31 Jan Mental Capacity Differs For Signing Contracts VS Gifts VS Wills
Although most realize you should know what you are doing for it to be valid under law, many are unaware that capacity needed for making a gift, signing a contract and signing a will are different. The mental capacity needed for signing a valid will is the lowest of the three as explained below:
Testamentary Capacity (the capacity to sign a last will and testament). The capacity requirements for a will to be valid are:
- Testator needs to know what he or she is signing at the time the will is signed (know that he or she is signing a will);
- Know the effect of signing the will (transfer of assets at the time of death, etc.);
- Generally know what you own (not every single item);
- Know who are your closest living relatives (next of kin or bounty of your affection);
- Have a lucid interval (have memory long enough) to know the effect of the decision being made and being able to make a reasonable judgment; and
- Must be the age of majority (18).
A person contesting the will must prove the testator lacked capacity at the time the will was signed or that there was undue influence or signed under duress.
- Must be at least 18 years of age (age of majority);
- Must be of sound mind;
- Must have sufficient mental capacity to know what they are signing and its effect (the business transacted); and
- Must exercise their own free will in signing the contract.
As a result, it is possible that there is sufficient capacity for understanding part of the contract, but there is insufficient capacity for the more complex part of the contract. If you can’t manage your own financial affairs, then there is a lack of contractual capacity. Therefore, the standard for contractual capacity is greater than testamentary capacity.
Since it is important to use your assets to take care of yourself during your lifetime, the capacity standard for making a gift (especially a substantial gift where there are not enough funds remaining to take care of yourself for the remainder of your life) is the highest of the 3 capacity levels.
Three (3) elements of making a gift:
- Intent to make a gift;
- Delivery of property; and
- Acceptance of gift (property).
If gift by a donor is made when he or she is in a weakened state (although not unsound mind) and it deprives the donor of a large portion of the donor’s estate without independent advice, the gift can be set aside as void for undue influence. Gifting power in a power of attorney may require higher capacity as a result. If a power of attorney that does not permit self-dealing by the agent or the authority of the agent is limited and the agent makes a transfer in excess of the authority given, then the agent could be guilty of a criminal act for breaching his or her fiduciary duty. There is even statutory authority for removing an agent who acted beyond his authority.
If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.