May is mental health month, the perfect time to address this important topic. Mental health and substance abuse disorders affect many families. These issues need to be considered in estate planning.
Mental health and substance abuse disorders cannot be “cured,” but they can be managed with proper support. Frequently, “relapse” is a facet of the recovery process, so one must plan for that possibility. It’s important to involve your estate planning lawyer, as your documents may need to be drafted to provide protections for family members with issues, while also safeguarding the interests of other family members.
Consider having a trust with terms that can adjust to the circumstances. Providing a trustee with discretion to make or not make distributions from the trust is preferable to requiring distributions at specified ages or for a particular purpose.
If you already have an irrevocable trust with inflexible provisions that are incompatible with current circumstances, you may be able to change the trust’s terms. The trustee may be able to invade the current trust and place the assets in a new, more flexible trust. Or, if invading the current trust is impermissible, you may still be able to “pour” its assets into a new, more flexible trust under New York’s “Decanting Law.” (See my March article on the topic.)
If a person with a mental health and/or substance abuse disorder has already received assets outright, it is still possible to protect that person from dissipating the assets by placing them in what is called a “protective trust.” With a protective trust, the person with the assets (the “Grantor”) places them in a revocable trust which permits the withdrawal of assets and the amendment or revocation of the trust but only with the consent of a third-party trustee. To motivate the Grantor to give consent, parents or grandparents can inform the Grantor that they will receive no more assets from them unless the assets currently owned by the Grantor are placed in the protective trust.
Discussions about proper planning for loved ones with mental health and/or substance abuse disorders are imperative to protect the people with the disorder as well as the entire family.
