Can Trusts Benefit Those with Mental Illness?

Mental illness
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Trusts can benefit those with mental illness.

No one person or family is exactly like another.

Even twins vary in their personalities, interests, and habits.

I know, I have twin daughters.

A variety of factors impact estate planning choices.

According to a recent Arkansas Democrat Gazette article titled “Creating special needs trust ensures that mentally ill heirs benefit from inheritance,” it is important to discuss your specific goals and circumstances with an experienced estate planning attorney.

Mental illness can make it hard to manage daily life.
Mental illness can make managing finances or accomplishing daily tasks a challenge.

By doing so, your estate planning attorney will be able to provide recommendations on how to best address your needs.

Depending on what is shared, your attorney may recommend the use of a trust.

How is a trust useful?

With a trust, you can provide your trustees with specific directions for how to distribute assets to loved ones.

Trusts are also useful should one of the beneficiaries suffer from mental illness.

Awareness of mental illness has grown in the United States over the past few decades.

According to the Centers for Disease Control and Prevention, more than half of Americans will be diagnosed with either a mental disorder or mental illness during their lifetimes.

With these estimates, it is more than likely these individuals will inherit some money from a loved one.

Mental illness varies in type and severity.

This description includes developmental disabilities, addictions, depression, anxiety, and the effects of trauma.

Some individuals require assistance, while others are able to live independently.

Even those who can function independently with their mental illness may struggle to manage money well.

By creating a trust, you can provide greater support to your loved one and may be able to avoid probate.

Because probate itself can be stressful, you can minimize the negative impact of this process on an already fragile mental and emotional state.

Suppose your loved one has a mental illness qualifying for disability benefits or other government programs.

In that case, you will want to work with an experienced estate planning attorney to ensure the trust is created in a way to not compromise such assistance.

Typically the government has limits on asset ownership in qualifying for benefits.

For example, the threshold allowing for an individual to qualify for Supplemental Security Income is $2,000 and is $3,000 for a couple.

In these instances, a special needs trust is beneficial.

What does a special needs trust accomplish?

The special needs trusts allows for the use of funds to benefit the individual with special needs.

A standard special needs trust typically becomes effective when the individual who created it dies.

When using a trust in your estate planning, funding the trust is key.

The assets should be titled to the trust rather to the beneficiary.

Providing clear instructions for the use of the funds to the trustee is also essential.

By planning ahead and incorporating a trust in your estate plan, you can provide for your loved ones with mental illness without risking the mismanagement of funds or disqualification from fundamental public assistance.

Reference: Arkansas Democrat Gazette (May 8, 2023) “Creating special needs trust ensures that mentally ill heirs benefit from inheritance”

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