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Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sat Aug 15, 2020 9:19 pm
by elgobnhoj
Mental illnesses like Bipolar Disorder can pose significant risk to one's assets during periods of mania. While medication, therapy, and lifestyle choices can help mitigate these risks greatly what else can be done? I've come across some resources that recommends special purpose trusts to help reduce financial risk should a manic episode occur. For example, the person with the disorder would meet with a lawyer during normal times and stipulate what should happen in the event of an episode, and the trustee handles assets when they are unwell. What other options do people with bipolar, and their friends and family, have to help protect assets?

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sat Aug 15, 2020 9:37 pm
by 000
Spendthrift trust?

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sat Aug 15, 2020 9:43 pm
by JoMoney
A trust where someone else is controlling the money seems like the main way to do that.
You could buy an annuity that guarantees a fixed regular payment, and might prevent them from spending money they don't have immediate control over, but there's nothing stopping them from selling the annuity if they got that idea from some late-night TV commercial, and had things together enough to go through that process.

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sat Aug 15, 2020 9:54 pm
by MJS
A good lawyer is your best choice for real protection.

However, while it was designed to protect the elderly from fraud, assigning a Trusted Contact through your brokerage could provide an alert. The federal website includes diminshed capacity among its uses.
https://www.investor.gov/introduction-i ... lletins-30
"Confirming your current health status, if your brokerage firm suspects you are sick or suffering from diminished capacity."

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 1:30 am
by celia
MJS wrote: Sat Aug 15, 2020 9:54 pm A good lawyer is your best choice for real protection.

However, while it was designed to protect the elderly from fraud, assigning a Trusted Contact through your brokerage could provide an alert. The federal website includes diminshed capacity among its uses.
https://www.investor.gov/introduction-i ... lletins-30
"Confirming your current health status, if your brokerage firm suspects you are sick or suffering from diminished capacity."
Relying on a trusted contact is best reserved for those with gradually diminishing cognitive impairment that may not yet be identified. Someone who is already known to live with a permanent impairment would be better helped with a special needs trust. Else, what would happen if the person cycles through bipolar phases (in this case) and, while they are high-functioning, they talk a new doctor into writing them a letter saying he is now capable of handling his own finances. Since this may enable the person to control their assets again, that could have undesirable consequences.

If the person with bipolar disorder (or any other condition which interferes with cognitive skills) owns the assets, it would be best if he decides who he wants to be trustee and both of them could visit a special needs trusts lawyer together. A trust that is funded with one's own assets is a "first-party" trust. If the trust is funded by anyone else for their benefit, then it is a "third-party" trust.

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 4:53 am
by neverpanic
celia wrote: Sun Aug 16, 2020 1:30 am
MJS wrote: Sat Aug 15, 2020 9:54 pm A good lawyer is your best choice for real protection.

However, while it was designed to protect the elderly from fraud, assigning a Trusted Contact through your brokerage could provide an alert. The federal website includes diminshed capacity among its uses.
https://www.investor.gov/introduction-i ... lletins-30
"Confirming your current health status, if your brokerage firm suspects you are sick or suffering from diminished capacity."
Relying on a trusted contact is best reserved for those with gradually diminishing cognitive impairment that may not yet be identified. Someone who is already known to live with a permanent impairment would be better helped with a special needs trust. Else, what would happen if the person cycles through bipolar phases (in this case) and, while they are high-functioning, they talk a new doctor into writing them a letter saying he is now capable of handling his own finances. Since this may enable the person to control their assets again, that could have undesirable consequences.

If the person with bipolar disorder (or any other condition which interferes with cognitive skills) owns the assets, it would be best if he decides who he wants to be trustee and both of them could visit a special needs trusts lawyer together. A trust that is funded with one's own assets is a "first-party" trust. If the trust is funded by anyone else for their benefit, then it is a "third-party" trust.
Were you able to get the credit card?

