Estate Planning with Mental Illness


Mental illness refers to a wide range of conditions that affect an individual’s mood, thinking, and behavior. These conditions can affect a person’s ability to function in daily life and can vary in severity from mild to severe. It can be temporary, episodic and life-long. To ensure that your loved one suffering from a mental illness is properly cared for during their lifetime and after your passing, take the necessary steps now.

What Documents Should Someone Have Who is Suffering from Mental Illness?

One crucial step is to encourage any loved one with a mental illness to put their own estate planning documents in place. This includes a Power of Attorney, Health Care Proxy, and Living Will. These documents enable another trusted individual to manage their finances and make healthcare decisions on their behalf if they cannot do so. Failure to have these documents can result in the need for a guardianship proceeding, which can be a lengthy, intrusive and costly process. We all want to ensure that our best interests are protected when we lose our voice. Naming someone who knows our preferences and wishes alleviates worry and anxiety.

If someone is mentally ill, they may want to consider a trust to hold their own assets. If they are receiving or considering government benefits, such as Social Security Income (SSI) and Medicaid, they may need a First Party Supplemental Needs Trust (SNT). A First Party SNT preserves their assets during their lifetime while allowing them to receive SSI and Medicaid.  This special type of SNT must be carefully drafted to contain a pay-back provision to the government at the beneficiary’s death. A trust can also be useful for individuals who are not receiving government benefits but still need the management of their assets.

What Documents Should You Have if Leaving Assets to Someone Suffering from Mental Illness?

It is important to consider the impact of government benefits on your beneficiary’s eligibility for SSI and Medicaid. Inheriting money can cause SSI benefits to be reduced or lost entirely. Instead, set up a Third-Party Supplemental Needs Trust to hold any inheritance intended for your beneficiary. If gifting during your lifetime, a trust can be set up now. For inheritances, a Third Party SNT can be triggered upon your death. This will ensure that your beneficiary can maintain their government benefits while still receiving needed support from the trust.

Unlike a First Party SNT that is funded with an individual’s own assets, there is no payback to the government at the beneficiary’s death. You can direct where any funds remaining in the trust go. Because of this, it is much better to leaves assets to your loved one in an SNT rather than outright and having them create their own SNT.

Even if your loved one has no plans to apply for government benefits, leaving them assets in a less restrictive trust may still make sense. A trust ensures that any money left to them is effectively managed by whomever you appoint as trustee.

You should always incorporate your loved one’s ability to manage their affairs finances and personal needs into your estate planning documents.  With the right estate plan in place, you can ensure that your loved one is cared for and financially secure both now and in the future. Just as there is no one type of mental illness, there is no one size fits all solution. An estate planning attorney can guide you through your options and devise a custom plan that suits your family’s unique needs.

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Burner Law Group, P.C.

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