problem, evaluate the beneficiary, and start to put in place a recommended plan. Fifth, be mindful of the court of family opinion as well as the court of law. Dealing with addiction or potential addiction is not a quick fix. It is not just a matter of hiring the right lawyer. It is a process that will eventually involve multiple family members and external experts. But if pursued as a process, it really can work.”
FT: “You emphasize the role of experts. Families are often hesitant to invite in outsiders, even experts, especially around something as sensitive as addiction. What would you say to them?”
BM: “First I would remind family members that addiction is a chronic disease, not a personal failure. It requires a medical perspective to treat it effectively. Also, treating addiction is not a matter of 28 days and you're done. My experience is that it is more likely a two- to five-year process of recovery. Most lawyers, trustees, and family members do not have the time or the skills to help a family member with addiction navigate that process. It usually doesn't happen without the support of a trained, respectful professional.”
FT: “What would a treatment approach based on the wise use of trusts look like?”
BM: “There are a couple of tracks to such an approach. First is the leverage track. On this track, it is important to have explicit leverage: expectations that are set out in governing documents such as trusts. That language may, for instance, require specific testing and treatment activities. [For examples of such language, see Appendix 2.] To get it into documents may require decanting or reforming those trusts. At the same time, non-explicit leverage is also important: I mean the sort of ‘soft’ leverage that can come from personal conversations, expressions of concern, and demands for change. The second track is recovery management. Here, the involvement of an expert case manager is crucial, to identify treatment options and set clear guideposts and expectations for the family and the member with the disease. This process requires clear communication among all the parties. It can also help to have a signed contract between the family members with the addiction and the rest of the family—just as doctors with addiction have to sign with their medical board. Such communication and clear delineation of expectations, as well as the involvement of an expert case manager, help take pressure off the trustees as well as other family members.”
FT: “Is there language that you recommend families use as ‘explicit leverage’? Is it enough to give trustees absolute discretion in making distributions?”
BM: “I don't think relying on absolute discretion is enough. The reality is that most trustees don't have the time or expertise to identify addiction problems in beneficiaries, so they may unwittingly go along with harmful requests. Also, just saying ‘no’ is really not sufficient, especially in the face of an insistent (and perhaps legally armed) beneficiary. That is why I recommend specific language to support that leverage. For example, give trustees the discretion to withhold distributions when beneficiaries exhibit addictive, compulsive, or destructive behaviors, mental health conditions, or any combination thereof. Give the trustee the power to withhold funds until the beneficiary is in treatment and to spend funds on treatment and licensed expert oversight of the process. Very importantly, the leverage language should also require the beneficiary to comply fully with treatment recommendations and to sign releases allowing the trustee to review treatment plans and speak with counseling staff. Finally, the documents should specify that the trustee (not the addict) has the power to select a reliable drug testing service and to withhold distributions if the beneficiary fails to comply with the recommended testing regimen.”
FT: “Are there any examples of specific language that you've found helpful in trusts?”
BM: “Yes, for example, here's a case where the grantor wanted to give the trustee the direction to withhold distributions specifically in the case of addiction:
Notwithstanding the foregoing, the trustee, in his/her sole discretion, shall withhold distributions of assets, income, or other withdrawals from any beneficiary who has an active drug and or alcohol dependency. Such assets, income, or withdrawals shall be retained and held by the trustee until such time as the trustee determines, in his or her sole discretion, that the beneficiary is in recovery from such drug and or alcohol dependency.
A second example description for the ‘trigger’ for withholding distributions is somewhat broader:
If at any time a Beneficiary eligible to receive net income or principal distributions, in the sole judgment of the Trustees, is deemed to be incapable of properly managing his or her financial affairs, or should the Trustees become reasonably concerned regarding the moral conduct or affairs of any Beneficiary hereunder to such a degree as to be concerned for such Beneficiary's health or welfare, or should any Beneficiary be convicted of a crime, or be the subject of a criminal investigation…
And here is a third case, in which the grantor expresses very general wishes for the beneficiaries' well-being:
It is my wish that my Independent Trustees consider (my child's) mental and physical condition and (my child's) best interests before making such distribution.
Readers can find much more extensive sample language for inclusion in trusts on my web site [and in Appendix 2 of this guide]. Naturally, the exact language will depend on the values of the grantor and the dynamics of the family. I would add that this language can be used not only in trusts but also in such shared entities as family limited partnerships or limited liability companies.”
FT: “What about once a family member has entered treatment or has graduated from a program? Are there specific provisions that are helpful to have in place then?”
BM: “Absolutely. Again, treatment and recovery are not a matter of a few weeks or even months. Generally, it takes a minimum of two years for the brain to stabilize and for a person with an addiction to learn new habits. The trustee should have the power to require testing during this period and to withhold funds—except for treatment—if the beneficiary does not comply. Also, the trustee should be careful to identify the start of ‘recovery’ as when the beneficiary truly returns to a normal living arrangement, not when he or she is in the protective environment of a halfway house or inpatient facility. Sometimes addicted beneficiaries will threaten their spouses with loss of funds if they report their addiction, so the trustee should have the power to get funds to an addicted beneficiary's spouse or children despite the addicted beneficiary's objections. Naturally, during the period that the trustee has suspended distributions, the beneficiary should lose any power to remove or replace the trustee or act as a trustee. Finally, the trustee and the experts the trustee hires should have no liability for the actions or welfare of the beneficiary; this provision should protect the trustee and others involved from any threats by the beneficiary.”
FT: “Bill, your perspective is so helpful. Do you have any final thought to share with our readers?”
BM: “Most simply, be persistent and proactive. I hope that I've encouraged trustees, family members, and their advisers to take a proactive approach in addressing substance use. Success is possible. In cases where addiction is not currently present in families my additional hope is that these thoughts will provide an impetus for families to adopt measures to effectively address dysfunctions in future generations. For far too long, beneficiaries have been suffering unnecessarily, some dying preventable deaths, to our sorrow.”