Father looks out for son in rehab
Dear Len & Rosie,
I have a $100,000 life insurance policy. I also have a 24-year-old son from a previous marriage. He’s in drug rehab. Originally my son was the beneficiary of the policy, but since I found out about his drug use I thought it best to leave it to my wife. She has agreed to dole out money to my son as he needs it.
If my wife and I pass away tomorrow who will get my life insurance? Is there some document I can draw up that would allow my son to benefit from the insurance without being able to spend it all on drugs? Barry
Dear Barry,
If your wife dies first, your $100,000 insurance policy will pass to the alternate beneficiaries that you named on the insurance company beneficiary form. If you did not do so, the policy will pay to your probate estate, passing to whoever your will names as beneficiaries or your son if you don’t have a will.
If your wife survives you and gets the money, she’s under no legal obligation to spend it on your son’s behalf. But you know her better than we do. However, if she then dies, whatever is left of the money passes under the terms of her will, assuming she’s got one.
If you own a home, then the two of you are going to want to create a revocable trust. This trust can include a subtrust for your son, so that whatever he inherits will be held for his benefit by trustees you choose. Then, you could name the trust as the primary beneficiary of your life insurance, so that the money will be set aside for you son regardless of which spouse dies first.
A trust like this can be flexible. You can give the trustee discretion to make or withhold payments directly to your son, or spend money for his benefit, depending on your son’s condition. The trustee can be empowered to withhold payments if your son isn’t sober, and you can even require him to pass a
drug screening test before he receives a distribution. You can also allow the trustee to end the trust and give your son his inheritance outright, if he cleans up his life. If your son is on public benefits, your trust can give him his inheritance within a special needs trust that will
not cause him to lose his eligibility for Medi-Cal.
There are plenty of planning opportunities here beyond naming your wife as beneficiary and hoping for the best.
Len & Rosie