Estate Planning for Parents of Children With Mental Illness

Mental illness in the United States is more common than most people may think. More than one in five U.S. adults live with a mental illness and one in six U.S. youth aged 6 to 17 experience a mental health disorder each year.

Many different mental, behavioral, and emotional disorders fall under the umbrella term of mental illness. These conditions vary in degree from mild to severe. Examples of common mental disorders include depression, bipolar disorder, post-traumatic stress disorder (PTSD), and various anxiety disorders.

Raising a Child With Mental Illness

Raising children is hard work under normal circumstances. Raising a child with a mental illness may involve even more effort and resources. Depending on the severity of the mental illness, the child may also need constant attention, special schooling, or counseling or therapy. The child may be eligible for government benefits that can require careful planning to ensure they are not interrupted or lost.

If you are the parent of a child with a mental illness, you know how to best care for your child. What would happen, though, if you and your spouse were no longer able to care for your child? How would their needs be met? With thoughtful estate planning, you can ensure your child can live the most fulfilling life possible, as a child and as an adult.

Estate Planning for Children With Mental Health Challenges

Planning for the future of a child with mental illness involves careful consideration of their unique needs and circumstances. Proper estate planning can provide financial security and care for your child, ensuring they have resources to thrive even if you are no longer there. By using certain legal tools, you can create a personalized plan that offers financial stability and support for your child. Here are a few options you may want to explore with your special needs planning attorney:

Psychiatric Advance Directives

A psychiatric advance directive (PAD) is a legal document that allows individuals to outline their mental health care preferences in case they are unable to make decisions due to their illness. A PAD can specify preferred treatments, medications, and even mental health professionals, as well as designate a health care agent to make decisions on their behalf.

For parents, discussing and creating a PAD with an adult child can be a way to respect their autonomy while planning for situations where they might be unable to advocate for themselves. PADs can give parents peace of mind knowing that their child’s treatment preferences will be honored, even when they cannot speak for themselves. This tool is especially valuable if the child experiences episodic conditions that may impair decision-making.

With an attorney, you may opt to establish a PAD along with a medical (or health care) power of attorney document, which is broader in scope, giving the agent power to make health care decisions for the individual.

Special Needs Trusts

Special needs trusts (SNTs) are designed to benefit individuals with disabilities, including mental health conditions, without jeopardizing their eligibility for government benefits such as Medicaid and Supplemental Security Income (SSI). A third-party special needs trust is a type of trust that someone other than the beneficiary, typically a parent or grandparent, creates with funds specifically set aside for the child. These trusts are not subject to Medicaid payback rules if there are any remaining assets in the trust after the death of the beneficiary.

Funds within the SNT can be used for nonessential items and services that improve the child’s quality of life, such as therapy, recreational activities, or educational programs. Since these are considered supplemental expenses, the trust does not affect the child’s eligibility for income-based government assistance.

Discretionary Trusts

A discretionary trust gives the trustee (the person who manages the trust) complete control over fund distributions. Most SNTs are discretionary. This can be essential for a child with a mental health disorder who may not have the ability to manage their own finances responsibly. With this type of trust, the trustee has the authority to decide when, how much, and for what purpose the funds are distributed.

The flexibility of discretionary trusts makes them an excellent option for addressing a child’s changing needs over time. For instance, a trustee could allocate funds for medical expenses, therapy, or vocational training. By setting clear guidelines in the trust document, parents can specify what types of expenses should be prioritized, ensuring that their child receives appropriate care.

Spendthrift Trusts

If a child’s mental illness affects their decision-making abilities or predisposes them to impulsive spending, a spendthrift trust can protect the funds from being wasted. This type of trust also restricts the beneficiary’s access to trust assets, preventing them from making withdrawals or using the funds as collateral for loans. Creditors are generally unable to claim these assets to satisfy the beneficiary’s debts.

A spendthrift trust can help ensure that the child has a steady, managed distribution, reducing the risk of financial instability. It also provides protection against external pressures, like creditors or exploitative influences, which can be particularly important for children with mental health challenges.

Key Considerations for Parents

When using these estate planning tools, it’s important to consider the following:

• Selecting the Right Trustee: Trustees play a vital role in managing and distributing funds. They should be trustworthy, financially responsible, and ideally familiar with mental health issues to make compassionate decisions that prioritize the beneficiary’s well-being. As an added safeguard for any trust, you may want a trust protector, who monitors the trustee’s actions.
• Collaboration with Professionals: Estate planning for a child with a mental illness is complex and requires collaboration with legal, financial, and mental health professionals. These experts can help structure a trust that encompasses discretionary, spendthrift, and supplemental provisions within the same document. They also can assist you in establishing advance directives and other estate planning strategies in a way that aligns with the child’s needs and family goals.
• Setting Clear Guidelines and Successors: Providing detailed instructions on how funds should be allocated and designating a backup trustee can ensure that the child’s needs will continue to be met if the original trustee becomes unavailable.

Putting a Plan in Place

Estate planning for a child with a mental illness involves both financial and health care considerations. Work with an experienced special needs planning attorney to ensure that your child has the resources they need to live the best life possible.

For additional reading on topics related to individuals with disabilities, check out the following articles:

• Building an Estate Plan for Adult Children With Disabilities
• Is a Qualified Disability Trust Right For Your Estate Plan?
• Three Essential Documents for Parents of Children With Special Needs
• Make Sure Your Estate Plan Doesn’t Put Your Child at Risk