03 Feb How should we manage inheritances for kids with mental health challenges?

Q. I’m debating putting my assets into trusts for my four kids because two of the four have had mental health issues and I have concerns about their long-term management of the funds. What should I consider before doing this? What kind of trust should I use? The other two kids would do fine with the money and could help manage the money of the two who have troubles. Each kid would get about $750,000 I think.
— Pops

A. We’re glad you asked this question.

You say two of your children have “mental health issues.”

Depending on the severity of the issues and the benefits to which they may be entitled in the future, there are several options, said Tom Szieber, a trusts and estates attorney at Chiesa Shahinian & Giantomasi in Roseland.

He said if a child suffers from a condition that may entitle him or her to government benefits, then you should consider using a special needs trust that would be structured to prevent the child from losing his or her eligibility for such benefits upon your death.

If, however, your children are not likely to receive government benefits, and if long-term management is your paramount concern, then you might consider creating a revocable trust, he said. You could arrange it so that upon your death, your assets would pass equally to your four children, with the two more responsible children receiving their shares outright and the shares for your other two children held in “lifetime trusts,” he said.

“Your two children who do not have issues could be named in your revocable trust as the trustees who will manage the assets held in the lifetime trusts, which would allow your two children who, as you say, `have troubles,’ to enjoy the benefit of the assets without having to manage them,” Szieber said. “The trustees can be given discretion to distribute assets from the trusts to the beneficiaries, either with no restriction or under a standard of `health, maintenance and support.’”

If the issues you mention are of the kind that you expect will lessen as time goes on, alternatively, you could structure the trusts for your two children under the revocable trusts as “age distribution trusts,” rather than lifetime trusts, he said. This means that when your children reach certain ages — when you would feel comfortable with them managing their own assets — the trusts would provide that the assets would be distributed to the child outright, he said.

“If you feel that naming your two children who have no issues as trustees of trusts for your other two children would cause problems among your children, other choices for trustee would be another family member, a friend or a financial institution,” he said. “Naming a financial institution as trustee can have disadvantages in that the institution would charge fees for its services and it may be more difficult for your children who are the beneficiaries of the trusts to deal with an institution rather than one or more individuals as trustees.”

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This story was originally published on Feb. 3, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.