Aging Options

Understanding capacity from a legal perspective

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Every day, people leave this firm with documents in hand that leave another person in charge of their health care or finances or transfers title to their property to someone else on their death. While that’s an oversimplification of what occurs in any law office, whether the document is relatively simple or it took hundreds of hours and several trees to produce, these are pretty weighty decisions and every one of them requires that the person signing the document have capacity. Capacity is a basic legal term but I thought I would cover for those of us not in the legal profession just what the law refers to when it’s talking about capacity and when a person lacks capacity.

First let’s talk about who doesn’t have capacity at all. Some people may lack the legal capacity to enter into a legally binding contract for reasons beyond mental incapacity. For instance, minors (those under the age of 18) lack the capacity to make a contract in most cases. Another example of a person unable to create a legally binding contract is someone under the influence of drugs or alcohol if the party is unable to understand the nature and consequences of the agreement and the sober party is taking advantage of his or her condition. And finally, a person can be considered unable to enter into an agreement if he or she lacks mental capacity. One indicator that someone doesn’t have mental capacity is if that person has a guardian.

To muddy the waters further, there are several kinds of capacity. Some legal requirements involve needing only a basic understanding of what’s occurring while others require a higher level of understanding. There are several legal standards of capacity but the ones we’ll pay attention to here are the testamentary capacity and contractual capacity as other forms of capacity often refer back to one or the other of these two.

Testamentary capacity refers to the legal and mental ability to make or alter a valid Will. A lawyer may ask a client if they know what day it is, ask questions to determine if the client has a basic understanding of what the contract has in it (what property is involved and who is named in the contract for instance) and the overall plan for disposing of property. Testamentary capacity does not end if the client needs assistance in managing day-to-day affairs. Attorneys drafting Wills have an ethical obligation to assess whether the client has capacity but the requirement only requires the attorney’s own judgment rather than a professional opinion. In general, the courts are looking for two specific signs that the testator lacked capacity. The first is whether a Will contains provisions that need explanation and the second is that the client was under undue influence meaning that the defender received most of the estate, had a confidential relationship with the testator or was not of sound mind but the onus is on the beneficiary to prove incapacity. A person signing a Will does not have to have consistent capacity over time.  Capacity is determined on the day the Will was executed during a “lucid” interval.

Contractual capacity often requires a higher level of understanding since the party must understand the effect of the contract and the nature of the business being transacted, which may or may not be complicated. People who lack contractual capacity include the list already presented (mentally challenged, those under the influence of an intoxicating substance and minors) but can also include incarcerated convicts. For a contract to be binding the contract must be legal and thus not contrary to statute (i.e. usury, gambling, contracts to commit a crime etc.). Contractual capacity refers to the individual’s ability to understand the significant benefits and risks, as well as alternatives. A typical requirement for contractual capacity is for those making advanced directives or other health care decisions.

Typically, a person in the beginning stages of dementia with the dementia minor or non-existent is still deemed competent under the law, but he or she should draft a Will and Powers of Attorney soon.  The Durable Power of Attorney is not possible if the subject is already mentally incompetent at which point he or she will need to have a legal guardianship drafted–a much more complicated process.

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