Living Trusts and the Issue of Mental Capacity

These days, hardly a day goes by that we don’t hear about someone we know being diagnosed with Alzheimer’s or some form of dementia. In some tragic cases, it comes way too early and it’s agonizing to see a life cut short.

Alzheimer’s: No hope, no cure

Alzheimer’s is one disease for which we have no cure, no revolutionary treatment. It violates every demographic, and the statistics indicate that nearly 80% of us will experience some kind of dementia before we die—it may not be the complete debilitation of Alzheimer’s, but we’ll have some degree of memory loss and inability to deal with our surroundings. For those who are in the process of creating a Living Trust, along with a Power of Attorney and Advance Healthcare Directive, this presents a potential problem. At what point is someone incapable of creating and signing a legal document such as a Living Trust?

Legally, everyone is presumed to be competent

However, the presumption that someone has legal capacity can be challenged in court. If the challenge is successful, the court will invalidate the Living Trust, making it necessary for the heirs to go through Probate to settle the estate and distribute the deceased’s assets.

Possession of a mental deficit

In California, testamentary incapacity does not refer to physical or mental disorders, but rather to one of three factors: The inability of a person to understand and sign estate-planning documents, the presence of an unsound mind or the possession of a mental deficit “so substantial that, under the circumstances, the person should be deemed to lack legal capacity.”

It’s important to note that age, illness and disease in themselves are not factors in the determination of testamentary capacity. People can be well into their 90s or suffering from debilitating disease, yet still have the capacity to be fully cognizant of what they are doing, legally able to sign a Will and Living Trust.

Under California law, deficits that may affect testamentary capacity are divided into four categories.

• Alertness and attention. The court would be looking for poor arousal or consciousness; a weak orientation to time, place, person, and situation; inability to concentrate.
• Information processing. This includes deficits in short or long-term memory; the inability to understand or communicate with others; the lack of recognition of familiar objects and people; the inability to understand and appreciate quantities; the inability to reason logically and to carry out a plan or action.
• Thought processes. Extreme examples of inability to complete thought processes would be hallucinations, delusions and uncontrollable, repetitive thoughts.
• The ability to modulate mood and effect. In this case, there would be evidence of persistent, recurrent moods inappropriate to an individual’s circumstances, including euphoria, anger, anxiety, fear, panic, depression, hopelessness, despair, apathy or indifference.

The presence of one or more of these factors does not necessarily mean someone is incapable of making decisions regarding his/her estate or signing related legal documents–an illness or prescribed medications may temporarily influence testamentary capacity, for instance. Once the prescribed drug treatment is finished or the illness has passed, the person may be fine once again.

With a diagnosis comes some immediacy

But evidence of any one or all of these factors in at least some degree raises the need to take extra precautions if you or someone in your family is creating estate-planning documents. Once people have been diagnosed with dementia, there is, of course, the need to create end-of-life documents as quickly as possible. In addition to the issue of testamentary capacity, there are very practical considerations–they may soon need these documents to be in place if they are no longer able to take care of their own affairs and make decisions about their own care. They will need to identify a Power of Attorney and an Agent for their Advance Healthcare Directive.