Different Definitions of Incapacity

A typical modern estate plan consists of the following documents: a revocable living trust, pour-over will, durable power of attorney for financial matters and for medical matters, a living will, assignment of personal property to the trust, deed of real estate to the trust, and certification of the trust. One of the prerequisites to a valid will is a client of sound mind to execute the estate planning documents. Traditionally, this is a comparatively low standard, which requires the testator to understand the nature of the act he or she is doing, understand the nature of his or her property, and remember and understand his or her relations to the persons who he or she will dispose his or her property to.

The capacity required to enter a contract like a revocable living trust is a higher standard. The person has to communicate the decision and appreciate rights, duties, and responsibilities created and affected by the decision, the probable consequences of the decision, and the significant risks and benefits that accompany the decision.

In one 2011 case, Anderson v. Hunt, the California Court of Appeals held that while most provisions of a trust will require the higher standard of capacity, the property transfer provisions of a trust only require the lower standard. Some courts might rule differently on this matter.

Under either standard, it is important that the adviser encourage the client to prepare an estate plan while he or she still has capacity.

To see a table that lists indicators of incapacity, please click here.

See Randy Gardener, Defining Incapacity in the Modern Estate Plan, Journal of Financial Planning, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.