Top Banner

Using a Trust to Support Beneficiaries with Behavioral Problems

A combination of high stakes and amplified social pressure may be putting the next generation of wealthy families at increased risk. Children growing up in households in the highest income bracket face a higher risk of anxiety, eating disorders, drug abuse, depression, neuroses and self harming, according to researchers in the U.K.

Suniya Luthar, a foundation professor of psychology at Arizona State University, told The Telegraph that after years of studying this discrepancy in risk for privileged young people, she concluded that the root cause was “the pressure for high octane achievement.”

While children struggle with the pressure of living up to their parents’ successes and meeting the expectations of their peers, parents struggle with the emotional and financial toll of the consequent behavioral issues.

Parents creating an estate plan to support their children must consider the impact of a safety net on the beneficiary’s behavior after they have passed away. Access to funds could enable certain undesirable behaviors, or worsen their child’s condition.

A special-purpose trust could be an ideal solution in these situations, according to Karen Francois, chief personal trust officer at Evercore Trust Company. Speaking to the New York Times, Francois said parents can structure these special-purpose trusts to go beyond the federal safety net provided to individuals with behavioral problems. They can provide hope of a comfortable and regular life for a person with a long history of mental illness or drug abuse.

Special-purpose trusts are more complicated and expensive than special-needs trusts. Trustees are granted more power and the distributions can be varied depending on the beneficiary’s evolving situation.

There are several other structural options for parents considering special-purpose trusts, ranging from staggered distributions to special incentives, according to Minnesota-based law firm Lommen Abdo. They may also choose to disinherit the child in certain circumstances.

Right Banner 2Right Banner 1