Estate Planning for a Disabled Beneficiary

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Many people wish to set up an estate plan to provide for their family members and loved ones after their death.  In the case of a loved one who is disabled, it is important to set up this plan carefully in order to best provide for that individual.  This is especially true if that individual qualifies for government benefits, because in some cases inheritance may force the person to spend their inherited assets before collecting government benefits.  

A carefully drawn estate plan can help you to maximize available resources for a disabled loved one, without jeopordizing their ability to collect government benefits.  There are several different ways to accomplish this goal.

Disinheritance

One of the least complicated options is to disinherit the individual altogether.  Although this may sound counterintuitive, disinheritance has the benefit of allowing a disabled individual to collect benefits such as Medicaid, and also be supported by his or her siblings.  

A typical estate plan using disinheritance would leave the entire estate to the disabled individual's siblings, and impose a moral obligation upon then to spend a portion of their inheritance for the care of the disabled sibling.  

The downside to this type of estate plan is that the portion of the estate intended to be used for the care of the disabled person can be reduced by other factors, such as: 

Disclaimer

Similar to disinheritance is the use of a disclaimer.  In this type of plan, the disabled individual would disclaim their inheritance, and it would typically instead be paid to the individual's siblings or other beneficiaries of the will.  

In some states, however, a disclaimer of inheritance can disqualify an individual from recieving benefits such as Medicaid.  It is much better to plan for the individual ahead of time than to rely on their disclaiming an inheritance.

Discretionary Trusts

The best way to care for a disabled loved one after your death is through a discretionary trust.  A trust is a flexible estate planning instrument, where assets are transferred to a trustee, who then has a legal duty to distribute the assets according to the terms of the trust.  

In the case of a discretionary trust for a disabled beneficiary, assets would be given to the trustee to hold "in trust", and distribute the assets for the care of the disabled beneficiary.  In most cases, this will not disqualify the individual from Medicaid or other benefits, because the legal title to the assets is held by the trustee, and not the disabled individual.  The terms of a discretionary trust can be structured in many different ways.  

Furthermore, if a trustee fails to hold up their obligations under the trust, the beneficiay can bring them to court and the court may order that the trustee distributes the assets in a certain way, or may appoint a different person as trustee.

Do I Need A Lawyer?

Estate planning can be very complicated, especially when planning for the care of a disabled individual.  An attorney experienced in estate planning can help you to foresee what problems may arise and help plan to avoid those problems.  An attorney can also help you to be sure that your intent is clearly expressed and your wishes will be followed after your death. 

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Last Modified: 01-07-2013 02:07 PM PST

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