How trusts can aid those with mental illness
More than 50% of Americans will be diagnosed with a mental illness or disorder during their lifetime, according to the Centers for Disease Control and Prevention. Chances are, some of these individuals will be inheriting wealth at some point.
If a family member’s mental health issues may interfere with their ability to manage finances, answering these questions could help them create long-term financial stability.
Have I set up a trust?
Setting up a trust is one way to transfer wealth to a loved one and create financial stability for them. A trust enables you to leave specific instructions for trustees about how to care for your loved one and distribute assets.
Trusts can be especially helpful for transferring assets to loved ones who have a mental illness but are still able to function independently. While these loved ones are often independent, they may still have difficulty managing assets on their own, said Lillie Nkenchor, an attorney who does estate planning in New York. One example would be someone with depression.
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“It can simply be a trust that says, ‘This money is to be used to take care of my sister who is high functioning, but is not great with money,’” Nkenchor said.
Likewise, you can request money be allocated to healthcare expenses and anything else that helps them live a healthy and functional life. Having a trust in place can also help beneficiaries avoid probate, a court process for handling estates that could be stressful for someone who has a mental illness.
Does my loved one receive government assistance?
Another important question to ask is whether the person receives government assistance or may need to in the future. Although a basic trust may suffice for a loved one who has a mental illness but mostly functions independently, it could negatively affect one who receives government assistance.
“We want to make sure that if we are caring for someone who’s receiving that type of benefit, we don’t accidentally leave them something that disqualifies them from that benefit,” Nkenchor said.
People who receive government assistance may have limits on how much they can have in assets. For instance, to be eligible for Supplemental Security Income through Social Security, they generally can’t have resources of more than $2,000 as an individual or $3,000 as a couple. That is, unless you put those assets into a special needs trust. It’s an estate planning tool for individuals with disabilities or functional needs.
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A standard special needs trust isn’t effective until the person who establishes the trust dies, Nkenchor said. So, if you plan to financially support your loved one while you’re alive while they receive benefits, consider setting up a stand-alone special needs trust. Because setting up a special needs trust can be complicated, it’s advisable you speak to a professional who specializes in this area. The Special Needs Alliance website has a directory that can point you toward attorneys for special needs planning.
Have I named the right trustees?
The estate managers you name will be responsible for distributing assets to your loved one when you die or if you’re incapacitated. Talisa Utsey, an independent estate planning attorney licensed in Maryland and New York, said a mistake some people make is not appointing the right trustee. People sometimes take advantage of older adults, young people and those with mental illnesses, she said.
You have two options: someone you know or a corporate fiduciary. Utsey said if you opt for the former, choose someone who has a good relationship with the beneficiary. You also want to be sure they have some knowledge of estates or can get advice from someone who does.
“If they are not familiar with estate administration, if they’re not familiar with the documents that give them the authority, they’re not familiar with their actual authority, then that can be harmful,” Utsey said.
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Alternatively, you may choose to appoint a corporate trustee because they’re usually experienced and have no emotional investment. For example, you could use a financial institution such as a bank. Just know that corporate fiduciaries often charge heavy fees.
Utsey also advised appointing at least one successor trustee — a person who takes over trustee duties if the initial trustee can’t serve. And don’t forget to consult with prospective trustees first, Utsey said.
Is my estate plan clear?
To protect your loved one from financial abuse and prevent mishandling of funds, you want your plan to be clear and streamlined, Utsey said. This means ensuring all your accounts and assets are addressed to the trust, none are in your loved one’s name, and there are clear directions about how money is spent. All assets should flow through the trust if possible.
“When there’s a plan, there’s less likelihood of manipulation and funds being wasted because it’s clear, it’s a process and it’s written down in plain English,” Utsey said. “And to some extent, it’s legally enforceable when it’s done the right way.”
Ayoola writes for personal finance site NerdWallet. This article was distributed by the Associated Press.
