Do you have concerns about your client's capacity?

woman signing papers - undue influence conceptYou may have come across a situation where you have concerns that your client has, or you suspect has, evidence of some loss of memory, and/or problems with language, problem solving, and other thinking abilities. Perhaps you have an elder client who is exhibiting short term memory issues or other cognitive impairments. You might have been advised by a family member that your client has been diagnosed with a form of dementia. Sometimes, a client suffers an illness, or medical event such as a stroke, that results in short term or longer-term cognitive consequences. Clients of all ages can have mental health challenges, or addictions, that can likewise affect their mental capacity.

Under these circumstances, it can be challenging to know whether your client has capacity to sign a document, execute a transaction, or authorize an action. Is there any standard for determining whether your client has capacity, and if you have concerns, what are your options?

Capacity describes a person’s ability to make a rational decision. Capacity is not a blanket determination, instead it is differential, meaning it varies according to the circumstances or relevant factors. For example, Michigan courts tend to draw a distinction between the capacity to dispose of property in a will, and the capacity to engage in business activities, which require a different set of mental skills. In considering which set of skills are more complex, and therefore more easily lost because of age or physical infirmity, Michigan courts are inclined to conclude that people tend to lose the mental capacity to handle their business affairs before they lose the mental capacity to determine who should receive their property after death. In other words, while your client might not have the capacity to enter into a complex business contract, that same client might, nevertheless, have the capacity to sign a will or power of attorney[1]. In general terms, the higher the risk or complexity of the decision, the higher degree of capacity is needed for that decision.

In Michigan, capacity is generally judged at the time of the execution of the instrument[2]. That means that a client with a cognitive impairment such as mild Alzheimer’s dementia, may not have capacity on the day he or she consults with you about a document, but may well have capacity on the day he or she signs the document. The inverse is also true, you may be satisfied that a client understands a transaction in your initial meeting but he or she does not appear to have the same cogency on the signing date.

Michigan Courts have provided some guidance in determining capacity for specific types of documents as follows:

  1. Estate Planning documents. In order to have testamentary capacity to execute a will, a person must be able to understand the nature and extent of his or her property, to “recall the natural objects of his bounty”, i.e., identifying children, heirs or beneficiaries, and to determine and understand the disposition of the property, which he or she desires to make[3]. The Michigan Trust Code provides that the capacity to execute a trust is equivalent to the capacity to make a will. Note that Powers of Attorney and Patient Advocate Designations are contracts are subject to a different test for capacity.

  1. Contracts. The test of mental capacity to contract, is whether the person in question possesses sufficient mind to understand, in a reasonable manner, the nature and effect of the act in which he or she is engaged. However, to avoid a contract it must appear not only that the person was of unsound mind or insane when it was made, but that the unsoundness or insanity was of such a character that he had no reasonable perception of the nature or terms of the contract[4].

  1. Beneficiary designations. Michigan courts have looked at capacity to change beneficiaries in the context of an insured with a life insurance policy and annuity. The test to be applied in determining the mental competency of an insured at the time the insured attempts to effect a change of beneficiaries is whether the insured then had sufficient mental capacity to understand the business in which the insured was engaged, to know and understand the extent of the insured's property, how the insured wanted to dispose of it, and who are dependent upon the insured[5].
  2. Deeds. The test of mental capacity of a grantor of a deed is, whether, at the time the individual executed the deed in question, he had sufficient mental capacity to understand the business in which he was engaged, to know and understand the extent and value of his property, and how he wanted to dispose of it, and to keep these facts in his mind long enough to plan and effect the conveyances in question without prompting and interference from others[6].

What can you do if you have concerns about your client’s mental capacity?

  1. Medical Evaluation. If your client has disclosed a basis for concern about capacity, you can ask your client to have his or her physician confirm decisional capacity before entering into a transaction. A physician can utilize a mini mental status examination (MMSE) Montreal Cognitive Assessment (MoCa), or other threshold method of medically determining your client’s decisional capacity. A referral for a more comprehensive neuropsychological evaluation is also an option.

  1. Durable Power of Attorney. If your client has current capacity, but there are concerns about progression of cognitive impairment, such as with a dementia diagnosis, you can ask your client to execute a durable power of attorney (DPOA). A DPOA is a document that allows a client to give someone else the authority to execute the document or transaction on his or her behalf. Unless revoked, a DPOA remains in effect for the duration of your client’s lifetime, even if the client no longer has capacity. If the transaction is unusual, you may want to ensure that the DPOA contains specific authority to undertake that transaction.

  1. Probate Court Involvement. If your client lacks capacity, and does not have an existing DPOA, a probate court can provide authority to execute the transaction or document. If there is a single transaction that is prevented by the incapacity, such as the closing of a sale, the Court can issue a protective order, or appoint a special Conservator, with the authority to execute that single document or transaction. If multiple decisions, financial decision management, or continuing legal authority are needed, a probate court can appoint a Conservator with authority to make legal, financial and business decisions on behalf of the incapacitated client.

Capacity is presumed until proved otherwise. Capacity can also be transient. Be careful that interactions that may initially suggest cognitive deficits are not the result of unrelated physical issues such as aphasia (difficulty speaking) or hearing loss. If you have concerns about a client’s capacity, it is worthwhile consulting with a probate or elder law attorney to discuss options so that you can continue to work for your client’s best interests, protect the validity of transactions.

[1] In Re Estate of Susser, 2001 WL 773193 quoting Coy v. Doney, 241 Mich. 308, 311; 217 NW 23 (1928)

[2] Burmeister v. Russell, 362 Mich. 287, 289-290, 106 N.W.2d 752 (1961).

[3] In re Vollbrecht Estate, 26 Mich.App. 430, 434, 182 N.W.2d 609 (1970)

[4] Howard v. Howard, 134 Mich.App. 391, 396, 352 N.W.2d 280 (1984)

[5] . Harris v. Copeland, 337 Mich. 30, 59 N.W.2d 70 (1953); In re Erickson Estate, 202 Mich App 329 (1993).

[6] Wroblewski v. Wroblewski, 329 Mich. 61, 66, 44 N.W.2d 869 (1950).