13th Apr 2015

Estate planning is only legally acknowledged as valid when the individual engaged is of “sound mind”. “Sound mind”, while simple to understand and in short words, in estate planning actually refers to a complicated set of rules governing when an individual may be considered mentally capable of doing such things as drafting wills and trusts or appointing a power of attorney.
Some examples of a person not deemed to be of “sound mind” include situations where an individual has been diagnosed with dementia or Alzheimer’s disease. Other examples include cases involving mental retardation or severe physical impairment.
This mental capacity, or sound mind, in estate planning is often determined by the laws governing what is referred to either as testamentary capacity or contractual capacity. Testamentary capacity in estate planning is an individual’s required capacity to draft a will. Contractual capacity, on the other hand, is the required capacity for an individual to draft a trust.

What is Required For Testamentary Capacity?

Testamentary capacity requires understanding of a few key points when drafting a will. Particularly, the individual must understand:
  •  He or she is creating a will
  • What property is owned and a clear understanding of how it will be distributed
  • Relationships with the individuals that will have claim to the assets and how they will be impacted by the terms of the document

Will capacity is considered the lowest form of mental capacity. It is very possible for individual to be found incapable of forming a trust, yet perfectly capable legally of drafting a will.

What is Required For Contractual Capacity?

The higher form of capacity required in establishing a trust, contractual capacity, requires a person to understand and appreciate the following: 
  • The rights, duties, and responsibilities created by or impacted by his or her decision
  • All probable consequences for the decision maker and the people impacted by the decision, where applicable
  • Any significant benefits, risks, and reasonable alternatives involved in his or her decision

This trust capacity standard, as can be seen, is more associated with the future impact of the decisions made than a will concerns itself with. In other words, in a will, you simply need to understand that you are drafting a will, understand what property you are including in the will, and understand your relationship with your beneficiaries. In a trust, you must understand all the responsibilities created by your decisions, all possible consequences, and have a better understanding of your options and alternatives.

When Does This Difference Matter?

A common reason for legal consideration for the difference in required capacity for a will versus a trust is found when an individual who has not already completed an estate plan experiences either a significant life event that severely limits their physical or mental capacity suddenly, or the individual suddenly begins to experience the early signs or symptoms of conditions such as Alzheimer’s or some other mentally limiting condition.
There are many cases of individuals, either the person who wishes to draft the will or trust or the family impacted by the decision, trying to pass off the individual drafting the will or trust as perfectly mentally capable when they are not. Usually these attempts are seen for what they are and the document will either not be prepared or will be found not legally valid later.
While it’s important to be proactive in drafting a will or trust before such misfortune may strike, even with certain setbacks, it often is still possible to draft some kind of legal document. As mentioned previously, just because an individual is not capable of drafting a trust does not mean they will be found incapable of drafting a will. For example, an individual experiencing even the earliest symptoms of Alzheimer’s may not be able to legally build a trust, but they may still have the option of preparing a will.
How Can You Prevent Testamentary or Contractual Capacity From Being an Issue?

As mentioned previously, the best way to prevent these matters from being an issue is to be proactive and build an estate plan before negative circumstances happen in the first place. Many elderly individuals find themselves left without options simply because they did not prepare for the possibility of them not being of sound mind at some point in their lives.
It’s also important to take action at the earliest sign of trouble if you are experiencing some kind of problem that may indicate any degree of mental incapacity. Waiting it out is not going to make matters better. If you do not have an estate plan and you have assets worth considerable value, you are essentially gambling with their future and that of your beneficiaries.

If you do not have an estate plan, the time to start preparing is now. The differences between testamentary capacity and contractual capacity, while valuable to know, are not going to make  or break you if you are proactive in estate planning before the difference becomes capable of impacting the future of your assets and your beneficiaries.
Dwight Tompkins is an estate planning attorney with years of experience in such matters as wills and trusts. If you need help with drafting an estate plan, or have an issue involving testamentary or contractual capacity, he is happy to help you with your legal concerns.

For questions, or to schedule a consultation, call the office today at 714 385 0044.

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