Proper execution of a legal instrument requires that the person signing have sufficient mental “capacity” to understand the implications of the document. While people often speak of legal “capacity” or “competence” as an either/or thing–either the person is incapacitated or competent–in fact it can be quite variable depending on the person’s abilities and the function for which capacity is required. We speak of a ‘capacity continuum.’
One side of the capacity equation involves the client’s abilities, which may change from day to day (or even during the day), depending on the course of the illness, fatigue and the effects of medication. On the other side, greater understanding is required for some legal activities than for others.
For instance, the capacity required for entering into a contract is higher than that required to execute a will. A standard definition of “testamentary capacity” for wills is as follows:
- understand and carry in mind, in a general way, the nature and situation of her property;
- understand in a general way, relations to those persons who would naturally have some claim to her remembrance;
- freedom from delusion which is the effect of disease or weakness and which might influence the disposition of her property; and
- ability at the time of execution of the alleged will to comprehend the nature of the act of making a will.
This is a relatively “low threshold,” meaning that signing a will does not require a great deal of capacity. The fact that the next day the will-maker does not remember the will signing and is not sufficiently “with it” to execute a will then does not invalidate the will if she/he understood it when she/he signed it.
As setting up a living trust is similar to making a bequest (gift) under a will, the maker of the trust (settler) must understand the nature and effect of the trust (the settlement).
Capacity for Power of Attorney
The Power ot Attorney Act in BC sets out a form of capacity test for making an enduring power of attorney. In order to be capable of making a legal power of attorney, the adult must understand all of the following:
- the property the adult has and its approximate value;
- the obligations the adult owes to his or her dependants;
- that the attorney named will be able to do on the adult’s behalf anything in respect of the adult’s financial affairs that the adult could do if capable, except make a will, subject to the conditions and restrictions set out in the enduring power of attorney;
- that, unless the attorney manages the adult’s business and property prudently, their value may decline;
- that the attorney might misuse the attorney’s authority; and
- that the adult may, if capable, revoke the enduring power of attorney.
There are two types of Representation Agreements under the Representation Agreement Act, named after the sections (section 7 and section 9) they come from. There are different capacity requirements for each.
A section 7 (standard) Representation Agreement can be made by an adult with ”diminished capacity.” With a section 7 agreement, the representative makes decisions with respect to simple financial matters, legal matters, health care and certain business matters. With diminished capacity, the adult still needs to:
- communicate a desire to have a representative make, help make, or stop making decisions;
- be able to express choices and preferences and can express feelings of approval or disapproval of others;
- be aware that making the representation agreement or changing or revoking any of the provisions means that the representative may make, or stop making, decisions or choices that affect the adult; and
- be in a trusting relationship with the person who is to be appointed a representative.
For a section 9 (‘non-standard’ or enhanced) Representation Agreement the adult must have capacity to understand the nature and consequences of the proposed agreement.
The standards for entering into a contract are different because the individual must know not only the nature of her property and the person with whom she is dealing, but also the broader context of the market in which she is agreeing to buy or sell services or property. The following quote contrasts competency to sell property with the capacity to make a will, the latter requiring only understanding at the time of executing the will:
Competency to enter into a contract presupposes something more than a transient surge of lucidity. It requires the ability to comprehend the nature and quality of the transaction, together with an understanding of what is “going on,” but an ability to comprehend the nature and quality of the transaction, together with an understanding of its significance and consequences.
Independently managing one’s financial matters, in a manner consistent with personal self-interest and values, require a certain level of functioning known as ‘financial capacity‘ or ‘executive functioning.’ This is more than the ability to pay bills and complete a cheque register. It includes the judgment that optimizes financial self-interest. This is the basis for determining alternative decision making to conserve an estate, including enduring power of attorney or committeeship if necessary. Financial capacity issues arise often in adults with cognitive loss and dementia. Family members will often raise concerns about new problems managing household finances, making poor financial decisions, or being exploited or scammed (e.g. – lottery scams that prey on older adults). This type of incapacity can be easily overlooked, as an older adult might otherwise have a robust memory and verbal skills.
As a practical matter, in assessing a client’s capacity to execute a legal document, lawyers generally ask the question, “Is anyone going to challenge this transaction?” If a client of questionable capacity executes a will giving her estate to her husband, and then to her children if her husband does not survive her, it’s unlikely to be challenged. If, on the other hand, she executes a will giving her estate entirely to one daughter with nothing passing to her other children, the lawyer must be more certain of being able to prove the client’s capacity.
While the standards may seem clear, applying them to particular clients may be difficult. The fact that a client does not know the year or the name of the Prime Minister may mean she does not have capacity to enter into a contract, but not necessarily that she can’t execute a will or durable power of attorney. The determination mixes medical, psychological and legal judgments. It must be made by the lawyer (or a judge, in the case of committeeship determinations) based on information gleaned by the lawyer in interactions with the client, from other sources such as family members and social workers, and, if necessary, from medical personnel. Doctors and psychiatrists cannot themselves make a determination as to whether an individual has capacity to undertake a legal commitment. Assesing legal capacity requires a legal determination. But they can provide a professional evaluation of the person that will help a lawyer make this decision.
Because you need a third party to assess capacity and because you need to be certain that the formal legal requirements are followed, it can be risky to prepare and execute legal documents on your own without representation by a lawyer. Call us for further information.