Elderlaw Advocates June 1, 2018
Dear Len & Rosie,
My sister is a drug addict. She is irresponsible and is a general neíer-do-well. I recently found out that all of her assets are actually in my motherís name, including her car and home. Will my mother be held responsible if and when my sister does something stupid or destructive? I am worried that sheíll cause a car accident or get caught dealing drugs.
Your mother isnít responsible for what your sister does, but that doesnít mean sheís entirely in the clear. If your mother holds title to your sisterís car, your mother is likely to get sued if your sister causes a serious automobile accident. The owners of the at-fault vehicle are almost always defendants in personal injury auto accident lawsuits. If your mother is worried about this she ought to get her name off of the title to the car, or make sure her daughter has enough insurance.
As for your sisterís home, your mother should be safe. But if your sister is actually dealing drugs, then her home is potentially subject to civil asset forfeiture if it was purchased by your sister with ill-gotten gains. Under asset forfeiture, law enforcement agencies may seize assets that are likely to have been purchased with money from the drug trade. Itís possible for your mother and your sister to win an asset forfeiture case, but they have to be able to prove that the money used to acquire the property was obtained legally.
What your mother really ought to do is pump up her estate plan. Itís obvious that your mother is holding your sisterís assets in her own name because your sister canít be trusted not to do something foolish. This situation isnít going to change when your mother dies and your sister gets her inheritance. Your sister will not suddenly become an upstanding member of the community upon her motherís death.
Your mother ought to create a dynasty trust for your sister that will hold not only your sisterís inheritance, but also whatever of your sisterís assets your mother has been holding onto. You, or another trusted relative, can be the trustee to protect your sister from herself. The trust will contain a spendthrift clause that will provide protection to your sisterís inheritance from creditors, spouses and federal estate tax upon your sisterís death.
You may benefit from a dynasty trust in the same manner. One advantage of dynasty trusts is that they are flexible. They may be tailored to the specific needs of each child. While your sister shouldnít be in charge of her dynasty trust, you could be the trustee of yours. Your mother may also direct what happens to the dynasty trust upon your sisterís death to keep the family wealth within your family. Or your sister could be given a power of appointment over her dynasty trust, which would allow her to select new beneficiaries to inherit the trust upon her death. Itís your motherís choice. She should consult with a trusts and estates attorney and decide how much protection she wants to provide upon her death to her daughter.
Len & Rosie