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Complete Guide: Estate Planning with Mental Illness

To recognize Mental Health Awareness Month, we consulted the experts & put together a guide on estate planning for those with mental illness.

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Patrick Hicks, @PatrickHicks

Head of Legal, Trust & Will

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In honor of Mental Health Awareness Month, it’s time to bring awareness to a topic that deserves attention: estate planning for individuals with mental illness. 

According to the National Alliance on Mental Illness (NAMI), 1 in 5 adults experience mental illness, and 1 in 20 adults experience a serious mental illness. This means that many families in the U.S. should be discussing the intersection between estate planning and mental illness. Yet, it’s a topic that’s rarely addressed. 

From the perspective of estate planning, individuals with mental illness face potential roadblocks that should be considered. Luckily, there are some creative solutions to these possible issues. An important thing to keep in mind is that each individual deserves a tailored solution, so they can have as much discretion and autonomy as possible.

In this guide, we’ll dismantle how to plan your estate if you or a loved one has a mental illness.

Estate Planning Considerations for Individuals with Mental Illness

The reality for some individuals with mental illness is that there may be some limitations when planning an estate. Here are a few examples:

  • Their capacity to serve as a fiduciary

  • Their ability to manage assets

  • Potential disqualification from receiving government benefits

To be clear, not all of these limitations will apply to individuals with mental illness. However, it’s important to be aware of potential roadblocks, and to know when it’s necessary to find a different solution. In the next few sections, we’ll explain the implications of each of these considerations.

Capacity to Serve as a Fiduciary

When planning their estate, it’s common for individuals to name a loved one to an important role in their Trust or Will. For example, they might name their spouse or child to act as the fiduciary of a family trust. An executor, power of attorney, or health care agent are just a few examples.

However, it may be difficult for an individual with a mental illness to carry out one of these roles. 

Some mental illnesses can be all-encompassing. If a loved one has been diagnosed with schizophrenia, bipolar disorder, or other mental illness, there may be times when decision-making feels difficult. Other mental illnesses are not as severe and won’t have as much of an impact. This is a highly personal decision to be discussed as a family. It’s certainly an important consideration when appointing anyone to a key role that provides legal and financial responsibilities.

Ability To Manage Assets

A second consideration is an individual’s ability to manage their own assets. When someone is battling a mental illness, it may lead them to make decisions that aren’t well-aligned. This is not to say that this happens all the time. However, depending on the illness, an individual may experience manic episodes that cause them to overspend. Or, for instance, they might fall prey to predatory schemes. 

Government Benefits and Potential Disqualification

If you or your loved one is receiving government benefits such as Social Security Disability, Supplemental Security Income, or Medicaid, then you’ll want to be very careful to avoid any disqualification triggered by an estate plan. These benefit programs typically limit individuals from receiving benefits if they go over a set income level. For example, Medi-Cal and Supplemental Security Income (SSI) only allow a beneficiary to have up to $2,000 in countable assets. Bestowing part or all of an estate plan on an individual receiving government benefits could get them disqualified. Luckily, there’s a workaround called a discretionary trust.

Why Set Up A Discretionary Trust

A discretionary or special needs Trust is a great solution for individuals who are receiving financial support from the government. That’s because a beneficiary of a trust doesn't have direct access to the Trust. Because of this, the Trust isn’t considered the beneficiary’s asset when determining government benefit eligibility.

The Trust would appoint a trustee who is responsible for distributing assets to the beneficiary, while complying with any provisions. One of the provisions could prevent the trustee from making distributions that would jeopardize the beneficiary’s eligibility for any benefits.

Choosing A Trustee For Your Discretionary Trust

In any case, choosing a trustworthy trustee is absolutely critical. The party setting up the trust will often choose a family member whom they trust to carry out responsibilities. 

You could also consider appointing a professional trustee who is experienced in working with individuals who have a mental illness. A specialist might be well-versed in what purposes the funds can be dispersed for, and in what amounts,  to prevent jeopardizing the beneficiary's ability to continue receiving government funds. If you’re worried about protecting your trust, there are ways you can prevent trustee embezzlement

Estate Planning For Mental Illness FAQ: Tips From The Experts 

Because estate planning for people with mental illness or are struggling with mental health concerns can come with so many considerations, we decided to turn to the experts. 

We consulted with our very own head of legal, Patrick Hicks as well as Dr. Brian Wind, Chief Clinical Officer at JourneyPure. 

Below you’ll find their answers to frequently asked questions on the topic.

H3 - Are there any special considerations for people with mental health concerns who want to start estate planning?

“Concerns about mental health drastically increase the importance of having documents that can take effect during lifetime. Most estate planning documents require the person signing to have a minimum degree of legal competence. If you have concerns about mental health conditions, it is always better to take action sooner than later to ensure you have documents in place before you lack the minimum competence. Note that the level of competence can vary. Generally, a Will requires a lower level of competence than a Trust or more complicated estate plan.

Also noteworthy — allegations that documents were signed without legal competence is a common cause of challenges to the validity of estate planning documents.  So be sure to have a discussion with others about your plans and your reasoning to demonstrate that you understand and intend the effects of your plan.

