Journal of Financial Planning: April 2015
It begins innocently enough. A call comes in requesting a distribution. Initially infrequent and modest. Then, the storytelling begins. Messages are left after-hours. Promises of “this is the last time” ensue. Of course, it’s not the last time. You, with a natural sense of empathy, want to help.
It’s a bold subject, addiction. One without real answers and with a stigma akin that of mental health. It’s unmentionable—with white elephants crowding the room. Addiction has become the new taboo. Many of us are increasingly finding that our clients and their loved ones are struggling with this unhealthy, expensive, and often life-threatening disease. Their behavior effects everyone by inadvertently drawing in family, friends, and business associates.
Naturally, it is the responsibility of the clinician and/or therapist to diagnose and treat such problems. However, financial planners and wealth managers play an increasingly important part in assisting families on issues of family governance, asset transfers, and philanthropy. Planners are in a natural position to make a difference in the lives of their clients, their co-workers, their communities, and even themselves. It is your knowledgeable and effective advice that is crucial to support the goals of healthy family interaction and wealth preservation.
So what do we do as planners when our clients are living with addiction? What are the warning signs? How deep do we dive? What is our responsibility? How can we help?
In my opinion, turning a blind eye by encouraging “tough love” is not a viable solution. The best advice you can give is: don’t deny addiction, don’t enable it, and don’t wait.
The Facts
According to the 2014 Behavioral Health Barometer, a report by the Substance Abuse and Mental Health Services Administration (SAMHSA), in 2013, 6.6 percent of Americans 12 or older (about 17.3 million people) were dependent on or abused alcohol, and 2.6 percent (about 6.9 million people) were dependent on or abused illicit drugs. This dependence or abuse is more common among males than females, according to the SAMHSA report.
There are several reasons why a financial planner should become involved in the referral processes for the diagnosis and treatment of an addict. As Carol P. Waldhauser wrote in a 2001 American Bar Association newsletter: “… substance abuse and addiction [are] a national public health problem that affects millions of people and imposes enormous financial and social burdens on society. It destroys families, harms both individuals and communities, and chokes the criminal justice system. Further, it is a disease that can affect anyone, regardless of age, cultural background, or profession.”1
The Signs
As planners and advisers, we need to be acutely aware of the signs of addiction and provide guidance when the issue arises. Familiarizing yourself with some of the caregivers’ and addicts’ behaviors could help you assist before it is too late:
- Erratic and unusual withdrawals from portfolio accounts
- Client always needing to tell a (sometimes irrational) story to validate withdrawals
- Client asking to keep it a secret from other family members (“Just between you and me…”)
- An abrupt change in the family structure, including separation or divorce
- Long periods of time between communication with the client
- Client avoiding communication other than in writing
How Can You Help?
Once you identify a client or client’s family member as having an addiction, there are several ways you, as a planner, can help, including:
- Become knowledgeable in treatment options and health care policy provisions
- Establish lines of communication with other advisers (employee benefits department, insurance adviser, legal counsel, and therapists)
- Encourage the involvement of family and friends
- Review measures of asset protection with clients who have addicts as family members (setting up wills that spring into trusts, reviewing outright inheritances such as IRA designations, etc.)
If a client is dealing with a family member with addiction, that client may deny the severity of the loved one’s problem, not because they are naïve, but because they simply don’t know what they don’t know. The addict’s denial transcends into the family. Why? Because the truth may be too disturbing. The client becomes addicted to their loved one’s addiction. How can they not be consumed by a life-or-death struggle?
The ultra-wealthy are seemingly more susceptible to the disease because of their access to money and possessions. This devastating cycle can have a negative effect that lasts for generations. Their legitimate resources will carry them far, but those less fortunate will deplete whatever resources they have, or do worse, to procure their drug budget. Should the addiction have escalated to the point where the money has already run out, you may be faced with the unfortunate situation of having to disengage from the relationship; however, you are still in a position to act as a resource and provide guidance.
Understand their Rights
Assume for the moment the addict is still employed. Non-discrimination laws protect individuals with a disability, and many courts have found that individuals experiencing or are recovering from addiction have a “disability” protected by federal law.2 However, non-discrimination law under the Americans with Disabilities Act and the Rehabilitation Act protects only applicants and employees qualified for the job who currently are not engaging in the illegal use of drugs.3
The pamphlet “Know Your Rights” from the SAMHSA provides a lot of helpful information, including: the Family and Medical Leave Act (FMLA) gives many employees the right to take up to 12 weeks of unpaid leave in a 12-month period when needed to receive treatment for a serious health condition, which, under FMLA, may include substance abuse. The leave must be for treatment and cannot be an absence because of the employee’s substance use.4
Insurance Options
Short-term disability (STD) and long-term disability (LTD) insurance should also be considered. Generally, the addict will not qualify for payments from the LTD plan for any disabilities related to drug or alcohol use unless he or she is engaged in, and subsequently completes, a recognized rehabilitation program intended specifically for the treatment of substance abuse. This treatment generally must begin during the six-month period of STD benefits.
