Competency

Summary:

To sign a will you must have testamentary capacity.
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, you need sufficient
competency. If not, the documents will be invalid and the planning ineffectual.
The best advice is simple. Plan early 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
importantly, 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
effective 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 that 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 its not an issue as to whether Mom is incompetent, but at what point her
competency waned to the degree when 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 the wayward son challenges the will that left him less,
they often have the benefit of the fact that Mom eventually was 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 respected 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 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’ll 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 don’t 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.