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 5:48 am
by Mr. Rumples
There is no right answer for this. It is dependent on the type and severity of illness (Bipolar I, II, and so forth), family dynamics and state law. An attorney who specializes in this will help; some are sometimes appointed guardians by the courts. I help care for a family member with severe mental illness. Thankfully, he is very responsible for money. Also, by law, there is such a thing as a "trusted contact." Its not the same as a POA, but it is something to keep in mind.

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 6:56 am
by retiredjg
elgobnhoj wrote: Sat Aug 15, 2020 9:19 pm What other options do people with bipolar, and their friends and family, have to help protect assets?
I had a friend whose spouse was bi-polar. Had a very good income but was constantly in trouble with pay-day loans. Friend eventually got a conservatorship so as not to lose house and all assets. It worked out pretty well.

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 8:26 am
by e5116
In extreme situations where individual does not want to be helped, is an adult, and is at risk of considerable loss, the resolution may be to file for financial guardianship. State laws on this vary. If successful, guardian can control and disburse assets and can even be co-guardian with a third party bank if desired (for a fee of course).

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 10:24 am
by elgobnhoj
Mr. Rumples wrote: Sun Aug 16, 2020 5:48 am There is no right answer for this. It is dependent on the type and severity of illness (Bipolar I, II, and so forth), family dynamics and state law. An attorney who specializes in this will help; some are sometimes appointed guardians by the courts. I help care for a family member with severe mental illness. Thankfully, he is very responsible for money. Also, by law, there is such a thing as a "trusted contact." Its not the same as a POA, but it is something to keep in mind.
Would a power of attorney be helpful in these situations as well?

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 10:25 am
by elgobnhoj
Also, how do trusts work in general? For example, say a person's largest access to financial instruments are:
  • Home Ownership
  • Tax Advantaged Accounts (e.g. Vanguard IRA/Rollover, Employer 401k, HSA)
  • Credit Cards (with high limits)
Would a trust be able to help protect any of these, or would it only be able to protect funds that can be diverted from a taxable account into a new financial instrument?

Also, I know that there are other things that can be done if someone with Bipolar has a partner to help protect assets, such as:
  • Credit Freezes with pin code access required to unfreeze and thus take out new loans
  • Restrict/Limit Existing Credit Card Access
  • Access to Mint or other aggregation tools to monitor spending/debt
  • Other ideas?

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 11:17 am
by BolderBoy
retiredjg wrote: Sun Aug 16, 2020 6:56 amFriend eventually got a conservatorship so as not to lose house and all assets. It worked out pretty well.
I was thinking that this scenario is what a conservatorship is designed to mitigate. Isn't there a popular media musical personality whose substantial assets are in a conservatorship?

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 11:44 am
by retiredjg
BolderBoy wrote: Sun Aug 16, 2020 11:17 am
retiredjg wrote: Sun Aug 16, 2020 6:56 amFriend eventually got a conservatorship so as not to lose house and all assets. It worked out pretty well.
I was thinking that this scenario is what a conservatorship is designed to mitigate. Isn't there a popular media musical personality whose substantial assets are in a conservatorship?
Probably more than one.

I'm wondering about the difference between a conservatorship and a financial guardianship? In retrospect, I'm not sure which my friend got.

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 11:47 am
by Sandtrap
Seek excellent Estate planning legal counsel.
Especially the larger the estate and more complex dynamics.

One of my concerns as well.
My trust has been carefully strategized and constructed.
j🌺

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 12:03 pm
by afan
If the person has a lot of money in their name, they could coreate an irrevocable trust for their own benefit. Laws are complicated but it can be done. Then let the trustees' handle most of the finances. Get the assets under the individual's control down to the point that they cannot get large amounts of credit.

Any inheritance should go to a similar irrevocable trust, not to the person outright.

If the person has an income that would let them borrow too much, then when they are under control, have them put up some roadblocks. Perhaps freeze credit and investigate whether it is possible to require someone else to unfreeze.

If there is enough money, this might be a job for one of the relatively low fee corporate trustees- Vanguard, Schwab, etc. Or maybe an administrative trustee in an asset protection state.

