A good estate plan is only effective if it contemplates the long-term needs of both the client and the ultimate beneficiary of the plan, and a failure to consider the complexity of those with special needs—beyond the inclusion of a special needs trust (SNT)—might ultimately make even a superior estate plan ineffective. One such issue that’s far more prevalent than one would think and requires the attention of estate planners is mental health.
As planners, we must employ our critical legal skills to properly address the very unique needs of clients and their family members, who are (or who could become) disabled by reason of a mental health diagnosis. Estate-planning practitioners might not consider mental health diagnoses as qualifying conditions that would cause a client or beneficiary to be classified as a disabled individual. In fact, an individual can be considered disabled by Social Security Administration (SSA) standards if they meet the SSA’s definition of “disabled.” As defined by the SSA’s “Blue Book,” an individual is disabled if they suffer from an illness or injury that prevents them from performing “substantial gainful activity” (that is, the ability to sustain paying work) for at least a year or that will likely result in death. The SSA guidelines include as qualifying conditions the following cognitive and mental health conditions: bipolar disorder, anxiety and obsessive-compulsive disorders, depression, intellectual disabilities and schizophrenia. This isn’t an exhaustive list, and a diagnosis of one or more of these conditions won’t automatically trigger a determination of disability by federal SSA standards.
Prevalent Issue
In 2020, for the first time ever, behavioral health disorders became the No. 1 cause of disability worldwide, surpassing all other illnesses, including cancer, diabetes and heart disease. The National Alliance on Mental Illness reports that more than 59 million Americans experienced mental illness in 2020, representing more than one in five American adults. Studies also showed that 17 million U.S. adults experienced a co-occurring substance use disorder and mental illness in 2020. Surely those numbers can only be expected to rise as a result of the many stressors brought on by the COVID-19 pandemic.
Unfortunately, the issues pertaining to mental health aren’t limited to the adult population. New Centers for Disease Control (CDC) data released at the end of March 2022 reveals that the mental health of teens declined further during the pandemic, and more than a third (37%) of high school students said they have experienced poor mental health. CDC studies also revealed that more than one in three high school students had experienced persistent feelings of sadness or hopelessness in 2019, a 40% increase since 2009. Some of the affected teenage population will most certainly develop serious, diagnosed mental health conditions that may well qualify them as disabled individuals once they reach the age of majority.
Mental health challenges are now the norm among employees across all organizational levels. A recent article in the Harvard Business Review revealed that 76% of respondents reported at least one symptom of a mental health condition in the past year, up from 59% in 2019.
Creative Planning Solutions
As estate-planning attorneys, we’re experts at establishing intricate and well-reasoned estate plans that minimize taxes and successfully pass the family business or wealth to the next generation. Trust planning plays a central role in effective plans and provides beneficiaries with access to their inheritances while ensuring that their wealth is protected from creditor claims and from future estate taxes when possible. Clients with beneficiaries who aren’t financially savvy or who are spendthrifts can appoint trusted advisors or corporate fiduciaries as trustees to be stewards of assets for the beneficiary and the generations to come. To achieve a client’s planning goals, practitioners will go to great lengths to create provisions that effectively carry out the client’s intent. For example, they can establish trusts in other states or foreign jurisdictions to take advantage of favorable trusts laws and divide trustee investment and distribution decisions among different parties. Trust provisions can even include bespoke distribution terms to ensure beneficiaries are provided for but not spoiled and may name a trust protector to oversee the entire plan. Known as providing “dead hand control,” trusts serve almost as a proxy for the client to ensure wealth can successfully pass from generation to generation.
This traditional trust planning can work wonderfully for the average beneficiary who might need only investment guidance and management of distributions. Consider the following, however: Recent CDC data indicates that nearly one in four Americans live with some type of disability. Accordingly, practitioners must plan under the assumption that “average” beneficiaries aren’t the only individuals who need be considered. Families who have a loved one suffering from a mental health disability may find that traditional trusts fall dreadfully short in meeting the needs of the most vulnerable beneficiaries.
Speaking broadly in this context, practitioners are generally using either discretionary trusts and/or SNTs to meet the needs of a beneficiary who’s already been deemed a disabled individual. Use of the SNT ensures that available assets won’t disqualify a beneficiary from receiving government benefits or services, and the resources can instead be used to enhance and supplement the beneficiary’s life in other ways. It’s short-sighted for the estate-planning practitioner to assume that the job of proper mental health planning ends when the trust is executed. Rather, practitioners should consider and possibly implement a second-stage plan to best support the total needs of the beneficiary. A second-stage plan could include express trust provisions that speak directly to mental health intervention, treatment, support, financial management and other issues.
*This article is a summary of “Redefining Our Approach to Mental Health and Estate Planning,” which appears in the September 2022 issue of Trusts & Estates.
