Estate planning considerations for mental illness

A good estate plan is only effective if it takes into account the long-term needs of the client and the ultimate beneficiary of the plan, and if it does not take into account the complexity of people with special needs – beyond the inclusion of a Special Needs Trust (SNT)—could ultimately render even a superior estate plan ineffective. One such issue that is much more prevalent than you might think and requires the attention of estate planners is mental health.

As planners, we must use our essential legal skills to properly meet the very unique needs of clients and their family members, who are (or who may become) disabled due to a mental health diagnosis. Estate planning practitioners might not consider mental health diagnoses as qualifying conditions that would cause a client or beneficiary to be classified as disabled. In fact, an individual may be considered disabled by Social Security Administration (SSA) standards if they meet the SSA’s definition of “disabled.” According to the SSA’s “Blue Book” definition, a person is disabled if he or she suffers from an illness or injury which prevents him from engaging in “substantial gainful employment” (i.e. ability to sustain gainful employment) for at least one year or is likely to result in death. The SSA guidelines include as eligible conditions the following cognitive and mental conditions: bipolar disorder, anxiety and obsessive-compulsive disorder, depression, intellectual disability, and schizophrenia. This list is not exhaustive, and a diagnosis of one or more of these conditions will not automatically trigger a determination of disability under Federal SSA standards.

Common problem

In 2020, for the first time ever, behavioral health disorders became the number one cause of disability worldwide, surpassing all other illnesses, including cancer, diabetes and heart disease. The National Alliance on Mental Illness reports that more than 59 million Americans experienced mental illness in 2020, representing more than one in five American adults. Studies have also shown that 17 million American adults have co-occurring substance use disorder and mental illness in 2020. These numbers certainly cannot be expected to increase due to the many factors of stress caused by the COVID-19 pandemic.

Unfortunately, mental health issues are not limited to the adult population. New data from the Centers for Disease Control (CDC) released in late March 2022 reveals that adolescent mental health declined further during the pandemic, and more than a third (37%) of high school students reported experiencing poor health. mental. CDC studies also found that more than one in three high school students experienced persistent feelings of sadness or hopelessness in 2019, a 40% increase since 2009. Some affected teens will almost certainly develop mental health issues. severe and diagnosed who may well qualify as disabled once they reach the age of majority.

Mental health issues are now the norm among employees at all organizational levels. A recent article in the harvard business review found that 76% of respondents reported at least one symptom of a mental health problem in the past year, up from 59% in 2019.

Creative planning solutions

As estate planning lawyers, we are experts in creating complex, well-reasoned estate plans that minimize taxes and successfully pass on the family business or wealth to the next generation. Trust planning plays a central role in effective plans and allows beneficiaries to access their inheritances while ensuring that their estate is protected from creditor claims and future estate taxes where possible. Clients whose beneficiaries are financially unsophisticated or spendthrift can appoint trusted advisors or corporate trustees as trustees to be stewards of the assets for the beneficiary and future generations. To achieve a client’s planning goals, practitioners will strive to create arrangements that effectively achieve the client’s intent. For example, they may establish trusts in other states or foreign jurisdictions to take advantage of favorable trust laws and distribute trustees’ investment and distribution decisions among different parties. Trust provisions can even include bespoke distribution terms to ensure beneficiaries are taken care of but not spoiled and can appoint a trusted protector to oversee the entire plan. Known as providing “dead hand control,” trusts almost act as a proxy for the client to ensure that wealth can be passed on successfully from generation to generation.

This traditional fiduciary planning can work wonders for the average beneficiary who only needs advice on investing and managing distributions. Consider the following, however: Recent data from the CDC indicates that nearly one in four Americans live with some type of disability. Therefore, practitioners need to plan on the assumption that “average” beneficiaries are not the only individuals to consider. Families with a loved one suffering from a mental health disorder may find traditional trusts woefully inadequate to meet the needs of the most vulnerable beneficiaries.

Generally speaking in this context, practitioners generally use either discretionary trusts and/or SNTs to accommodate the needs of a beneficiary who has already been deemed to be disabled. Using the SNT ensures that the available assets will not prevent a beneficiary from receiving government benefits or services, and instead the resources can be used to enhance and supplement the beneficiary’s life in other ways. It is short-sighted for the estate planning practitioner to assume that the work of proper mental health planning ends when the trust is executed. Rather, practitioners should consider and possibly implement a second-stage plan to better meet the total needs of the recipient. A second-stage plan could include express trust provisions that relate directly to mental health intervention, treatment, support, financial management, and other issues.

*This article is a summary of “Redefining our approach to mental health and estate planningwhich appears in the September 2022 issue of Trusts and estates.

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