Capacity in Estate Planning

Often portrayed in movies by families fighting over a large inheritance left by the rich benefactor who may, or may not, have lost their marbles (insert plot twist), capacity can be a major issue when it comes to individuals making last-minute changes to their estate plan or making changes after being diagnosed with some type of mental illness such as dementia or Alzheimer’s.

If a person lacks the proper mental capacity and creates a document, it will be invalidated under California Law. The key to determining whether or not the estate plan is valid lies in a determination of whether or not the testator (the rich benefactor) had the capacity to make the changes when they were made. In California, the rules which determine whether or not an individual has capacity can be confusing. Hopefully, the following will help clear that up.

It is important to note that different standards of capacity apply in estate planning. “Testamentary Capacity” applies to the creation of wills and simple trusts. “Contractual Capacity” applies to the execution of Powers of Attorney, Advance Health Care Directives, and Complex Trusts. Generally, under California law, there is a presumption that all individuals have capacity and are capable of contracting (excluding minors). A mental disorder or diagnosis does not automatically preclude someone from having capacity. 

Testamentary Capacity

In order to execute a will or simple trust, an individual must have “testamentary capacity.” Under California Probate Code §6100, any individual “18 or more years of age who is of sound mind may make a will.” California law presumes that a person has testamentary capacity to execute a will. A person is not mentally competent to execute a will if, at the time of making the will, either of the following is true:

• The individual does not have sufficient mental capacity to be able to do any of the following:
  • Understand the nature of the testamentary act.
  • Understand and recollect the nature and situation of the individual’s property.
  • Remember and understand the individual’s relations to living descendants, spouse, parents, and those whose interests are affected by the will.
• The individual suffers from a mental health disorder with symptoms including delusions or hallucinations, which delusions or hallucinations result in the individual’s devising property in a way that, except for the existence of the delusions or hallucinations, the individual would not have done.

Understanding the Nature of the Testamentary Act

A person understands the nature of the testamentary act if they understand the purpose and function of the will they are executing. Essentially, if a person understands that by executing a will, their property will pass to those beneficiaries named in the will, they understand the nature of the testamentary act.

Understand and Recollect the Nature and Situation of the Individual’s Property

This only requires that the individual understand and recollect the basic nature of the individual’s property. Essentially, the person must know what they have.

Remember and Understand the Individual’s Relations

A person must be able to remember their living heirs and understand how the will affects them. For example, a person must be able to understand that by leaving all their assets to their spouse, their children will not inherit. 

Delusions

In order for a will to be invalidated under the final “test”, delusions/hallucinations which are the product of a mental health disorder must be the cause of the of the particular distribution of property. If a person suffers from delusions, but they will they created was not the product of those delusions, the will cannot be invalidated as a product of delusions. 

The standard for testamentary capacity is low. A person may have testamentary capacity even if they do suffer from a mental disorder or some form of diminished capacity. It is presumed that a testator has testamentary capacity, thus the burden is on the challenger of the will to show that the testator lacked the requisite capacity or that the will was the product of delusion. So long as the testator has a basic grasp on the will and the circumstances surrounding the will, testamentary capacity can generally be shown.

Contractual Capacity

Contractual capacity is a much more difficult standard to reach, requiring a person to understand and appreciate the consequences of their decisions. Contractual capacity is required to execute trusts, powers of attorney, and advance health care directives. 

Generally, a person has Contractual Capacity if they understand the risks, benefits, and possible consequences of their decision. Civil Code Section 39 provides that “a conveyance or other contract of a person of unsound mind, but not entirely without understanding, made before the incapacity of the person has been judicially determined, is subject to rescission…” A person has “unsound mind” if they are “substantially unable to manage his or her own financial resources or resist fraud or undue influence.” Probate Code Section 811 provides various areas where an incapacitated individual shows evidence of a deficit and a correlation between that deficit and the decision or act in question. These deficits include:

1. alertness and attention,
2. ability to process information and remember,
3. ability to understand and communicate with others,
4. ability to understand and appreciate quantities,
5. ability to reason using abstract concepts,
6. ability to plan, organize, and carry out actions in one’s own rational self-interest
7. ability to reason logically

Determining contractual capacity can be more difficult than determining testamentary capacity. Testamentary capacity requires only a narrow analysis whereas contractual capacity requires a more in-depth analysis into a person’s mental state and understanding. It is important to note that capacity is examined at the time when the person drafted and executed the document. If a person possesses the requisite capacity to execute certain documents, and years later loses capacity, the documents executed when the individual had capacity will not be invalidated.

It is important to understand that an individual who lacks the requisite capacity cannot execute a valid estate plan. Thus, it is important to prepare in advance. Contact the experienced attorneys at Naimish and Lewis for assistance.