What can be done to protect assets if a disabled person inherits money?
A woman learns she has a half-brother with no heirs who left her and a sister with a $3 million estate to be divided equally. The sister is a paranoid schizophrenic with a long history of not taking medication and was recently hospitalized after an incident involving the police.
A thoughtful article from Market Watch examines the issues being faced by the well-sister: “’She’s a danger to herself’: Our late brother left us $3 million, but my sister is in hospital with schizophrenia. Should I take control of her finances?”
Since both sisters are residents of Florida and the estate is going through probate, they are advised to retain an experienced estate planning attorney who focuses on setting up trusts for people with disabilities. One option when a disabled person inherits is to create a Special Needs Trust to plan for the sister’s care in the short and long term.
Such a trust is a first-party trust, meaning it is created by or for the property owner. Once such a trust is in place, it is required to pay back any remaining funds to the state(s) that provided aid when the person dies.
If the schizophrenic sister agrees to give the well-sister Power of Attorney, the well-sister could manage her sister’s finances. In some states, there is a Psychiatric Power of Attorney, similar to an Advanced Healthcare Directive or Medical Power of Attorney. However, the sister can only permit these documents to be created and executed when she is of sound mind and can make these decisions.
A Durable Power of Attorney gives one person authority to make financial and medical decisions for another. These documents can only be executed when the person has legal capacity. This is another reason why everyone should have these documents as part of their estate plan: We never know when they may be needed.
Another option when a disabled person inherits is to put the sister’s funds in a trust to distribute funds regularly, which could prevent her from burning through the money in a short time. This is especially important if others might take advantage of her when she is suffering an acute episode of schizophrenia.
A conservatorship or guardianship may be necessary if the sister continues being hospitalized and is unwilling to grant her sister Power of Attorney. This is difficult when mental illness is the reason for incapacity, requiring more witnesses and documentation of the individual’s incapacity.
As many as approximately one in five adults suffer from mental illness at some point in their lives. Schizophrenia is a complicated mental disorder with psychotic symptoms, including hallucinations, delusions, paranoia, and thought disorders. The unpredictability of the disease makes it more challenging than other mental illnesses.
An experienced estate planning attorney who understands how to structure inheritances. When a disabled person inherits, the assets can be controlled and used without government control.
Suppose a disabled person inherits funds from your family. In that case, you can create a third-party trust so that the funds never belong to the disabled person and can be protected and used for the person without a payback requirement when the beneficiary dies.
Reference: Market Watch (July 29, 2024) “’She’s a danger to herself’: Our late brother left us $3 million, but my sister is in hospital with schizophrenia. Should I take control of her finances?”the
