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Now browsing: Hometown News > Business Columns > Robert Kulas

Robert Kulas
This Week | Archive

Are You Competent to Do Estate Planning?
Rating: 2.61 / 5 (221 votes)  
Posted: 2007 Nov 23 - 02:53

Americans today are living longer and longer.

However, this can be a double-edged sword. An increasing number of Americans are living long enough to suffer from mental incapacity.

Over four million Americans suffer from Alzheimer's disease alone.

In fact, according to the National Institute on Aging, half of those over age 85 have Alzheimer's disease.

Of course, Alzheimer's is only one cause for mental incapacity.

How do you tell if someone has mental capacity?

Legal capacity has slightly different standards depending upon the context.

In estate planning there are two standards, which may be applied depending upon the circumstances: "testamentary capacity" and "contractual capacity."

Both require that the individual has attained a minimum age, typically 18. However, they diverge significantly after that.

Testamentary capacity is that level of mental acuity necessary to make a will.

Generally, in order for a will to be valid, the person must understand they are signing a document that will affect the disposition of their assets, they must understand the nature and extent of their property, and they must recognize who their "natural objects of bounty" are.

A person's natural objects of bounty would be their family, close friends, etc.

Of course, a person can recognize their natural objects of bounty and choose to leave assets elsewhere, such as to charity.

States require a higher level of mental capacity in order to execute a contract. Typically, you need to understand that you are entering a contract, the rights and duties under the contract, and so forth.

Interestingly, in the estate planning process some documents require testamentary capacity while others require contractual capacity.

A will requires testamentary capacity. A trust technically is a contract between the grantor and the trustee and would require contractual capacity.

However, many states have recognized the nonsensical distinction and now apply a testamentary capacity requirement to a trust. Life insurance and retirement accounts are contracts. In most states these would require contractual capacity.

As a result of these differences, you could end up in an awkward position of being able to change your will but not your beneficiary designation.

Agnes Marquis found herself in that situation. In November 2000, Ms. Marquis changed her life insurance beneficiary designation form, naming her nephew.

At the time, Ms. Marquis thought that someone was talking to her through the television, that her dog nursed her back to health, that she was going to marry Jesus, and that unidentified Quakers were going to break into her house at night.

Not surprisingly, a dispute regarding her capacity ensued at her death. The Maine Supreme Court held that the beneficiary designation change required contractual capacity, which she lacked.

It is important to plan ahead to anticipate potential incapacity.

A qualified estate-planning attorney can help you draft your estate plan so that someone can make changes for you if you become incapacitated.

Further, such an attorney can help you minimize the risk that your documents will be challenged due to lack of capacity.

Robert J. Kulas is a member of the American Academy of Estate Planning Attorneys and the National Academy of Elder Law Attorneys. He has been engaged in the practice of law in Florida for the last 23 years. For more information or to attend an upcoming seminar, call (772) 398-0720.

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