It is essential for individuals to have properly executed wills and incapacity documents in place. The opportunity to execute a will, power of attorney, and representation agreement is not unlimited. One must have sufficient capacity to execute any of these documents and capacity may become lost forever as a result of a number of possible life events. It is therefore necessary to take the proper steps to ensure their planning is in place before the risk of incapacity becomes significant. This article provides a general overview of the various capacity tests as they relate to: wills, enduring powers of attorney, and representation agreements.
Capacity for Wills
The test for testamentary capacity to make a will is established by case law dating back to 1870 and is still good law today. In the case of Banks v. Goodfellow, (1870), L.R. 59 B. 549 Q.B., it was stated that, in order to establish testamentary capacity, a testator (will maker) has to:
- Understand the nature of the act (that is, making a will) and its effects;
- Understand the nature and extent of the property of which the testator is disposing;
- Comprehend and appreciate the claims to which the testator ought to give effect; and
- Have no disorder of the mind that would poison the testator’s affections or pervert testator’s sense of right.
While the test may appear straightforward, determining if an individual has testamentary capacity is not always clear and may be subject to debate. Such debate may be particularly vigorous where the testator is suffering from some form of delusion or dementia, or his or her testamentary wishes are unconventional. The most prudent decision is of course to make the will before such issues arise.
Capacity for Enduring Powers of Attorney and Representation Agreements
Under statutory laws, adults are presumed capable of making enduring powers of attorney and representation agreements.
As of September, 2011 the capability requirements for an adult granting an enduring power of attorney have been clarified in the Power of Attorney Act (the “Act”). An adult is incapable of making an enduring power of attorney only if he or she does not understand the nature and consequences of the proposed enduring power of attorney. The Act sets out the following factors for determining whether an adult understands the nature and consequences of the proposed enduring power of attorney:
- The property the adult has and its approximate value;
- The obligations the adult owes to his or her dependents;
- That the adult’s attorney will be able to do anything on the adult’s behalf with respect to the adult’s financial affairs that the adult could do if capable;
- That, unless the attorney manages the adult’s business and property prudently, their value may decline;
- That the attorney might misuse the attorney’s authority;
- That the adult may, if capable, revoke the enduring power of attorney;
The capacity requirements for a representation agreement are set out in the Representation Agreement Act (the “Representation Act”). The Representation Act provides two distinct tests of incapability for each type of representation agreement.
An adult wishing to complete a “section 9” or “non-standard agreement” will be determined incapable if he or she does not understand the nature and consequences of the agreement. For a “section 7” or “standard agreement”, the requisite capability is much lower, and an adult may be capable even if he or she does not have the capability to create a contract, or manage their personal, health, and legal affairs. This low threshold allows some marginally incapacitated adults to appoint a person to make limited financial and health care decisions for the adult.
Individuals are encouraged to speak to their legal professionals to complete their estate planning documents before capacity becomes a concern.