Money and mental illness

April 2, 2008 8:34 PM

How to manage an inheritance when we don' t know how responsible the person (now 18) will be?

My daughter just turned 18. For the past two years, she has really struggled with major depression (include bad voices in her head at times), PTSD and some borderline characteristics. Generally she doesn't spend much money even if she has it but she has moments of being very impulsive.

My father is planning to leave each of my kids (there is an older brother) about $150,000 in his will. He is asking me for advice on what he should do for my daughter. I'm hoping that by the time he passes on (he is 77), she will have mostly recovered and be functioning well but at this point I have no idea if she will turn into a responsible adult (and able to deal with any remaining challenges from her mental illness) or not. In other words, by the time she is 25, there is a reasonable chance she will be able to handle the money. But there is also a real chance that she won't.

At the same time, my father doesn't want to do anything more complicated/expensive than necessary. Any advice?

Also, any advice on the equity issue of whether we need to do the same for her brother (who is 3 years older and extremely responsible with his money)

You can also contact me at [e-mail]

posted by anonymous to work & money (27 comments total)

That is a lot of money, even for a responsible 21 year old. If it were me leaving the money, I would not leave the money as "cash" to such young people. I would leave them the money in some sort of annuity (maybe over 10/15 years), or I'd put it in a trust (probably more complicated).

I think the same vehicle should be used for both children.
posted by ClaudiaCenter at 8:48 PM on April 2, 2008 [1 favorite]

You could have your father establish a testamentary trust (just a fancy label for a trust created by a will), with yourself or an attorney as the trustee.

A lawyer would be able to work with you to custom tailor the terms of the trust to address your concerns. For example, $X to your daughter per year for her lifetime, or until she reaches age Y. Or, the power to disburse money and the amount of any disbursement could be left to the trustee's discretion, based on the needs of the beneficiary. Trusts are extremely flexible, so you should be able to create an appropriate mechanism.

Of course, you would have to pay attorney's fees to add this to your father's will. And I think that trustees have to make an annual accounting to a court (although the assets in the fund don't have to go through probate). But otherwise it's a pretty simple way to give yourself peace of mind.
posted by the littlest brussels sprout at 9:09 PM on April 2, 2008

estate planner, see one

it's worth it when you're talking about this kind of money

w/o one you might be sorry, and it'd likely cost more to not have one

they know about all sorts of stuff, how to leave money, taxes on it etc.
posted by Salvatorparadise at 9:20 PM on April 2, 2008

When your father sets up his will, assuming he's actually planning on sitting down with an attorney (and isn't using a computer program or set of boilerplate forms), he can draft it so that the money is held in trust for your daughter. This is a pretty standard thing and any lawyer who handles wills ought to be able to do it. You can name a trustee (probably more than one, in a chain of succession) who will manage the funds on behalf of the beneficiary, and you can specify under what conditions the money is paid out.

I know of a not-totally dissimilar situation where a trust was set up specifying that the inheritance wouldn't be paid out to the beneficiary before a certain date if they got married without a prenuptial agreement. (This was in a 'strict community property' state; the purpose was to avoid the risk of losing half the inheritance to an ill-considered marriage at a young age.) But that's just an example; the point is you can do all sorts of stuff, and make it as complex and arbitrary as you see fit.

There are lots of basic resources about inheritance trusts online, but this is not something you'll be able to do without a lawyer.
posted by Kadin2048 at 9:27 PM on April 2, 2008

She's an adult. Give her the money like you should just give your son the money. It's now her responsibility to not lose/mess up with all that cash, and it's not your responsibility to protect her from herself anymore.
posted by beerbajay at 11:00 PM on April 2, 2008

I've dealt with this from the other, receiving, end. My father died and left me about the same amount. It enabled me, despite of bouts of time I couldn't work because of my mental illness, to still survive without having to go into serious debt, homelessness or welfare. Maybe your daughter is more financial responsible than you think?

If all her siblings get the same amount in hand, why should she be singled out? Would you, or your father, do the same thing if she had another serious illness and would use the money to pay off her health bills? Having a mental illness in itself is already enough of a curse. It is not fun to be singled out and treated differently because you have one.

From my own experience people with depression tend to be anxious with (the lack of) money and having a savings account as a backup might give her actually some peace of mind.