What if the addict has lost his or her job? One of the most common barriers for gaining access to appropriate medical detox and/or substance abuse/dual diagnosis treatment is inadequate insurance coverage or no insurance at all. However, the Affordable Care Act (ACA) put into place a comprehensive health insurance reform that makes health insurance available to more people. The cost of a private commercial insurance policy for medical detox and residential treatment is a fraction of what it would cost to pay privately (which at 30 days or more can run from $15,000 to $40,000 per month).
According to information from CRC Health Group, a behavioral health care service provider, the ACA includes substance use disorders as one of the 10 elements of essential health benefits. This means that all health insurance sold on health insurance exchanges, or provided by Medicaid to certain newly eligible adults starting in 2014, must include services for substance use disorders.5
What you should look for in the policy:
- Out-of-network benefits
- Multiple levels of care
- Low deductibles
- No or low admit copay
- No additional stipulations for facility admission
Asset Protection and Wealth Transfer Strategies
It is difficult enough for the client to deal with these problems while the addict is alive and actively involved in decision-making, much less decide what to do should the addict die.
In the event the addict is a potential beneficiary, special needs trusts are most common. In cases where a drug or alcohol problem affects the beneficiary’s ability to manage his or her own property, a trustee is appointed to distribute the trust assets until the beneficiary is free from this problem. These trusts can provide money for rehab and rent/housing costs, as well as stipulate periodic drug testing.
Incentive provisions may also be included in a special needs trust to encourage a beneficiary to overcome an alcohol or drug abuse problem, to learn to be more responsible in handling his or her financial affairs, or any other incentive the grantor feels will help the beneficiary become more responsible. With these types of trusts, distributions are often conditional and would only be made when the beneficiary meets certain conditions.
Aside from real estate, an individual retirement account (IRA) typically holds the greatest monetary value distributed from inheritances. To avoid the depletion of an inherited IRA by an addict, a trust account commonly called a “trusteed IRA” or “individual retirement trust” can be established. Although required minimum distributions (RMDs) to the beneficiary cannot be stopped, with a trusteed IRA, additional payments can be restricted. So you can direct the trustee to pay only RMDs to your beneficiary, or you can provide the trustee with discretionary authority to make payments to your beneficiary in addition to RMDs (for your beneficiary’s health, welfare, or education). Or, you can impose restrictions on distributions that last only until your beneficiary, let’s say in this case, reaches 10 years of sobriety.
With known disabilities, these decisions are almost always easier to accomplish. With an addict, the responsibility will likely last for years. Appointing a trustee accountable to dole out inherited assets based on the conditions of an addict is tricky. Although the trust document provides guidance about spending decisions, it’s the trustee who will have to actually say yes or no to the requests. It’s a lot to ask of a friend or relative. Some attorneys are gravitating toward a committee system. Instead of a trust appointing one trustee or co-trustees, they designate a committee of people (preferably within the range of three to five people). The trust can then provide for an election of the most appropriate person to serve the position at the time the appointment is necessary.
These are but a few examples of asset protection, yet they illustrate the complex decisions that have to be considered. Because of this complexity, it is important that planners work in concert with an estate planning professional who can explain all options to make sure the right choice is made for any given circumstance.
As with all of the recommendations we provide our clients, it is never presumed that we are to “fight the fight” for them. By simply facilitating these difficult issues, planners will find that their clients will come closer to achieving their goals once they acknowledge the addiction in the family, and bravely, intentionally move together toward recovery in the protective provisions outlined in governing their estate and trust documents.
There is never a clear road map for the addicted or families of the addicted, but hopefully the information provided here can bring planners some guidance and clients some solace. Planners should know they are not working alone. Furthermore, they may be able to promote prevention of addiction in their own firms, communities, families, and themselves.
Catherine M. Seeber, CFP®, is a principal and senior financial adviser at Wescott Financial Advisory Group with offices in Philadelphia, Pennsylvania, Boca Raton and Miami, Florida, and San Francisco, California. She serves on the Board of Directors for FPA.
Endnotes
- See “Identifying Addiction” by Carol P. Waldhauser in the July/August 2001 edition of the American Bar Association’s GPSolo Magazine (Volume 18, Number 5), www.americanbar.org/publications/gp_solo.
- See “Laws and Services for the Recovering Addict and Their Families,” retrieved from nichjr01.wikispaces.com.
- See “Federal Laws Prohibiting Job Discrimination Questions and Answers” at www.eeoc.gov/facts/qanda.html.
- Access the complete pamphlet at https://store.samhsa.gov/shin/content/PHD1091/PHD1091.pdf.
- See www.crchealth.com/affordable-care-act-addiction-treatment-has-obamacare-lived-up-to-expectations.