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It's hardly breaking news that bad things sometimes
happen to elderly people. An elder can be exploited by the unscrupulous,
the dishonest and the disinherited, who often use an elder's slowing
thought processes and failing judgment to their own financial advantage
by exerting undue influence to separate the victim from his or her
money.
Central to an elder's financial independence is a
legal concept called mental capacity, or capacity for short. Capacity
refers to a person's ability to make and communicate decisions in
legal matters: to enter into contracts, make gifts or write a will
with full understanding of their actions. The phrase "being
of sound mind" which often precedes a last will and testament
directly refers to capacity.
You may have first heard the term when called upon
to aid parents or elderly relatives with their financial or legal
affairs. A legal finding of "diminished capacity" can
have financial ramifications, especially if an estate is contested.
Diminished capacity can prevent individuals from changing the terms
of their will or trusts. It can also lead to feuds among the heirs,
especially where diminished capacity can trigger the "springing
power" that ushers in a successor trustee.
How is a finding of diminished capacity made? How can it affect
wills, trusts and estate plans? And what can you do to make sure
your wishes are carried out even after your mind has "left
the building?"
Let's explore it -- while we still have capacity.
Quirks or incompetence?
Erratic or uncharacteristic behavior by an elder often triggers
concern from family and heirs. Granddad might have met a blackjack
dealer in Reno and made an 11th-hour change to his will, leaving
her everything. Mom might have generously tipped the pool boy with
a new Lexus.
Lawyers admit they're not qualified to judge capacity;
for that, they turn to professionals such as Vivian Clayton, a geriatric
neuropsychologist in Orinda, Calif. Clayton, who earned a doctorate
in psychology from the University of Southern California, routinely
testifies to the competency of individuals living and dead whose
actions are being challenged in court, sometimes to determine the
need for a guardian. A court will then make the call as to capacity.
Although every state has its own codes that define capacity for
its probate system, those who evaluate competency always start
with the same question: Are they competent to do what?
"For instance, competence to make a will is a much lower bar
than competence to enter into a contract," says Clayton.
"There is competency to manage your own property, competency
to resist undue influence and fraud, competency to marry, competency
to drive."
Bar set low for wills
Indeed, according to the legal site Nolo.com, a person making a
will need only know what a will does, who their heirs or dependents
are, what they own, how they want to divide it and that they are
in fact making a will.
"It's a very low standard, but if you're talking about someone
entering into a contract or forgiving a loan, that requires a much
higher level of capacity," according to Clayton.
Competency, which is an assessment of both cognitive and functional
abilities, is most accurately assessed through functional tests.
That's because, as we age, changes in our cognitive abilities correlate
to changes in our functional ability to perform everyday tasks.
"In other words, a person who is no longer able to track their
bills and is letting bills pile up and letting caretakers pay their
bills for them and other things that tend to lead to abuse, when
that is happening there are a number of other things in self-care
that also are not happening: They're not capable of preparing their
own meals, they may depend on others to do their laundry, they may
wear the same clothes day in and day out. They are not able to track
in sequence and organize anymore. There are other things that we
notice in their daily functional life that are falling apart."
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