On top of that I don't think it's right to "govern" with money. We all make a lot of bad decisions during our lives, it's called learning. Give her the opportunity to make her own mistakes. And why don't you just ask her what she thinks? Maybe she thinks it is a smart thing if you to put the money in a trust, but at least you then didn't do it behind her back.

Just my 2 cents. BTW My inheritance made it possible for me to start my own company because I couldn't work for a boss.
posted by maremare at 11:18 PM on April 2, 2008 [3 favorites]

Beerbajay, maremare, I've seen a slightly different version of this play out at close range, with a much less desirable outcome. The only difference was that it wasn't an inheritance, but rather one of the "lucky" dot commers. A close relative of mine was doing fairly well at a company that went public during the dot com boom and ended up cashing in his stock options for a fair pile of cash. All was well for a couple of years, and then he developed a pretty bad mental illness.

The long and short of it was he was to the point of "hearing voices" at points, spending his money beyond recklessly. Flying across the country at the drop of a hat because he "needed" to be in city X for pointless reason Y and he HAD TO BE THERE TOMORROW DAMMIT!" was one activity he did more than once that bled off a lot of his windfall. He also fell in with a bad crowd who took advantage of the fact he wasn't operating on all cylinders and they sponged off him ruthlessly.

The family tried to do what we could for him, but since he was an adult, and couldn't be seen to present a danger to himself, he retained control of his life and finances from a legal perspective. After a year or so of this behavior, he'd burned through all of his money, as well as fell heavily into debt, lost his house, car, everything. Literally down to his clothes on his back before he finally took initiative and got help. We all wished there was more we could have done to shield his finances from himself, but there was nothing.

I guess what I'm saying is if you follow advice to the effect of "she's an adult, give her the money and let her do with it what she wants", it may turn out OK. But you may also be sitting there 5 years after the fact and wishing you'd put at least a few controls on it so it's not all gone in a flash. We didn't have that option, but with estate planning, you do.
posted by barc0001 at 12:13 AM on April 3, 2008

Nthing the notion of putting it in trust for her, with a responsible person as trustee. The trustee can distribute as much money as they want to, but can also prevent distributions if they think it's a bad decision. Many wills with large sums are set up so that the inheritance is in trust until the recipient is 25, 30, even 35 years old. It's really not a big deal or a major hassle at all.
posted by Addlepated at 12:26 AM on April 3, 2008

Hmm.

Personally, I'd suggest you ask her, if she thinks she can be responsible with that sort of dosh, or if it would be a better idea to set it up as a trust, maybe with some annuity, so if stuff does go sideways, at least she won't be out in the streets.

A good friend of mine had a trust set up that he couldn't access - he nearly was in the streets due to mental and other health issues a number of times. That made him very bitter - it's not like he didn't have the money, he just couldn't get to it. It was a truly painful situation for him to be in.
posted by ysabet at 1:07 AM on April 3, 2008

I agree that a trust may be the way forward, but you do need to proceed with care. If it's set up so that you as trustee have a full discretion as to how and when your daughter accesses the money, that would, in some senses, be prolonging the childhood of your daughter. I know that if, in my twenties, my mother had held my purse strings, I would have found that to have been a very infantilising and frustrating situation. In fact my own parents did remain financially involved with me into adulthood; and while I appreciate their help and concern, it also caused a good deal of sorrow, strife and frustration on both sides.

I think independent living is a state any adult naturally aspires to and if a person feels like they have been prevented from becoming financially independent, this of itself can cause a good deal of mental distress, whether one is suffering from mental health difficulties or not. In essence, I would worry that setting up a trust (particularly with a parent as trustee) might have a negative effect on her mental health.

However I see that some safeguards may be necessary. For that reason I think an in depth talk with a qualified estate planner is vital. The answer may be that someone outside the family acts as trustee, perhaps, or the trust is set up so that some payments are not discretionary, or perhaps the trust will only cover a portion of her inheritance, so she has a safety net, but still gets to flex her adult financial muscles with a cash bequest.

