Parents can create a special-purpose trust, which can provide care for the child and peace of mind for the parent.
It was the summer between her sophomore and junior year at the University of Wisconsin-Madison when Patti Sacher’s daughter Keisha had a breakdown. She had taken LSD at a Grateful Dead concert one weekend in 1989. When Sacher called to check on her that Monday, Keisha wasn’t making sense.
“She was hearing voices after the weekend, and her thoughts were disjointed,” Sacher said of her daughter, who was 19. “We couldn’t understand what she was talking about.”
Keisha became more involved with drugs during the fall. By January, her parents were receiving alarming phone calls from her friends. Keisha ended up in the hospital that winter, but wouldn’t come home. She was an adult, and her parents had no legal power over her. After a year, she acquiesced and returned to Great Neck, N.Y., outside New York City.
“The following 15 years were really a nightmare of homelessness, drug use, heroin, running away from residential treatment and eight forced hospitalizations,” Sacher said of her daughter’s life. “She was raped and beaten on the streets of the Lower East Side when she was homeless.”
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While trying to keep her safe and get her care, her parents struggled with the financial aspects of her illness. But their concerns went beyond what insurance would cover into how they would pay for what insurance did not, including Keisha’s food and apartment, and the cat that gave her something else to focus on.
As time went on, Sacher, now 69, and her husband worried about who would care for their daughter, now 44, after they died. Finding someone to replace them would be tough, but also how would they pay for her care?
There are many painful, emotional issues surrounding crises like mental illness and addiction that affect children. But there are concrete financial steps parents can take that won’t worsen their child’s condition, enable their child’s addiction or, in the case of mental illness, run afoul of asset restrictions in order to qualify for government benefits.
One starting point is a special-purpose trust.
Karen Francois, chief personal trust officer at Evercore Trust, says these are different from special-needs trusts, which are often used to pay for the extra things needed by those receiving government benefits. Special-purpose trusts can be used to provide children a semblance of the life they might have enjoyed without mental illness or addiction.
“You might be working with a situation where, with an addictive individual, you could have some good years and some bad years,” Francois said. “You want that latitude to make changes with the distributions.”
People can also use these trusts to shield siblings from feeling bound to care for a troubled sister or brother. Most of the trusts Francois’ firm works with, she said, are worth more than $5 million. Below that, the costs to administer them are too high for the firm.
Beyond the large sum of money needed to establish a professionally managed trust, which excludes many families, special-purpose trusts are more complicated to establish than regular trusts because of the powers they give to trustees and the restrictions they place on distributions.
But advisers say the hardest part can be getting parents to accept them as necessary. Doing that means parents have to acknowledge that their children are never going to fully recover.
“It requires the parents and often the grandparents to recognize there’s an issue out there,” said Robert M. Freedman, a partner at the law firm Schiff Hardin who has worked on many such trusts. “The recognition of the issue is a lot tougher with this group than with someone who is developmentally disabled, like with autism. You see it at birth and plan accordingly.”
He said most people come to him after their children have dropped out of school in their late teens or 20s. He attributes the hesitancy to the stigma around some mental illness like schizophrenia, and around addiction to drugs like heroin.
“It’s easier to say my son isn’t graduating from medical school, he’s just coming home for a while,” he said.
But if parents do that, Freedman said, the estate plan they put in place for all their children could harm the troubled child who would then have the same access to funds as the other siblings.
Parents who get past the stigma need to work with their lawyers and estate planners on some technical and structural problems to ensure these trusts work properly.
One problem is trying to picture the child’s future. With children who have schizophrenia or drug addiction, it’s very difficult to make a prediction. Periods of lucidity can end suddenly with a breakdown.
“They need to ensure there is flexibility in any plan,” said Jeffrey C. Wolken, head of wealth and financial planning at Wilmington Trust. “You don’t necessarily know what you’ll need in the future based on today.”
He advises clients to have distribution advisers for their trusts. While corporate trustees or relatives can oversee the general administration, a distribution adviser like a social worker can assess the child’s general well-being.
“The key to making this all work is proximity to the person,” Wolken said. “That’s tough for a corporate trustee. Even if you’re close, you don’t have enough time to spend with that person to make a perfect judgment.”
Lori I. Wolf, a partner at the law firm Cole Schotz, says she encourages clients to write very specific criteria for distributions into trust documents — like staying on medication or being sober for a certain amount of time. If those markers are met, the child could become a co-trustee of the trust, she said.
Still, she discourages parents from including a clause that says: After so many years, the money passes directly to the child with problems, the way it might to siblings.
“People say if they have three or five or seven years clean, why don’t we end the trust. I say because they can have a relapse,” Wolf said.
In fact, she advises all clients, particularly ones with a family history of mental illness and addiction issues, to get a power of attorney and health-care proxy for children over 18 away at college. That way if something happens, the parents will have access to medical records and will be able step in to help.
For the longer term, if the original trustees are no longer involved, Freedman says he encourages people to write a nonbinding letter of intent with the purposes of telling future administrators about the child’s history and setting general guidelines.
Still, even the best planning “can go really badly, but it’s not necessarily your mistake,” he said. “Mental illness is there for life. If you stay on your medication, it’s better. But there are times when the medication doesn’t work and people have acute illness.”
He added, “Addiction can be powerful. No matter what you do to try to help the person, you can’t buy illegal drugs legally. If you’re doing drugs, you’re running risks of criminal stuff.”
Sacher says parents will struggle to come to terms with the severity and permanence of their child’s suffering, as she once did. But accepting the situation and acting to make it adequate as quickly as possible is the best outcome.
“Each person has to come to the acceptance at their own rate on their own time,” she said.
“There are things that you cannot change, that you cannot help. We cannot solve all the problems. But we don’t give up hope that she can have a better life than she has.”