It’s also incredibly important to ensure you have your healthcare documents in place — a Power of Attorney and Health Care Directive. These will enable someone else to make decisions for you if you are still living but unable to make your own decisions. 

Some individuals consider having a living trust rather than just a Will as a living trust can provide for a seamless transition of authority should a successor trustee need to take over to manage your affairs. A Will only comes into effect at death and has no impact in the event of any incapacity during lifetime.

Lastly, if you have young children, consider looking at options to have a Standby Guardian in place — someone who can take over responsibility for your children should something happen to you while you are still alive — either permanently or temporarily.

  • Patrick Hicks, Head of Legal, Trust & Will

What about someone who wants to name a person with mental health concerns as the executor of their Will or Trust?

“Most states have eligibility requirements to serve as executor or trustee of someone’s estate. Mental capacity and competence may be a concern. You may want to think about appointing co-executors or co-trustees and be sure to appoint several backups in the event the individual you named is not able to serve.

Beyond the legal ability to serve, consider the practical complications. Serving as executor or trustee can be stressful and require a significant degree of administrative and financial recordkeeping. These tasks can be hard on anyone in the role. Would mental health concerns make your nominee less able to fill those duties? Would the added stress of their duties be concerning for their mental health needs?”

  • Patrick Hicks, Head of Legal, Trust & Will

What about a person with mental health concerns who is named in a deceased loved ones’ Estate Plan?

“In naming a beneficiary who has mental health concerns, you might wish to consider the best way to provide assets to the beneficiary. For example, you could use a trust to ensure that assets are available to the beneficiary but still have someone else responsible for determining what assets can be used for what purposes. 

This can help ensure that assets are used for productive needs and not put at risk

A common scenario is a beneficiary receiving an inheritance and then having other individuals come in to take advantage of them -- either stealing funds directly or coercing the beneficiary into making unwise investment decisions (that typically benefit the manipulative individual).”

  • Patrick Hicks, Head of Legal, Trust & Will

If a person with mental health concerns is receiving government aid, can you still include them in an Estate Plan without losing that aid?

“Yes— in many cases you can use a “Special Needs Trust.” A SNT is a specific type of trust designed to provide assets to a beneficiary without jeopardizing that beneficiary’s eligibility for government benefits. SNTs essentially function to ensure that the government benefits are used first to cover all the basic needs they can and then the assets of the SNT are available to meet the remaining needs. 

Without a SNT, a sudden inheritance can disqualify a beneficiary for government assistance.

  • Patrick Hicks, Head of Legal, Trust & Will

Are there any other potential legal complications that could arise?

“Think about long term care. Planning for disability and governmental assistance early can ensure you are eligible when the need arises. Also consider long term care insurance. The costs of long term care are staggering and long term care insurance can help ensure those costs are more manageable.”

  • Patrick Hicks, Head of Legal, Trust & Will

What about medical considerations? Are they in danger of losing the ability to make their own healthcare decisions if they are included in an Estate Plan?

“Medical decisions typically require the patient to give “informed consent.” The patient needs to understand the issue and make a reasoned decision on the issue. If there are mental health concerns, that may impair the ability to give informed consent, leaving the patient unable to make their own decisions for themselves. 

That’s where healthcare documents - like a Health Care Directive - come into play. A Health Care Directive lets an individual make some decisions in advance and designates someone else to make other decisions in the event the patient cannot do so themselves.

Without a Health Care Directive, the only option may be to pursue a court order or a court designated conservatorship. This can be a difficult and time consuming process, something that may not be feasible in the event of an urgent medical need.

  • Patrick Hicks, Head of Legal, Trust & Will

For those who are diagnosed with bi polar disorder or other related mental health concerns, what do you recommend for managing impulsive spending habits and/or tracking mental health cycles?

“A combination of therapy with a mental health professional, mindfulness practices like meditation, and medication can reduce frequency and severity of manic episodes which can in turn help to manage impulsive spending.

Some people have also learned to recognize when they may go into a manic episode and take steps to avoid overspending. Reminding themselves of their goals can also be a way to curb unnecessary spending.

Other things you can do include keeping only one credit card with a low spending limit, keeping most of your money in investments that you can't liquidate easily and never saving your credit card details.”

Bringing More Awareness to Mental Illness and Estate Planning

The purpose of Mental Health Awareness Month is to raise awareness around the mental health and wellness of Americans. Having open conversations plays a critical role in dismantling any stigma surrounding mental health and illness.

At Trust & Will, the month of May brings about an opportunity to start a conversation around how mental health intersects with estate planning. Any stigma related to mental illness makes it more challenging for loved ones to talk about their mental health with their family members. In turn, they may not feel comfortable in broaching the important subject of estate planning. 

Our hope is in that by raising more awareness around mental illness and estate planning, more and more individuals will feel enabled to secure their futures. Some may not have even been aware that estate planning for mental illness was possible, let alone that there are creative solutions out there. By starting the conversation today, we strive to empower as many people as possible. 

Is there a question here we didn’t answer? Reach out to us today or Chat with a live member support representative! 

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