As regards your son, for the exact same reasons I would not advise that you set up a trust in respect of his inheritance. If he's 21 now and very responsible, he deserves to be treated as an adult. If I were in his situation and found that my inheritance was tied up in this way in order to be "fair" to my sister it would (a) make me resent my sister a little bit and (b) only underline her lower status as someone who can't take care of herself.
posted by tiny crocodile at 1:41 AM on April 3, 2008

Your father should put it in trust for her. He should NOT try this at home. Equity and trusts is a super complicated area of law. There is for example a rule that a beneficiary can call for delivery from the trustee of the property where the trust is a 'bare trust.'

Confused? Go and see a lawyer in your area who won't be.
posted by dmt at 1:52 AM on April 3, 2008

Ask your daughter.

I think that over fifty percent of the problems caused by mental illness (or any other impairment) are caused by the social environment.

Read up on the social model of disability. And ask your daughter to read up on it too. It could help her more than every cent of that money.

This is not some hippie liberation thing. In the context of the social model, a person with impairments can choose to have a trust as a service to her. It's not embarrassing to hire somebody to clean your house, and it shouldn't be embarrassing to hire a professional decision maker. She's the one making the choice so it's much less fucking horrible and dehumanizing this way.

The money is the money, but your relationship with your daughter is lifelong. You can both get what you want here, if you play your cards right.
posted by By The Grace of God at 4:21 AM on April 3, 2008 [2 favorites]

Nthing the notion of putting it in trust for her, with a responsible person as trustee. The trustee can distribute as much money as they want to, but can also prevent distributions if they think it's a bad decision. Many wills with large sums are set up so that the inheritance is in trust until the recipient is 25, 30, even 35 years old. It's really not a big deal or a major hassle at all.

The attorney for whom I work does wills and I have drafted many a will that holds money in trust for grandchildren until they're 25 or 30. It can even be set up so that a grandchild gets X% of money at one age, and then the rest at an age after that.
posted by Lucinda at 4:46 AM on April 3, 2008

How about a small lump sum straight away, with the rest held in trust til she reaches a certain age? I don't know anything about trusts, but can you set one up so that it is possible for the recipient to access funds in emergencies? I guess that's where Addlepated's "responsible trustee" comes in. Get one of those.

I gather you already have a good idea of how financially responsible your daughter may be right now. But by all means talk to her - and your son. Good luck!
posted by mooza at 4:55 AM on April 3, 2008

It should go into a trust. The big issue is who should be the trustee. If it is you it could cause a rift in your relationship, but you are in a better place to know. If you want some neutral third party, such as a banker, to take on the role it will eat into the money, and frankly while it is a tidy sum, it is not so tidy that you do not need to worry about the administration costs. The easiest way is to have the trust give her about a tenth of the money or so every year until the trust is exhausted so that she can't waste it all so easily if she is in a funk. Setting a schedule also lowers the admin costs and lowers the tension between her and the trustee. The kind of trust where she only gets the money based on need etc. will just drive her crazy, literally. I have seen it too many times. It's better for her to be mad at the calendar than at the trustee. Any lawyer can set up a simple trust for a very low fee.
posted by caddis at 4:57 AM on April 3, 2008 [1 favorite]

Definitely a trust. Now that people don't really reach adulthood until they're out of college, trusts that last until age 25 are the norm. This will work with both the daughter and her brother. If he's very responsible, he'll be able to persuade the trustee of the money's proper use. If she's grown up by then, the trustee will similarly notice.

Extra advice...although many advise against it because of the cost, an outside (non-family or friend) trustee is the way to go, especially with a sum of money that large. Talk to the lawyer/estate planner/your bank about it.
posted by aswego at 5:03 AM on April 3, 2008

I don't have any advice - just a true story you might find interesting.

My 18 year-old step-sister was left 1.8 million dollars from an aunt - and 16 months later, she was broke.
posted by bradth27 at 5:22 AM on April 3, 2008

From what you describe it sounds like she might have mild bipolar disorder-if that is the case you are worried about her having a manic or hypomanic episode in which, yes, money can and does fly freely.

Please do investigate a trust. A friend of mine has borderline disorder, got a sizeable inheritance, and went thru it more quickly than she should have...and some of that was not her fault in that she was "taken" by crooked financial advisors, etc.
Don't underestimate the ability of human vultures to sniff out and prey on vulnerable people with money.
posted by konolia at 6:09 AM on April 3, 2008

Nthing all those above who suggest that you "lawyer up." There is a reason we have evolved a system of law governing trusts and estates. Your question is at the heart of that very reason.

