Yes, it would mean stepping up and funding things currently funded with proceeds from seizures, but it would remove significant incentive to overreach.
With a fiat currency, it's not actually destroying anything. I'd rather no one feel it as part of their bottom line, or there will be pressure. Certainly, moving it far from law enforcement would be an improvement, but I think destruction is better.
Putting that person further away from the police probably improves things, as I said, but better that we just build such hospitals and fund such social programs as we actually need, and not rely on people doing bad things (either the people whose stuff is being confiscated, or the police confiscating property of innocents) to make it happen.
Note again that at this scale cash isn't really a resource - it's a claim on resources. Destroying it doesn't destroy those resources, it releases the claim which winds up sort of distributed over other dollars.
However, in the case of SR they actually may have a pretty good case that those are money intended to buy drugs, etc. - it's not like SR ever hidden what they're selling and the buyers hid what they are buying, and looks like the law enforcement has these records. So since under the current law drug trade is a crime, and they would have absolutely no trouble proving the money is actually the drug money, in this case it is hard to classify this as abuse, at least without venturing into the whole topic of drug legalization and so on, which is beyond the point.