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When Is a Trust a Good Idea?

Setting up a trust is one way to transfer wealth to a loved one and create financial stability for them.

When Is a Trust a Good Idea?  More than 50% of Americans will be diagnosed with a mental illness or disorder during their lifetime, according to the Centers for Disease Control and Prevention. The odds are good that some of these people will inherit wealth someday.

Arkansas Democrat Gazette’s recent article, “Creating special needs trust ensures that mentally ill heirs benefit from inheritance,” explains that a trust enables you to leave specific directions for trustees about how to care for your loved one and distribute assets. A trust can also be especially helpful for transferring assets to family members who have a mental illness but can still function independently.

While these loved ones are often independent, they could still have difficulty managing money. For example, for a person with depression, you can put assets in a trust.

When Is a Trust a Good Idea?  Having a trust in place can also help beneficiaries avoid probate, a process that could be stressful for someone with a mental illness.

While a basic trust may be enough for a family member with a mental illness who mostly functions independently, it could impact an individual who doesn’t and receives government assistance. An experienced estate planning attorney or elder law attorney will ensure that you don’t accidentally leave them something that disqualifies them from a government program benefit, like Medicaid.

People who receive government assistance could have limits on how much they can have in assets. For instance, to be eligible for Supplemental Security Income through Social Security, a person typically cannot have resources of more than $2,000 as an individual or $3,000 as a couple. However, you can avoid eligibility issues by placing those assets into a special needs trust, an estate planning tool for individuals with disabilities or functional needs.

When Is a Trust a Good Idea?  A special needs trust is designed to supplement government benefits that the individual is getting.

A standard special needs trust isn’t effective until the person who establishes the trust passes away. As a result, if you plan to support your family member financially while you’re alive while they receive benefits, ask an elder law attorney about creating a stand-alone special needs trust.

You want your plan straightforward and streamlined to protect your loved one from financial abuse and prevent mishandled funds. First, ensure that all your accounts and assets are addressed to the trust and not in the individual’s name. You should also provide clear directions about how money is spent. Finally, all assets should flow through the trust, if possible.

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