You might not have given much thought to the phrase “being of sound mind,” but it is a key component of many legal documents, including a Last Will and Testament and other Estate Planning documents. The purpose of including the language on legal forms is to ensure that the person signing the document has the mental capacity to understand what the document says and what will happen as a result of executing it.
It’s hard to accept that one day, you might not have the mental capacity to make decisions for yourself and to sign legal documents naming heirs and appointing people you trust to represent you. As with all aspects of Estate Planning, steps must be taken long before you actually need help. In other words, your Estate Plan needs to be done while you are of sound mind and should consider the possibility that one day you might lose your mental capacity.
The Estate Planning team at Ross & Shoalmire has helped hundreds of clients avoid the worst possible outcomes through early planning and regular reviews, and we’d be happy to discuss your options with you.
What Is Diminished Capacity and Who Decides If You Are Capable?
In Texas, before signing a legal document such as a Will, you must prove that you have the legal capacity—you are at least 18, OR you are legally married, OR a member of the U.S. military—and that you have the testamentary capacity to do so. Testamentary capacity refers to your mental acuity and involves demonstrating an understanding of the following:
- What kind of document you are signing
- What effect the act of creating the document will have
- What assets you hold, and how they should be distributed
- Who your beneficiaries are and how they are connected to you
Arkansas has similar standards for testamentary capacity.
If you do not have a medical diagnosis of mental incapacity, such as dementia or Alzheimer’s disease, it is often up to the lawyer executing your documents to ensure that you meet these standards.
Establishing testamentary capacity is important because it can be grounds for a dispute after your death. A disgruntled family member could claim that you were not of sound mind or that someone else exerted undue influence when you wrote your Will or signed other Estate Planning documents. For example, if you create your Estate Plan after an Alzheimer’s diagnosis but before you have lost your mental acuity, someone could claim after your death that you lacked testamentary capacity when you signed your documents. That is one of the reasons you should have an Estate Plan well before you feel you need one.
How an Estate Plan Can Protect You in the Event of Mental Incapacity
Estate Planning is essential not only for ensuring the smooth distribution of assets upon your passing but also for protecting your interests in the event of mental incapacity. If you execute your Estate Plan well before any questions of your mental capacity arise, it will be more likely to stand up to accusations of diminished capacity after your incapacity or death. Most parts of an Estate Plan can always be revised as needed over the years.
Each of the following elements of an Estate Plan plays a distinct role in safeguarding the creator's well-being during incapacity.
Last Will and Testament
A Will outlines the distribution of assets after death, but it also serves an important function in the case of incapacity. It can specify who will take care of minor children and appoint an Executor to manage the estate during incapacity. This ensures that a trusted individual is in charge of financial matters and the well-being of dependents.
Revocable Living Trust
A Revocable Living Trust allows the grantor (creator) to transfer assets into a Trust, with themselves as the initial Trustee. In the event of incapacity, a successor Trustee, named by the grantor, can seamlessly take over management of Trust assets without court intervention. This ensures financial matters are handled according to the grantor's wishes without delays.
Irrevocable Living Trust
Similar to a Revocable Trust, an Irrevocable Living Trust can protect assets and ensure their efficient management during incapacity. Once assets are transferred into an Irrevocable Trust, they are no longer considered part of the grantor's estate, potentially shielding them from creditors and Medicaid eligibility assessments.
Power of Attorney for Health Care
This document designates an agent to make medical decisions on behalf of the incapacitated individual. It ensures that medical treatments, procedures, and end-of-life care align with the creator's wishes. Without a Power of Attorney for health care, medical decisions may be subject to court intervention or family disputes.
Financial Power of Attorney
A financial Power of Attorney appoints an agent to manage financial affairs in the event of incapacity. This includes paying bills, managing investments, and making financial decisions. Without this document, family members may need to seek guardianship through the court, which can be time-consuming and costly.
A Living Will, also known as an Advance Health Care Directive, outlines an individual's preferences for life-sustaining treatments if they become terminally ill or in a persistent vegetative state and cannot communicate their wishes. This document guides health care providers and family members in making ethical and compassionate decisions.
By incorporating these elements into an Estate Plan, individuals can proactively address the possibility of mental incapacity and ensure their financial, medical, and personal affairs are managed according to their preferences. These documents also help avoid the need for court-appointed guardianships, reduce family disputes, and provide peace of mind that one's wishes will be honored during incapacitating situations.
Always Be Prepared for the Possibility of Diminished Capacity
Meeting with our Estate Planning team while you are young and healthy ensures that you will have a comprehensive plan in place before age starts to take its toll. Regardless of your age, you should have a Will and Powers of Attorney. Once you get married and have children, adding a Trust is a smart move for most families. Empty-nesters should take the time to review and revise their documents, as should divorcees and widows and widowers. However, even if you have not followed the recommended course, it’s never too late to protect yourself, your assets, and your family.