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Written by Brooke Reardon Principal Lawyer, Wills & Estates.

With COVID-19 taking its toll worldwide, the need for solidarity is required now more than ever. Not only has the global Pandemic made a significant impact on physical health, there is likely to be an alarming number of individuals who experience mental health illnesses as well.[1]

During tough times like these, arranging all your Estate Planning documents and ensuring that you are prepared is crucial.  While it can be easy to put to one side and not think about, ensuring that you have a plan in place if something were to happen is simply too important to ignore. As succession lawyers, we often see the additional stress that loved-ones face when someone passes away without valid and legally binding Wills and Power of Attorney documents. What makes this even more difficult to witness is that these situations could have been avoided if the person had taken the time to get their Estate Plan sorted. For many of us, this global Pandemic has demonstrated just how uncertain and unpredictable life can be.

All adults, particularly those who have mental health issues or who have children with mental health issues, should have an Enduring Power of Attorney and a Will. A Testamentary Trust or Special Disability Trust under your Will may also be required depending on your personal circumstance.

The following information explores the importance of Estate Planning documents if you are suffering from a mental health illness or if you know someone with a mental health illness and want to protect them.

What do we mean by mental health issues?

In order to make a valid Will or Enduring Power of Attorney, you must have the legal capacity to do so. A person loses legal capacity when they are no longer able to understand the nature of a document and its impact. This can occur for a range of reasons and where mental health illnesses are involved, it can be particularly difficult to ascertain if a person has legal capacity or not. This uncertainty is caused by the severity of the mental health illness where a person may have lucid days and non-lucid days meaning they won’t be able to make legally binding decisions for themselves. As succession lawyers, we have a duty to ensure that our clients have legal capacity when they give us instructions that we then follow to draft their documents. It is a difficult subject to approach with clients where we have concerns about their legal capacity but if we notice a client changing their instructions multiple times or having any issue understanding the effect of their decisions, we have a duty to request a doctor’s report so that we can be sure that their documents won’t be successfully challenged in the future.

What legal options do I have for someone with mental health issues?

If someone either suffers from a mental health illness that means their capacity to make decisions varies day to day or if they have a serious mental health illness which means they generally do not have capacity to make decisions on their own behalf, there are a range of legal documents that may assist. A Will is a document that all Australian adults should have, and it only comes into effect when a person dies. Where a person has mental health issues, a Will with a Testamentary Trust or Special Disability Trust created by a benefactor may be beneficial. An Enduring Power of Attorney is another important document for all Australian adults in particular those with a mental health issue. This document only operates while a person is alive and when they lose capacity.

What is a Special Disability Trust?

A Special Disability Trust is a trust set up in a person’s Will to help an individual with a mental illness continue their life once a carer is no longer available. In order to qualify with Centrelink for certain exemptions and benefits, the person who the Special Disability Trust is set up for must have a ‘severe disability’.  Where a Special Disability Trust is appropriate, they can protect the individual from making unguided decisions. There are also tax concessions available including Capital Gains Tax exemptions. It is important to seek legal advice from a succession law expert in order to determine if a Special Disability Trust may be suitable in your unique circumstances.

What is a Testamentary Trust?

A Testamentary Trust is a trust that is set up in your Will and only comes into effect when you pass away. A Testamentary Trust has various benefits including potential tax savings and asset protection. If you are concerned about the mental health of someone who is to benefit under your Will (also called your Beneficiary), you can appoint a Trustee or Trustees to manage the money that you leave behind under a Testamentary Trust. This means that your Beneficiary won’t have access to the money that is left behind for their care and ensures that there is a check and balance, as long as the Trustee/s appointed are someone who you trust to look after your Beneficiary.

A Testamentary Trust can operate for up to 80 years in all States and Territories except South Australia where they can operate indefinitely. This is important as minor children (under the age of 18) or adult children who are not working are able to receive income distributions from the Testamentary Trust and utilise tax free thresholds and low-income tax offsets, which generally means around $20,000 per child per year can be distributed tax free. It is important to note that Testamentary Trusts also offer protection from bankruptcy and can protect those from future family law proceedings such as future relationship breakdowns (as far as the law will allow).

What is an Enduring Power of Attorney?

Depending on the State or Territory you live in, an Enduring Power of Attorney is a document where you appoint an attorney/s at law to manage your medical, personal and financial affairs when you are rendered legally incapacitated. Unlike your Will, an Enduring Power of Attorney only comes into effect while you are alive and if and when you lose legal capacity to make decisions for yourself. If someone you know has mental health issues, depending on their legal capacity, it is advisable for them to have an Enduring Power of Attorney so that someone that they trust can make decisions on their behalf if and when they lose legal capacity.

Why are Enduring Power of Attorneys and Testamentary Trusts Important?

Where mental health illnesses are a concern, having someone you trust to make decisions that are in your best interests is very important. An Enduring Power of Attorney ensures that someone you trust will be making decisions on your behalf while you are alive, and a Testamentary Trust in your Will can ensure that someone you trust is the ultimate controller of the money you leave behind for the benefit of any beneficiary suffering from an incapacity.

For specific legal advice in relation to your personal situation, contacting a succession lawyer is advised.

  • [1] Bults, M., et al., “Perceptions and behavioural responses of the general public during the 2009 influenza A
  • (H1N1) pandemic: a systematic review”, Disaster Med Public Health Prep, 2015. 9(2): p. 207-19.

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