Wills, Trusts and Estate Planning

Parents of a child with a disability have no choice but to consult with an attorney experienced in mental health and probate law who is able to assist with complex legal considerations and preparation of an appropriate estate plan. Every estate plan must be developed according to the unique family situation and the needs of the person with a developmental disability.

Supplemental Security Income

Many adults with a developmental disability are eligible to receive Supplemental Security Income (“SSI”). SSI is a financial assistance program administered by the Social Security Administration to provide monthly payments to the aged, blind, or persons with a disability who have little or no income or resources. It is designed for the provision of basic food, clothing, shelter and limited amounts for personal needs. Anyone who receives SSI is also generally eligible for Medicaid coverage, a joint federal and state health insurance program that provides for essential medical services.

The eligibility criterion for SSI and, correspondingly, Medicaid is quite rigid. For example, the financial eligibility guidelines for SSI benefits require that total financial resources be less that $2,000 for single persons and $3,000 for married recipients. The SSI program also imposes strict limitations on “earned” and “unearned” income that an individual eligible for benefits may receive during any given month.

If someone with a developmental disability has financial assets in excess of the maximum amount allowed, then that person is not eligible to receive the governmental benefits that provide the resources for basic needs. Any income, which includes interest generated from the principal of a trust, as well as in-kind services, that comes directly to the individual or is legally accessible by the person with the disability, will have the effect of reducing the amount of governmental benefits that the individual may be otherwise eligible. Therefore, great care must be taken by the legal professional in drafting estate plan documents for the family with a member who is disabled.

Without a will, SSI eligibility can be terminated

A Last Will and Testament is most definitely a necessity! A will is a legal declaration of how property is to be divided after a person’s death. Clauses within a will may include the appointment of someone to manage such distribution, for naming a guardian of a minor child, or for creating a trust. If a parent(s) dies without a will, property may go directly to a son or daughter with a disability under the “law of intestacy” applicable to the state in which the deceased lived. If a surviving child with a disability is receiving services from a public mental health agency, then such directly-inherited property may be subject to any reimbursement claims made by that entity for the full cost-of-care on an ability-to-pay basis. Additionally, if the person with a disability is receiving SSI, the eligibility may be terminated until the resources have been exhausted below the asset limit. What all of this means is that without a will there is little chance that the true intent of the parents will be carried out.

Disinheritance is not the Answer

Disinheritance, although an unnecessary and emotionally unappealing estate planning alternative, can exclude the person with a developmental disability. The total disinheritance of a loved one with a disability is generally not advisable, because there is always the potential for a legal action in probate known as a “will contest.” Someone acting on behalf of the person with the disability could dispute the validity of the will instrument or the intent of the testator in front of a judge.

A Special Needs Trust is the Key

The use of a well-written Special Needs Trust is the key to proper estate planning. The specific use of this trust technique is to supplement not to supplant governmental benefits. A trust is a legal instrument made by a grantor who places a source of funds at the control of a trustee for the benefit of the individual with a disability (the beneficiary). Under this special arrangement, the beneficiary has not legal right to the principal or to the income that it generates. Hence, this resource is beyond the reach of creditors. A final part to a trust instrument, is the remainderperson, or the individual – (or a fine charity like The Arc of Oakland County!) – who receives what is left of the trust after the beneficiary’s death.

A “Living Trust” has advantages over a “Testamentary Trust”.

A major consideration involves deciding upon what type of trust instrument to use. The “living trust” has certain advantages over the “testamentary trust.” A living trust is a private document that does not require a court to activate or supervise. There is no probate court supervision, which should reduce the necessity for large attorney fees, possible court costs, time and effort by the survivors away from home or employment. The living trust is a flexible instrument where the grantors, while alive, can transfer assets into the trust or take some out. A “testamentary trust,” on the other hand, is written into the text of a will and it comes into existence only after the death of the maker (testator). A will, and its testamentary trust, is probatable and therefore a public document. This method does require court supervision to activate, perhaps the services of an attorney, and an investment of time and effort by the heirs.

