Drafting Trusts for Beneficiaries with Mental Health Challenges
The trust instrument is the foundational document that governs how wealth interfaces with a beneficiary's behavioral health. Thoughtful drafting can provide protection without paternalism — but poorly conceived provisions can do more harm than good.
The Spectrum of Trust Design
Trust instruments addressing beneficiary behavioral health conditions fall along a spectrum from fully discretionary trusts (giving the trustee broad authority to make or withhold distributions based on the beneficiary's circumstances) to incentive trusts (conditioning distributions on specific beneficiary behaviors) to supplemental needs trusts (designed to preserve public benefits eligibility while providing supplementary support). Each approach has distinct advantages and limitations in the behavioral health context.
The National Association of Estate Planners and Councils (NAEPC) has identified trust design for beneficiaries with addiction as a rapidly evolving area of practice, with increasing sophistication in both the drafting tools available and the clinical understanding that informs their use (NAEPC, "Drafting Trusts for Beneficiaries with Addiction Issues," 2020).
Discretionary Trusts
The fully discretionary trust — in which the trustee has absolute discretion over whether and when to make distributions — provides maximum flexibility for responding to a beneficiary's evolving behavioral health condition. The trustee can increase distributions during periods of stability to reward progress and support independent living, reduce or restructure distributions during periods of active substance use to minimize the risk of enabling, fund treatment directly when the beneficiary is willing to engage, and adapt the administration approach as the beneficiary's condition changes over time.
The primary limitation of the discretionary trust is that its effectiveness depends entirely on the trustee's judgment and willingness to exercise discretion actively. A passive trustee — one who simply distributes on request without evaluating the beneficiary's clinical status — provides no more protection than an outright bequest. The selection of a trustee with the capacity and willingness to exercise informed discretion is therefore as important as the drafting of the trust instrument itself.
Incentive Trust Provisions
Incentive trusts condition distributions on the beneficiary meeting specified behavioral criteria. In the addiction context, common incentive provisions include requiring sobriety as a condition for distributions (often verified through drug testing), conditioning distributions on treatment compliance, requiring regular engagement with recovery support services, and tying distribution levels to functional milestones (employment, education, independent living).
Incentive provisions carry significant risks if drafted without clinical sophistication. Requirements for "complete sobriety" may discourage beneficiaries from seeking treatment (for fear that a relapse will result in loss of trust benefits), incentivize concealment of substance use rather than disclosure, fail to accommodate medication-assisted treatment (methadone, buprenorphine, naltrexone) which is evidence-based treatment for opioid use disorders, and create adversarial dynamics between the beneficiary and trustee that undermine the therapeutic alliance needed for recovery.
The Clinical Advisor Provision
An increasingly common trust design element is the appointment of a clinical advisor or behavioral health consultant who advises the trustee on distribution decisions. The clinical advisor is typically a behavioral health professional (psychiatrist, psychologist, or licensed clinical social worker) or a care management firm with behavioral health expertise. The trust instrument specifies the clinical advisor's role, the weight the trustee should give to the advisor's recommendations, and the process for selecting and replacing the clinical advisor.
This provision addresses one of the fundamental limitations of trust administration in behavioral health contexts: trustees are financial professionals, not clinicians, and they lack the expertise to evaluate a beneficiary's clinical status, assess treatment quality, or determine the appropriate relationship between distribution decisions and clinical care. The clinical advisor bridges this gap, providing the trustee with informed clinical guidance that supports prudent administration.
Spendthrift Provisions
Spendthrift provisions — which prevent the beneficiary from assigning their interest in the trust and protect trust assets from the beneficiary's creditors — take on particular significance when the beneficiary has a substance use disorder. A beneficiary in active addiction may attempt to borrow against their trust interest, assign future distributions to drug suppliers, or incur debts that creditors seek to satisfy from trust assets. A properly drafted spendthrift provision prevents these scenarios and preserves the trust assets for the beneficiary's legitimate support.
The enforceability of spendthrift provisions varies by state. Most states enforce spendthrift provisions broadly, but some create exceptions for specific categories of creditors (tax authorities, child support obligations, and in some states, providers of "necessities"). The trust attorney should evaluate the spendthrift provisions under the law of the state governing the trust and consider whether additional protective measures (such as a domestic asset protection trust structure) are warranted.
Trust Protector Provisions
A trust protector — an independent party with authority to modify trust terms, change trustees, or adjust distribution provisions — provides a mechanism for adapting the trust to changing circumstances without judicial intervention. In the behavioral health context, the trust protector can modify incentive provisions that prove clinically counterproductive, replace a trustee who is not effectively managing the behavioral health dimension of administration, adjust distribution standards as the beneficiary's condition evolves, and add or remove clinical advisor provisions as needed.
Coordination with Other Planning Documents
Trust design for beneficiaries with behavioral health conditions should be coordinated with other estate planning documents, including powers of attorney (both financial and healthcare), advance healthcare directives, HIPAA authorization forms (to permit the trustee and clinical advisor to access the beneficiary's health information), and any existing guardianship or conservatorship arrangements.
The HIPAA authorization is particularly important in the behavioral health context. Without a valid authorization, the trustee may be unable to obtain the clinical information needed to make informed distribution decisions. The authorization should be drafted broadly enough to permit access to relevant health information while respecting the beneficiary's privacy to the extent consistent with prudent trust administration.
Drafting Principles
Based on current practice and the available literature, several drafting principles emerge for trusts addressing beneficiary behavioral health conditions. Favor discretion over rigidity: broad discretionary authority, exercised by a well-informed trustee with clinical advisory support, produces better outcomes than rigid incentive structures. Build in clinical consultation: require or authorize the trustee to consult with behavioral health professionals before making distribution decisions that implicate the beneficiary's condition. Accommodate treatment realities: trust provisions should reflect the chronic, relapsing nature of substance use disorders rather than assuming a linear recovery trajectory. Protect dignity: provisions should be framed in terms of support and protection, not punishment and control. Plan for evolution: include mechanisms (trust protectors, modification provisions) that allow the trust to adapt as the beneficiary's condition and the clinical landscape evolve over time.