Long term financial planning for Families affected by Mental Illness

If you live with a loved one affected by mental illness and are concerned for their continued care after you pass, there are arrangements you can make to ensure their care that is not as complicated or expensive as you might think.

Once you are not available to help a family member battling serious mental illness (SMI) with housing, assistance with daily activities, and getting to rehabilitation or counseling sessions, who will take over? You can arrange this in advance of your death and fund future care arrangements through trust and life insurance.

This article will explain how this is done so that when you schedule a meeting with your family law or estate planning attorney, you will know what to do beforehand to prepare and what questions to ask to start to put these arrangements in place.


Types of Serious Mental Illness (SMI) Requiring a Family Caregiver

  • mood disorders (such as depression or bipolar disorder)
  • anxiety disorders.
  • personality disorders.
  • psychotic disorders (such as schizophrenia)
  • eating disorders.
  • trauma-related disorders (such as post-traumatic stress disorder)
  • substance abuse disorders.

Depending upon the severity of the condition, a family caregiver will typically take care of the day-to-day needs of their loved one. This will include monitoring their mental state for worsening, relapse, or deterioration, providing any personal care their loved one is unable to do themselves, and assisting them with accessing available services and therapies. Of course, a family caregiver provides valuable emotional support to their loved one with SMI as well.

3 Steps to Take to Provide for the Continued Care of a Family Member with SMI

1.   Decide Who Will Assume the Role of Family Caregiver

Because the continued care of a loved one with SMI can involve government benefits, trust, and insurance, caregivers may feel overwhelmed by. Trust and estate attorneys are experienced in all facets of estate planning for those with SMI and can help you.

But first, a family caregiver cannot simply assume that a sibling or other close relation will care for their loved one with SMI when they pass. Although it may be difficult for a caregiver to contemplate their own death, these arrangements must be discussed with family and settled early on.

Prior to consulting with an attorney, a caregiver should hold a meeting to discuss residential options and plans for the continuing involvement of family members in the life of their loved one with SMI. Often, government benefits will extend the aid of a social worker in such meetings.

2.   Meet with Your Estate Planning Attorney

Once you have discussed the issue of continuing care with your family and come to an agreement, meet with an attorney. Your attorney will have a checklist of tasks that will include communicating with Medicaid and Social Security Disability or Supplemental Security Income (SSI) if applicable, transfer of any caregiver compensation provided by the state if applicable, and transfer of power of attorney.

Your attorney will also help you create a third-party trust of which your loved one with SMI is the beneficiary. It is important to leave money to the third-party trust rather than your loved one directly, because then those funds are subject to clawback by the government due to overpayment of any benefits he or she has received. Leaving funds in a trust protects that money and ensures it goes to the care of your loved one.

Who should act as trustee? Of course, you as a caregiver will be the trustee while you live, but you should select someone to succeed you upon forming the trust. A trustee should be around the same age as you loved one with SMI, empathetic to the needs of your loved one, without conflicts of interest, and willing to navigate the rules and regulations of the various government benefits and programs for which your loved one is eligible.

You may want to designate co-trustees to ensure checks-and-balances. For the same reason, you may want to appoint someone other than the future caregiver as the trustee, or the caregiver and another family member as co-trustees.

3.   Take Out a Life Insurance Policy

You can fund the trust with money you leave to it in your will, or life insurance, or both. Your estate planning attorney will help you determine the amount of coverage you need to fund the continued care of your loved one with SMI, taking into consideration any government benefits and programs your loved one is or will be eligible for.

What type of life insurance to procure will depend upon your financial means and your age.

Ideally, family caregivers will take out a “permanent” policy that will provide coverage for life. For example, whole-life insurance premiums and benefits are guaranteed.

The downside to whole-life policies is that the premiums can be expensive. If you compare the cost of premiums of the same amount of coverage for a term life insurance policy and find that that is more manageable for you, just know that you are gambling that you will die within the term and not after, because in that case, your loved one with SMI receives nothing.

Although the processor providing for the continuing care of your loved one with SMI will be challenging for any caregiver, emotionally, the result is well worth the peace of mind a caregiver feels knowing that a plan is in place.

About the Author

Veronica Baxter is a blogger and legal assistant living and working in the great city of Philadelphia. She frequently works with Chad Boonswang, Esq., a life insurance lawyer in Philadelphia.

Long term financial planning for Families affected by Mental Illness