Mental Health Considerations in Estate Planning

This past weekend was a horrific one for families across our country, Buffalo, Los Angeles, Milwaukee because of gun violence and mental health.  It made me think of mental health considerations in estate planning.   Removing the stigma of mental health starts with realizing that many people—about one in five of all US adults--are affected by mental illness. Understanding this can lead to more people getting the help they require, not only by seeking guidance from a mental health expert, but also by planning for the future with mental health considerations in mind. The odds are that you or somebody in your family is living with a mental health condition. Rather than ignoring an uncomfortable topic, think proactively about the challenges of living with mental illness and set up an estate plan that addresses such challenges head-on. 

Estate planning is a sensitive subject, and it can be even more sensitive when mental health is involved.  Nearly 50 million Americans suffer from mental illness. Saying that America is dealing with a mental health crisis is not an exaggeration. According to the National Alliance on Mental Illness, approximately 20 percent of US adults experience mental illness, including 1 in 20 who experience serious mental illness, and 17 percent of American youth experience a mental health disorder.¹

The mental health crisis has worsened during the coronavirus pandemic. Loneliness and isolation are fueling increases in anxiety, depression, and thoughts of suicide and self-harm, especially in our youth. More people are seeking mental health screening and treatment, but around 23 percent of Americans with mental illness are still not receiving the services they need.² I have heard frequently about children and adults having to wait for a therapist because they are booked.

Improvement starts with acknowledging there is a problem. Talking to a healthcare professional about mental health struggles and treatment options leads to better outcomes. One improved outcome can be creating an estate plan that considers your own, or a family member’s, mental health. Your mental health and your estate plan should be tailored to your individual’s needs and the unique family dynamics. Several estate planning documents are available to address concerns about mental health. Chief among such concerns is the possibility that, at some point, you may not manage your own affairs. Think hard about who manages your affairs, as someone with mental illness should not have this responsibility.  To prepare for that contingency, consider having these documents in place: 

  • Financial Power of Attorney. A financial power of attorney allows you to appoint somebody to manage your finances on your behalf. For example, they can manage your bank accounts or sign papers at a real estate closing for you. Depending on your state’s law, the document can be set up, so it takes effect immediately or only upon a future event (e.g., you become mentally incapacitated).
  • Medical Power of Attorney. A medical power of attorney gives an individual of your choosing the authority to decide about your medical care when you no longer can. You have the discretion to limit the decisions that your chosen representative may make. 
  • Revocable Living Trust. A revocable living trust contains money and property you transfer into it, and you choose a person (the trustee) to manage it for your benefit while you are still alive. You can set up a living trust in such a way it can be changed or revoked unless you do not have the mental ability to do so or have passed away. A living trust can also specify the distribution of the money and property when you die. For these documents to have authority, you must have mental capacity when you sign them. To ensure capacity, obtain a professional opinion from a licensed mental health provider stating that you are of sound mind and understand the meaning and effect of the documents you are signing. Alleging lack of capacity is a common basis for contesting an estate plan. In addition, if you are entrusting somebody with power of attorney authority, and that person has their own mental health concerns, discuss the issue with your family and your estate planning lawyer. 

Your Beneficiaries’ Mental Health 

Having beneficiaries who suffer from mental illness presents a different estate planning challenge. You must pass your legacy to them, so it serves their best interests. Discretionary trusts and supplemental needs trusts are two ways you can look out for a mentally ill loved one even after you are gone. Often, we ask individuals with mental illness to sign a document that allows the parents or guardian to manage their affairs should they not be able.

  • Discretionary Trusts. If you are concerned that a family member’s mental illness will prevent them from spending their inheritance wisely, a discretionary trust is an option. With a discretionary trust, you choose a trustee who determines how to spend the money in the trust. The trustee can make sure that the money is used for the beneficiary’s necessities, and the beneficiary cannot squander it. This trust makes sense for somebody not receiving, and does not plan to receive, public assistance. 
  • Third-party Special Needs Trust.  As with a discretionary trust, a special needs trust has a trustee to distribute for the beneficiary’s benefit. But in contrast to a discretionary trust, the money and property in a special needs trust does not go directly to the beneficiary. Instead, the money is used to pay for certain supplemental needs, such as personal care, therapy, and education. The money and property in the trust does not disqualify the beneficiary from becoming eligible for or receiving needs-based government benefits. There is a significant difference between suffering from a severe mental illness, such as bipolar disorder or schizophrenia, and a more minor issue such as anxiety or depression. Some people’s mental health issues can come and go during their lifetime. Others’ illnesses are prolonged or recurrent. Sometimes, a person may be genetically predisposed to mental illness that has not yet manifested. Proper proactive estate planning can protect you and your loved ones from whatever type of mental disorder may concern you. These are factors to consider when making estate planning decisions based on mental illness in your family. 

Contributed By Gary Altman

  1. You Are Not Alone, National Alliance on Mental Illness,
  2. The State of Mental Health in America, Mental Health America,
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