Estate Planning and Capacity: In Theory and in Practice

North Carolina requires the requisite capacity for an individual to sign legal documents.  Different legal documents require different levels of capacity.  Executing a Last Will and Testament requires testamentary capacity.  Executing a power of attorney requires contractual capacity.  Other legal instruments such as executing a deed require their own type of capacity.  Of importance, there is a presumption that every individual has capacity.  Declining mental and physical health are not enough to overcome this presumption, but clear indications of incapacity derived through conversations with an individual or medical information may overcome such presumption.   Additionally, capacity is not always fixed but can, instead, be fleeting.  In certain cases, an individual may lack capacity one day, or even to the hour, and regain capacity at another day or time.  This can obviously be true in cases of intoxication from drugs, alcohol or medications but can also be true in cases of medical conditions such as dementia or mental illness.  Except in severely progressed cases, individuals with dementia typically have periods of lucidness.     

North Carolina provides theoretical definitions of different types of capacity, but even with a sound understanding of the definitions, evaluating capacity in practice is challenging. 

Testamentary Capacity

North Carolina provides that an individual has testamentary capacity when they (1) comprehend the natural objects of their bounty, (2) understands the kind, nature and extent of their property, (3) know the manner in which they desire their act to take effect, and (4) realize the effect their act will have upon their estate.  Simply stated, a person must know their family, know what they own, and know to whom and how they want what they own to be distributed upon their death. 

Contractual Capacity

To have contractual capacity a person must have sufficient mental capacity to understand the nature of the act in which he is engaged and its scope and effect.  With a power of attorney, you are granting the power to contract to an agent so a person would need to understand the general nature of a contractual act, in other words, what it means to agree to something and be bound by its terms.   

Capacity to Make a Deed

Similarly, capacity to make a deed requires (1) understanding the nature and consequences of making a deed; (2) comprehending its scope and effect; and (3) knowing what land the person is disposing of and to whom and how.

In practice, the usefulness of these definitions is limited.  That said, attorneys have resources available to make sound professional judgments regarding a client’s capacity.  For example, the American Bar Association collaborated with the American Psychological Association to publish a guide for lawyers dealing with clients with diminished capacity which includes an assessment worksheet. 

But even after multiple interviews with a client, it can be daunting making a judgement with respect to a person’s capacity.  On one hand, individuals are presumed to have capacity and personal autonomy, to the greatest extent possible, is valued.  On the other hand, even multiple conferences will not allow for a comprehensive review of a person’s daily decision making and medical history.  And, unfortunately, information is often withheld from the attorney. Additionally, not all clients are sophisticated and may have below average memories, judgement, and reasoning skills simply by virtue of their personality traits and innate abilities.  These clients deserve the same respect and deference to their choices as more savvy and sophisticated clients.   

My advice to attorneys would be to use the resources available to them, but, at the same time, evaluate the entire context of the individual’s situation.  If the execution of the document would clearly protect the client’s interest, the client is adamant and consistent about their wishes and there is evidence of a loving and supporting family situation, an attorney may decide to proceed even in cases where the client has some diminished incapacity.  Conversely, in cases where the client’s goals are out of the norm, there seems to be friction in the family, and the client provides evasive answers, an attorney may decline allowing the client to execute documents even when not clearly incompetent.   

My advice for clients would be to understand an attorney’s unusual role in evaluating the capacity of clients to execute certain documents.  Do not be offended if an attorney asks questions which may seem rudimentary or asks about your medical history.  The attorney is simply trying to fulfill their role and meet their ethical obligation to ensure incapacitated individuals do not execute documents of which they lack the ability to understand the nature and effect. 

Estate Planning & Admin