A Spendthrift Discretionary Provision in the Trust

The special needs trust technique involves using spendthrift discretionary language. “Spendthrift” because it is for the benefit of someone who cannot handle money due to a disability, and “discretionary” for the special power conferred upon the trustee as to the use of the trust funds. The strongest possible spendthrift provision needs to be written into the trust, which makes it clear that no one (the person with the disability, creditors, the federal, state, county or local government, or anyone else) has any right to, or claim against, the income or principal of the trust fund. Another “must” provision in the trust is that of granting the trustee sole and absolute discretion over expenditures from principal to make it clear that the beneficiary cannot individually access the funds, otherwise compromising governmental benefits.

Legal Title to the parents’ assets should go to the Trust

Generally, an estate plan should almost never be developed where a person with a developmental disability inherits outright assets other than personal property of nominal value. Most persons with a disability should not receive legal title to the parents’ assets primarily for the following reasons: under most state laws, government agencies may take all or most of the assets owned by a person with a disabling condition for the cost of services provided to that person; if a person with a disability owns assets in excess of a very limited amount, there will be a disqualification from receiving SSI and/or Medicaid until the assets have been nearly exhausted; and, many people with mental impairments may not be capable nor have ever received the requisite training for handling personal resources and may be vulnerable to exploitation by opportunists.

Selecting the Trustee

As should be quite evident from the foregoing, selecting an appropriate trustee to implement the trust is of critical importance. The explicit expression of the trustee’s powers, duties and instructions is also essential to the success of this special type of estate plan. The trust language must clearly and accurately reflect parental intent. Under some circumstances a bank may serve as a trustee, however, such institutions typically lack that “personal touch,” and will not handle small-to-modest individual trusts because the administrative fees become prohibitive. Since the use of a corporate trustee for many families is financially out of the question or inappropriate, what or who is left? The choice is to find an individual trustee, a concerned family member, or perhaps a nonprofit organization to fulfill this role.

An obvious conclusion at this point is that a trustee for an individual with a developmental disability has a unique and vital role to play. The primary responsibility will be to act as an able assistant, protector and advocate, for the beneficiary. The trustee must first know that individual well and consequently recognize all wants and desires, and then make certain that those needs are being met. If personal needs can be obtained by or through a public program (e.g., education, vocational rehabilitation and training, sheltered or supportive employment, counseling, or residential placement options), then the trustee should advocate to secure such programs. The trustee must commit to “doing the right thing.”

Funding a Trust

Trusts may be funded in a variety of ways. This may be a big concern, especially if parents have not accumulated a great deal of wealth over their lifetimes. Some examples of possible assets to fund trusts are: cash, life insurance, annuities, proceeds from the sale of the family homestead, or any other financial mechanism that will secure a better future for their child.

The Importance of Planning

In the end, is the development of an appropriate estate plan enough to answer the question of what happens to a son or daughter after the death of the parents? The answer to this question is “no, not by itself.” A trust instrument has certain limitations. However, the quality of life for a person with mental retardation and/or other developmental disability is greatly dependent upon many variables beyond the control of any one individual. The list includes: the quality of special education, available and appropriate adult education classes, sheltered or vocational positions, “regular” employment, appropriate living alternatives, adequate resources provided by the state legislature through local public mental health agencies, availability of social and leisure opportunities, or access to advocacy services. No legal document could be developed to guarantee that these or any other resources would be available to the beneficiary with a disability. So, proper planning is always of paramount importance.

This article is an excerpt from our 50-page booklet entitled: “Planning A More Secure Future, 4th Edition.” For a more detailed and expanded discussion of this article, order the booklet.

TO ORDER

Please print this form and send $10.00 per copy to:

The Arc of Oakland County
  Attn: Planning a More Secure Future
  1641 W. Big Beaver Road
  Troy, MI 48084-3501

Click here to print this article