By: Martin M. Shenkman, CPA, MBA, JD
To sign a will, you must have testamentary capacity. This means that you must know the nature of your assets and the objects of your bounty. To sign a trust and many of the complex estate planning documents, a higher level of competency, known as contractual competency, is necessary. If not, the documents will be invalid and the planning ineffectual. The best advice is simple. Do your planning early on, when competency is not an issue. However, the reality in many situations is that the luxury of time is just not available. When planning for an elderly or infirm family member (we’ll call her Mom), demonstrating competency may be vital to assuring the success of any estate plan.
Circumstances: Competency is not defined in a formulistic manner. What constitutes competency will vary depending on the facts and circumstances involved. If a particular legal document is extraordinarily complex, it may be feasible to add simpler explanatory sentences that Mom can understand. Just as important, if it comes to it, a jury might better believe Mom understood it.
Different Definitions: The degrees or definitions of what constitutes “competent” can vary considerably depending on the matter involved. The degree of competency required to effectively sign a will, called “testamentary capacity,” is less than the degree of competency required to sign a contract (e.g. a trust, such as a GRAT, a wealth managers investment policy statement), called “contractual capacity”. Consider the difference when Mom is being asked to sign a living trust instead of a will. A document, such as a power of attorney, is considered adequate under some state laws if the grantor had testamentary capacity, while other states may require contractual capacity.
Timing is Key: In many cases, the issue is not whether Mom is incompetent, but at what point she became too incompetent to the extent that it was inappropriate for her to execute specific legal documents. Therefore, steps often should be taken throughout the planning process to demonstrate competency. If the IRS challenges significant tax transactions, or if the wayward son challenges the will that left him too little, they often have the benefit of the fact that Mom probably eventually did become incompetent. If a significant transaction is to be undertaken, or an important document signed, take independent steps to demonstrate competency before and after that event. For example, the attorney handling the will signing will undoubtedly take measures to demonstrate competency at the time of the signing. Perhaps you can document independent social interactions prior to and following the day or week of signing. You might even have an independent evaluation apart from the steps undertaken by Mom’s attorney. For example, you might have a mental health expert administer a screening test, such as a Folstein Mini-Mental State Exam, to document Mom’s status. This is a series of questions Mom is asked, and actions which Mom is asked to perform, which are scored. The range of scores provides an indication of Mom’s capacity as normal, borderline or impaired. If both this, and the steps the attorney took independently demonstrate competency, your position will be bolstered.
Consistency: If Mom’s actions, or the provisions of the new will, are consistent with past history, the actions will more likely be respected. A slight modification of a dispositive scheme which has evolved in relatively consistent steps over many wills and many years is more likely to be unquestionably accepted than a sudden change in heirs from the children to a caretaker in the last months of life. If there is a change, such as reducing one child’s inheritance, documenting the reasons and rationale for that change, showing the consistency of Mom’s actions in revising and coordinating not just the will but also trusts, beneficiary designations and other matters, may all prove helpful. Demonstrating that Mom’s actions are reasonable, appropriate, and rational will backstop those actions from a competency challenge.
Medical Records: Review medical records (you will need the appropriate HIPAA authorization). Are the records consistent with the conclusions you and Mom’s attorney have reached? Often nursing notes, not just the conclusions of the examining physician, can be telling. Nursing notes may disclose appropriate conduct and conversation, concerns about make-up, and appearance and a range of anecdotal evidence indicating competency (or lack of it). If you do not have the medical knowledge to appropriately interpret the notations and comments, hire an appropriate expert (“AO x 3 = alert and oriented in all three spheres), etc.
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