The Fiduciary Duty of Care in Addiction Cases

When substance use disorders intersect with fiduciary responsibility, what standard of care applies? The legal framework is evolving — and fiduciaries who ignore it do so at their peril.

The Core Tension

The fiduciary duty of care requires trustees and other fiduciaries to act with the skill, prudence, and diligence that a reasonably careful person would exercise in managing their own affairs. When a beneficiary has an active substance use disorder, this standard creates a fundamental tension: the fiduciary must balance the obligation to distribute trust assets for the beneficiary's benefit against the recognition that unrestricted access to funds may facilitate self-destructive behavior.

This tension is not academic. Trust litigation involving beneficiaries with substance use disorders has increased significantly over the past two decades, driven by the growth of addiction-related trust provisions, the expansion of fiduciary liability theories, and the increasing willingness of courts to scrutinize fiduciary decision-making in behavioral health contexts. The American Bar Association's Section of Real Property, Trust and Estate Law has identified this intersection as a growing area of practice concern (ABA, "Addressing Fiduciary and Beneficiary Mental Health and Addiction Issues in Estate Planning," 2025).

The Legal Framework

The Uniform Trust Code (UTC), adopted in whole or part by the majority of U.S. states, provides the foundational framework for fiduciary duties. Section 804 of the UTC imposes a duty to administer the trust "as a prudent person would, by considering the purposes, terms, distributional requirements, and other circumstances of the trust." Section 814 addresses the trustee's discretionary powers, including the authority to make or withhold distributions.

The Restatement (Third) of Trusts provides additional guidance, noting that a trustee with discretionary distribution authority should consider "the beneficiary's other resources" and "the beneficiary's reasonable needs" — language that courts have interpreted to encompass the impact of distributions on a beneficiary's health, including behavioral health.

Key Legal Principle: A trustee who distributes funds to a beneficiary with knowledge that those funds will likely be used to purchase drugs or alcohol may face liability for breach of fiduciary duty. Conversely, a trustee who withholds distributions from a beneficiary in recovery without adequate justification may also face liability for abuse of discretion. The fiduciary must navigate between these poles with documented, informed judgment. For a detailed analysis of privacy law frameworks governing substance use disorder records, including 42 CFR Part 2 and HIPAA, fiduciaries should consult specialized legal resources.

The Prudent Fiduciary Standard

The "prudent fiduciary" standard in addiction cases requires more than passive observation. Courts have increasingly held that fiduciaries must take affirmative steps to inform themselves about the beneficiary's condition, the treatment options available, and the likely impact of distribution decisions on the beneficiary's health and recovery.

In practice, this means the fiduciary should maintain current knowledge of the beneficiary's behavioral health status through appropriate channels (respecting confidentiality limitations), consult with qualified behavioral health professionals when making distribution decisions that may be affected by the beneficiary's condition, document the reasoning behind distribution decisions with reference to the beneficiary's clinical status and needs, and establish relationships with care management professionals who can provide independent assessment.

The National Association of Estate Planners and Councils (NAEPC) has published guidance on drafting trusts for beneficiaries with addiction issues that emphasizes the importance of clinical consultation as part of the fiduciary's decision-making process (NAEPC, "Drafting Trusts for Beneficiaries with Addiction Issues," 2020). This guidance reflects the growing expectation that fiduciaries will engage clinical expertise rather than relying solely on their own judgment in behavioral health matters.

Distribution Decision-Making

The practical challenge for fiduciaries is determining when and how to make distributions to beneficiaries with substance use disorders. Several frameworks have emerged in practice.

Direct Payment of Expenses

Rather than distributing cash to the beneficiary, the trustee pays treatment providers, housing costs, educational expenses, and other legitimate needs directly. This approach reduces the risk that trust funds will be diverted to substance acquisition while still fulfilling the trustee's obligation to provide for the beneficiary's support and welfare.

Conditional Distributions

Distributions are conditioned on the beneficiary's compliance with treatment recommendations, sobriety monitoring, or other behavioral health benchmarks. This approach requires careful drafting to avoid conditions that are clinically inappropriate (e.g., requiring permanent abstinence as a condition for any distribution) or constitutionally problematic (e.g., conditions that effectively coerce medical treatment).

Third-Party Oversight

A care manager, clinical consultant, or independent fiduciary is appointed to oversee the beneficiary's care and advise the trustee on distribution decisions. This approach provides clinical expertise that most trustees lack while creating an independent check on distribution decisions. Firms such as O'Connor Professional Group and similar care management organizations serve this advisory function for family offices and trustees.

Confidentiality Considerations

The federal confidentiality regulation 42 CFR Part 2 imposes significant restrictions on the disclosure of substance use disorder treatment records. Fiduciaries seeking information about a beneficiary's treatment status may find that treatment providers are prohibited from disclosing information — even to confirm or deny the beneficiary's presence in treatment — absent a valid consent form or court order.

The 2024 amendments to Part 2 aligned some provisions more closely with HIPAA but preserved the core consent requirement for SUD treatment records. Fiduciaries should work with counsel to establish appropriate consent mechanisms at the outset of the fiduciary relationship, rather than attempting to obtain information in the midst of a crisis when the beneficiary may be unwilling or unable to provide consent.

Liability Exposure

Fiduciary liability in addiction cases typically arises from two scenarios: distributions that enable harmful behavior, and withholding of distributions that denies necessary support.

In the first scenario, a trustee who distributes unrestricted cash to a beneficiary with a known active substance use disorder — and who has reason to believe the funds will be used for substance acquisition — may be liable for breach of the duty of care. The beneficiary, a co-trustee, or a remainder beneficiary may bring a claim alleging that the distribution was imprudent.

In the second scenario, a trustee who withholds all distributions from a beneficiary based on a substance use disorder — particularly a beneficiary who is in recovery or seeking treatment — may face claims of abuse of discretion. Courts have recognized that substance use disorders are medical conditions, not moral failings, and that punitive withholding of trust benefits is inconsistent with the fiduciary's obligation to act in the beneficiary's interest.

The most defensible position for fiduciaries lies in the middle: informed, documented decision-making that reflects consultation with appropriate clinical and legal professionals, consideration of the beneficiary's current clinical status, and a distribution approach that supports the beneficiary's health and recovery while protecting against the misuse of trust assets.

Practical Recommendations

Fiduciaries administering trusts with beneficiaries who have substance use disorders should establish a relationship with a behavioral health consultant or care management firm that can provide ongoing clinical assessment and guidance. They should document all distribution decisions with reference to the clinical information available at the time of the decision. They should review and update trust administration practices regularly as the beneficiary's condition evolves. They should consult with legal counsel regarding the interaction of trust terms, state trust law, and federal confidentiality regulations. And they should consider whether the trust instrument should be modified (through decanting, non-judicial settlement agreement, or judicial modification) to provide more appropriate tools for managing distributions in the context of a beneficiary's behavioral health condition.