Navigating the Complexities: Estate Planning for Individuals with Mental Illness

Most, if not all of us, know someone that is affected by 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. According to the National Alliance on Mental Illness (NAMI), 1 in 5 adults experience mental illness, and 1 in 20 adults experience a serious mental illness. This means that many families in the U.S. should be discussing the intersection between estate planning and mental illness and practitioners should be aware of the tools to use to best assist them.

From the perspective of estate planning, individuals with mental illness face potential roadblocks with regards to estate planning that should be considered. Luckily, there are some creative solutions to these potential issues that can be implemented. It’s important to keep in mind that each individual, whether they have a mental illness or not, deserves a tailored solution, so they can have as much discretion and autonomy as possible. The reality for some individuals with mental illness is that there may be some limitations when crafting an estate plan. For example, (1) whether they have the capacity to serve as a fiduciary, (2) the individual’s ability to manage assets, (3) potential disqualification from receiving government benefits, etc.

As mentioned above, an important consideration is the individual’s ability to manage their own assets. When someone is battling a mental illness, it may lead them to make decisions that aren’t rational or in their best interest. This is not to say that this happens all the time. However, depending on the illness, an individual may experience manic episodes that cause them to overspend. Or, for instance, they might fall prey to predatory schemes.

To be clear, not all of these limitations will apply to individuals with mental illness. However, it’s important to be aware of potential limitations and roadblocks when planning for an individual with mental illness and to know when it’s necessary to find a different solution, such as guardianship and conservatorship.

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, Advance Medical directive, Authorization for Protected Health Information and Psychotherapy Notes and, in certain circumstances, a trust. These documents enable another trusted individual to manage an individual’s finances and make healthcare decisions on their behalf if they cannot do so. Failure to have these documents in place can result in the need for a guardianship proceeding, which can be a lengthy, intrusive and costly process.

Aside from a Power of Attorney and Advance Medical Directive, individuals with mental illness may want to consider a trust to hold their 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 continue to receive SSI and Medicaid. This special type of SNT must be carefully drafted to ensure that they are not made ineligible to receive the government benefits that they rely on. A trust can also be useful for individuals who are not receiving government benefits as well but still need assistance with the management of their assets.

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.