A client recently called me because his parents were going to leave his share of his inheritance from them in a trust.  He wanted me to provide arguments (or contact them) to convince them to leave the money to him outright.  I knew from prior discussions that he was bipolar and tended to go on shopping sprees when in a manic phase.  So I told him that if his parents had come to me for estate planning, I would have suggested that they do exactly what they had done – put the money in a trust for him.  I assured him that the trust wasn’t designed to punish him but rather to protect him.

To me, this is similar to setting up a trust for a minor child.  Do you let an 18 year old have all the money you left them on the day they hit 18?  Not if I’m advising you.  At 18 they don’t have experience with large amounts of money and don’t understand how quickly you can go through it.  They’re likely to get a really nice (expensive) apartment, a fancy (expensive) car, buy season tickets to their favorite team, and take trips on spring break and holidays.  And still expect there to be plenty of money left to pay for college.  Instead they run out of money and have nothing to show for it – including no college degree.  So I advise setting up a trust for your mentally healthy kids until they are at least 25 and are likely to have finished college.  The trust can cover their college expenses and then they can get half of their remaining inheritance at 25 and the other half at 30 – at which point they will have seen how fast they went through the first half and hopefully will be more thoughtful when spending (or saving) the second.  Or maybe you set it up to pay out in three chunks.  Or just pay out to cover the down payment on a home or wedding expenses, or graduate school – and keep the rest in trust for when they need it or are a bit older and hopefully more responsible.  You leave instructions about when and how the Trustee is to give money from the trust to your children.

What makes sense for your healthy children makes even more sense for your mentally ill child.  Someone in a manic phase isn’t able to think clearly.  They often have the impulse to buy stuff – either because they need it (although they are likely to let it pile up in unopened boxes) or because they have some scheme for making money that makes sense only to someone who is manic.   If the money you leave them is placed in trust, a trustee that you name decides when to make distributions to your mentally ill adult child.  You can set it up so the trustee makes monthly distributions to directly pay your child’s rent or mortgage and perhaps other expenses, as well as additional distributions when your child requests them for special expenses – like a wedding, down payment on a home, or to purchase a car.  The trustee can require proof of how the money is to be spent and perhaps pay the expenses directly so your child can’t divert it.  The trustee can pay more during periods of unemployment – because there are likely to be such periods when someone suffers from a mental illness – which may help prevent your child becoming homeless or becoming a burden on siblings.  If your child runs up credit card bills or marries someone inappropriate while having mental health issues, his creditors and future ex-spouse cannot get their hands on the money in the trust – except for child support.

If you are thinking of leaving your mentally ill child’s share of your estate to one of your other children with the expectation that they will use the money for your mentally ill child’s benefit, see my earlier blog about why that is not a good idea for your special needs child.  The same reasoning applies here.  https://baumerestateplanning.com/2023/02/24/why-it-is-a-bad-idea-to-leave-nothing-to-your-special-needs-child/

You might think, “A trust sounds too complicated.  Just give him the money and if he runs through it, too bad.  He should have been more responsible.”    It can be very frustrating to deal with a child with mental illness – especially when they are adults.  They may self-medicate with drugs or alcohol while refusing to take the medications a doctor actually prescribed.  They may do things over and over and over again without thinking about the consequences – or the impact on others in the family.  But they do  these things because they are ill and aren’t always able to see what seems clear to everyone else.  That is why they need protection – from creditors and people who will try to take advantage of them because they are ill.  You can provide that protection by putting their inheritance in a trust – securing the funds they will need to live a decent life – and perhaps even to survive – despite having a mental illness.

If you would like to discuss setting up a trust for a mentally ill family member – or for any family member –  please call our office for a free consultation.

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Megan Baumer

Estate Planning and Elder Law Attorney

Law Office of Michael Baumer

Austin, Texas

512-476-8707

Website:  www.baumerlaw.com/estate-planning

Facebook:  https://facebook.com/baumerestateplanning