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 1:01 pm
by celia
elgobnhoj wrote: Sun Aug 16, 2020 10:25 am Also, how do trusts work in general? For example, say a person's largest access to financial instruments are:
  • Home Ownership
  • Tax Advantaged Accounts (e.g. Vanguard IRA/Rollover, Employer 401k, HSA)
  • Credit Cards (with high limits)
Would a trust be able to help protect any of these, or would it only be able to protect funds that can be diverted from a taxable account into a new financial instrument?
The way the house and taxable accounts are "protected" is that the trust owns them and only the trustee can do transactions.

I suppose the other accounts can give agent authorization to the trustee with the owner having view-only access.

Put a low credit limit on the credit cards. If there is the possibility the person would call up and request a higher limit, the trustee could take out a credit card and have the other person be an authorized user (who is unable to change the credit limit). That would enable them to make regular purchases such as food and clothing, but bigger purchases would have to be discussed with the trustee. Optionally, the person who may not be controlling their money properly could have a checking account with a few thousand in it (whatever is willing to be lost) so they have a sense of control and responsibility.

neverpanic wrote: Sun Aug 16, 2020 4:53 am Were you able to get the credit card?
I'm pretty sure this question applies to a recent thread I started asking how I can get a credit card for an irrevocable trust, for which I'm a co-trustee. Since the trust doesn't have a credit history, I haven't had time to unlock my personal credit reports yet. Then I will apply for a cc under my name, make the other co-trustee an authorized user, and link it to the trust's checking account to automatically pay the credit card bill each month.


Rather than having a special needs trust, another option is to have a regular living trust but designate someone other than the grantor (whose assets are being put in the trust) as the trustee. (Often, the special needs trust is used to qualify the beneficiary for Medicaid, so if that is likely not a future possibility, look into a regular trust instead with an estate planning lawyer.)

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 1:27 pm
by Cruise
Add to the other advice you have received:

Psychiatric Advance Directive

Google it and lots of good information will appear...

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 1:31 pm
by wootwoot
Conservatorship, it worked for Britney Spears and her problems were immense.

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 3:22 pm
by Mr. Rumples
elgobnhoj wrote: Sun Aug 16, 2020 10:24 am
Mr. Rumples wrote: Sun Aug 16, 2020 5:48 am There is no right answer for this. It is dependent on the type and severity of illness (Bipolar I, II, and so forth), family dynamics and state law. An attorney who specializes in this will help; some are sometimes appointed guardians by the courts. I help care for a family member with severe mental illness. Thankfully, he is very responsible for money. Also, by law, there is such a thing as a "trusted contact." Its not the same as a POA, but it is something to keep in mind.
Would a power of attorney be helpful in these situations as well?
I don't know. There are different types of POA's and then how the various financial institutions handle it might be different. I have a relative, not mentally ill, who can't manage money. Though an adult, her inheritance was made so that she gets an allowance and anything above that has to be specially approved by the firm handling the investments.

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Sun Aug 16, 2020 3:38 pm
by BuddyJet
I had to deal with this as a trustee of a testamentary trust for my brother with bi-polar. The best answer will depend on the case but here are a few thoughts from my experience.

Corporate trustees are good for mandated payments but not for discretionary. Our bank was more concerned about avoiding threatened lawsuits or complaints after refusing a money request than doing what is best for the beneficiary. The legal CYA fees also got nuts.

On the personal trustee side, it is hard to have a good family relationship with the money issues getting in the way. Can’t change it but best to understand going in. I was willing to be hated at times for doing what I felt was right.

While I couldn’t change the trust I had to deal with, these are the terms I would have liked.

Monthly stipend paid with Yearly inflation adjustments.
Housing, insurance and medical paid directly to provider. Trust buys medical and other insurance
Limited discretionary payments by trustee.

This would help asset protection but is less intrusive than conservatorship. If necessary, conservatorship can be next step.

BTW, powers of attorney work in theory but not in practice. Almost everyone demands a specific power executed recently on their form. General powers are routinely refused.

