It is common for people 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 has a disability, it is important to set up this plan carefully in order to meet that individual’s needs.
This is especially true if that specific person qualifies for government benefits. In some cases, inheritance may force the person to spend their inherited assets before they can collect government benefits. There are many other issues to consider with regard to estate planning for a beneficiary with a disability.
How Can I Create an Estate Plan for a Beneficiary with a Disability?
Estate planning for a beneficiary with a disability can be complex due to additional considerations that may come into play. A beneficiary with a disability may have different needs and financial considerations that must be understood when planning the estate. When planning an estate for a beneficiary with a disability, it is important to consider several important factors, including:
- Understanding the type of disability involved;
- Understanding the various abilities and limitations of the beneficiary with a disability;
- Figuring out what the beneficiary with a disability’s future needs are, and what type of special care they may require;
- Determining the government benefits and sources they may rely on, if any; and
- Determining whether the beneficiary’s condition will require extra help, and what their condition will be at a future date.
A carefully drawn estate plan can help you to maximize available resources for a disabled loved one, without jeopardizing their overall ability to collect government benefits. While saving money on taxes and avoiding probate are important, one of the most important goals is to protect the family’s assets from being counted as an inheritance in a way that negatively affects the beneficiary with a disability’s government benefits.
What Does Disinheritance Mean and How does it Apply?
One of the least complicated estate planning options is to disinherit the individual altogether. While this may sound counterintuitive, disinheritance allows a individual with a disability to continue collecting 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 individual with a disability’s siblings. It would also impose an obligation upon then to spend a portion of their inheritance for the care of their sibling.
There are however downsides to this type of estate plan. For one, the portion of the estate intended to be used for the care of the disabled person can be reduced by other factors. These can include:
- Being seized by the siblings’ creditors;
- Bankruptcy of the siblings;
- Divorce of the siblings; and
- The siblings failing to fulfill their obligation to support the disinherited individual.
Can I Use a Disclaimer for Estate Planning Purposes?
Similar to disinheritance is the use of a disclaimer for estate planning options. In this type of option, the individual with a disability would disclaim the inheritance that they are entitled to. From there, it would typically instead be paid to the individual's siblings or other beneficiaries of the will.
In some states, however, this can be tricky, as a disclaimer of inheritance can disqualify an individual from receiving benefits such as Medicaid. It may be a better option to plan for the individual ahead of time than to rely on their disclaiming an inheritance.
How Do Discretionary Trusts Apply?
Probably the most efficient 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 third party called a trustee. The trustee 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 beneficiary with a disability, the property assets would be given to the trustee to hold "in trust". They will then distribute the assets for the care of the beneficiary with a disability at an appointed time or when certain conditions are fulfilled.
In most cases, this arrangement will not disqualify the individual from Medicaid or other benefits. This is because the legal title to the assets is held by the trustee, and not the individual with a disability. The terms of a discretionary trust can be structured in many different ways, allowing for creative ways to have the property held and transferred.
Also, if a trustee fails to hold up their legal obligations in managing the trust, the beneficiary can bring them to court and file a claim. The court may order that the trustee distributes the assets in a certain way, or may appoint a different person to act as the new trustee.
Do I Need a Lawyer if I Need Estate Planning Help for a Beneficiary with a Disability?
Estate planning can be very complicated, especially when planning for the care of a loved one with a disability or relative. An attorney experienced in estate planning can help you to understand what problems may arise and can help plan to avoid those problems. An wills, trusts, and estates lawyer in your area can also help you to be sure that your intent is clearly expressed and your wishes will be followed after your death.