What happens if you leave your assets or a portion of your assets directly to your child who is suffering from mental illness or developmental disabilities who are on governmental assistance programs? First of all, the child may not be able to handle or manage these finances or may also be taken advantage of. If such is the case, a Guardian of the Estate will need to be appointed for the child to manage the child’s finances. This is a probate court procedure and can be costly and time consuming. Second, and often a more important issue, is the fact that because of the additional resources, the child may now be ineligible for Medicaid and other governmental assistance programs. The child would then be required to spend down all of his or her inherited assets until he or she is once again eligible.
An alternative to both of the above situations is to leave that child’s inheritance directly to a Wholly Discretionary Trust. Income and principal from the Trust is utilized by the Trustee in the discretion of the Trustee for the child. Since there are no required distributions to the child, the funds in the Trust are not considered as a resource of the child and he or she would remain eligible for the public assistance programs. The money in the Trust could be used for things that that government does not provide such as travel, outings, cable, more advanced medical care, etc. The funds are managed by the Trustee and therefore, a Guardian of the Estate of the child may not be necessary. Upon the child’s death, the remaining balance can be distributed to your other children or any other way you decide.