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Mon Aug 17, 2020 12:12 am
by mkalman
wootwoot wrote: Sun Aug 16, 2020 1:31 pm Conservatorship, it worked for Britney Spears and her problems were immense.
I am not sure her case is the best example for this, given the (now very public) allegations of exploitation and abuse.

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Mon Aug 17, 2020 3:09 am
by neverpanic
celia wrote: Sun Aug 16, 2020 1:01 pm
neverpanic wrote: Sun Aug 16, 2020 4:53 am Were you able to get the credit card?
I'm pretty sure this question applies to a recent thread I started asking how I can get a credit card for an irrevocable trust, for which I'm a co-trustee. Since the trust doesn't have a credit history, I haven't had time to unlock my personal credit reports yet. Then I will apply for a cc under my name, make the other co-trustee an authorized user, and link it to the trust's checking account to automatically pay the credit card bill each month.

Rather than having a special needs trust, another option is to have a regular living trust but designate someone other than the grantor (whose assets are being put in the trust) as the trustee. (Often, the special needs trust is used to qualify the beneficiary for Medicaid, so if that is likely not a future possibility, look into a regular trust instead with an estate planning lawyer.)
Thank you. I was going to mention that I had reached out to Capital One recently and they approved the trust for a low limit ($300) card. Different situation than yours, but I was guessing the bank might operate similarly. A different bank has the trust account, but denied a credit card at this time.

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Mon Aug 17, 2020 5:38 am
by chipperd
Conservatorship.
Needs to be established via probate court, at least in the state I'm in (the actual geographical state :happy ) as the individual seeking conservatorship is requesting the court remove civil liberties from an individual and hand control of those civil liberties to another individual.
Most individuals, in my limited experience with this kind of issue, don't want to give up that level of control over their lives. One who is petitioning the court for conservatorship, would need the diagnosis and a well established pattern of behavior in which the individual acts/acted/is acting against their own financial best interests.
It's not clear to me if you are asking as if an individual with the diagnosis who is seeking a conservator, or if an individual is trying to become a conservator over another individual. Two very different issues with different tracks.
Do you have a case in mind?

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Mon Aug 17, 2020 12:39 pm
by Gnirk
BuddyJet wrote: Sun Aug 16, 2020 3:38 pm I had to deal with this as a trustee of a testamentary trust for my brother with bi-polar. The best answer will depend on the case but here are a few thoughts from my experience.

While I couldn’t change the trust I had to deal with, these are the terms I would have liked.

Monthly stipend paid with Yearly inflation adjustments.
Housing, insurance and medical paid directly to provider. Trust buys medical and other insurance
Limited discretionary payments by trustee.

This would help asset protection but is less intrusive than conservatorship. If necessary, conservatorship can be next step.

BTW, powers of attorney work in theory but not in practice. Almost everyone demands a specific power executed recently on their form. General powers are routinely refused.
Thank you for your post....if I am able to leave a high 6 figure inheritance to my Bipolar daughter, this gives me great information on how to set it up.

Re: Protecting assets from mental disorders (e.g. Bipolar)

Posted: Mon Aug 17, 2020 12:48 pm
by BuddyJet
neverpanic wrote: Mon Aug 17, 2020 3:09 am
celia wrote: Sun Aug 16, 2020 1:01 pm
neverpanic wrote: Sun Aug 16, 2020 4:53 am Were you able to get the credit card?
I'm pretty sure this question applies to a recent thread I started asking how I can get a credit card for an irrevocable trust, for which I'm a co-trustee. Since the trust doesn't have a credit history, I haven't had time to unlock my personal credit reports yet. Then I will apply for a cc under my name, make the other co-trustee an authorized user, and link it to the trust's checking account to automatically pay the credit card bill each month.

....
Thank you. I was going to mention that I had reached out to Capital One recently and they approved the trust for a low limit ($300) card. Different situation than yours, but I was guessing the bank might operate similarly. A different bank has the trust account, but denied a credit card at this time.
Also consider a debit card for the trust in cases where $300 isn’t enough.