It's not always the case, but more often than not, 800+ years of case law and statutory evolution will trump asking strangers on the internet. Given the amount of money involved, you and your father should look at the fees associated with establishing a trust as an investment in your children's financial security and long-term well-being.

If you're not sure how to find a competent lawyer in this area, ask friends/neighbors/co-workers that you trust. You won't need to tell them why, because T&E law is both common and rather uncontroversial (at least to all those who are not associated with the trust). Just ask for a good trusts & estates lawyer.

If you don't want to ask folks you know for a recommendation, then contact your local Bar Association, which will have advice on how to find a lawyer. Best of luck.
posted by deejay jaydee at 8:04 AM on April 3, 2008

My 18 year-old step-sister was left 1.8 million dollars from an aunt - and 16 months later, she was broke.

In my (albeit rather limited) experience, I have seen vast sums of money (fraudulently obtained, hence my involvement) frittered away simply by living the good life. $150k could be gone remarkably quickly.

Also, nthing the idea of you not being the trustee for the sake of your relationship with your daughter.
posted by dmt at 8:15 AM on April 3, 2008

The best solution would be to set something up where if she recovers and is leading a responsible life, she can access the money for "good" purposes like buying a house or college and the like. But in the meantime, its in an account paying her a stipend to help with day to day costs.

Other thoughts-
-make sure the setup is the same for all inheritors. You wouldn't want her to feel like grandpa is treating her differently. Make the rules both time based and event based. Yeah, you get full access when you're 30. But (like above), it will be available for legitimate event-based uses.

-no matter how it's done, make sure there is at least one person in the decision making process who will be on her side. A guardian ad litum for the purposes of her inheritance, for example. With all due respect, you surely believe you know what's best. But your closeness to the situation might cloud judgment.

-maybe a stepped plan would be an option. Give them $20k upon the event of his death, no matter what, and see what happens. Give her the benefit of the doubt, tell her you trust her to do the right thing, and then let her manage it unfettered. You'll all be in mourning, and a little cash might help the process in any number of ways.
posted by gjc at 8:39 AM on April 3, 2008

I would look into establishing a spendthrift trust. This sort of trust enables the trustee to make periodic payments to the beneficiary. It is more complicated than simply leaving the money to your daughter in a will, but it will help ensure that the $150K isn't frittered away on useless things.
posted by reenum at 8:53 AM on April 3, 2008

There are financial advisers who specialize in setting up trusts for children with disabilities. If you're near Seattle, I could track one down for you. If you want to find one on your own, a good place to start would be with an organization that works with children with special needs, or a support group for parents of people with special needs.
posted by The corpse in the library at 9:03 AM on April 3, 2008

Just hopping back in to reiterate my view that the same solution (whether trust or annuity or whatever) be used for both children. Ask an estate planner for a solution that makes sense for young adults generally and for your children specifically. (No young adult "needs" $150,000 cash.) The impact of singling out your daughter would reverberate for years and years.
posted by ClaudiaCenter at 9:06 AM on April 3, 2008

(Unless she needs a "special needs" trust -- in which case you will need to have two different solutions. TCITL is correct. Special needs trusts are for people with disabilities who rely upon means-tested government benefits such as SSI.)
posted by ClaudiaCenter at 9:08 AM on April 3, 2008

I completely disagree about the spendthrift trust. Those are the ones that cause the beneficiary undue angst. If the trustee is a family member they will either manipulate or hate the trustee. Nice. If the trustee is a bank then the trustee will want to keep the funds for themselves and they tend to be unduly strict in doling it out. Also, the admin cost on such a trust is higher, and frankly this is not enough money to justify those costs. Just doling out annual payments is almost always sufficient.
posted by caddis at 9:08 AM on April 3, 2008

My estates attorney recommends the following distribution of large sums of money: 1/3 at age 24, 1/3 at age 27, and 1/3 at age 30. In his words, "If they don't get it together by age 30, they're never going to get it." You can apply this distribution to both kids. I think there is wisdom to this approach, as your kid gets a couple of bites at the apple. I followed this advice when I did my will.
posted by crazycanuck at 11:17 AM on April 3, 2008