Incapacity: don’t get caught out before capacity fades
We hope to always have the mental capacity to make decisions for ourselves.
As we get older, there is a heightened risk of mental impairment. Unfortunately, mental capacity is often impaired by illness or accident, which can happen at any age.
Matters can be unnecessarily complicated if you, your loved one or your client loses their capacity to make decisions for themselves and some important measures have not been put in place.
This begs the question: what steps can be taken now?
There are safeguards that can be put in place in terms of succession planning in the event of incapacity in future. The main one is to make sure that you have a Will in place, a valid Will that you put in place while you still have capacity to be able to deal with your affairs following your death, in the way that you intended.
The other thing is to make sure you've got powers of attorney in place. These are really important in terms of decision making while you're still alive, but to appoint a trusted person that you want to make decisions for you if you do lose capacity.
It might be signed while you've got capacity, but if you were to become incapable in future they will extend into that period. And they govern decisions such as financial and legal decisions, medical treatment decisions and also personal welfare decisions.
When we suspect there's a loss of capacity, we like to see a client in-person. When a client visits us, we do form a view as to what their level of capacity is, and we generally presume that there is capacity unless there's a red flag or there's a reason to suspect that there is incapacity. If that happens, the practice that we like to follow here at Hall & Wilcox is to make sure we refer that client to a medical practitioner for a formal assessment. It's becoming common to actually use a geriatrician in those circumstances, because they're experts in determining whether someone has testamentary capacity.
If there's no prospect of someone becoming capable of making decisions, so they've lost capacity and it's unlikely that they're going to recover capacity, there could be an issue.
If they do not have a Will, there is a means by which a court can make a Will for them – it's called a 'statutory Will'. It can be a complicated procedure and it's not ideal, because we're relying on a court to actually infer what a person's intentions might be and they may not describe what a person intended. With regard to powers of attorney, it's too late if someone has lost capacity, and we're unable to put them in place for them. But a tribunal might be able to appoint somebody to be able to make a decision for them – both in financial and legal matters but also in guardianship type matters. The best thing is to get some legal advice and work out the best option.
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Importance of having a Will
The best way to be certain that your assets will be distributed in accordance with your wishes is to make a Will while you have capacity to do so.
If capacity is lost and there is no Will in place, it is usually too late to make a Will. A person may then be reliant on a court to make a Will for them, being a ‘statutory Will’. This can be complex, costly and uncertain. If no Will is made, assets will be distributed in accordance with a statutory formula referred to as the intestacy provisions. These provisions apply to everyone dying without a Will, and do not take into account your personal circumstances and wishes. The intestacy provisions also often do not distribute assets in the way you would have intended, if you had had capacity to make a Will.
Making a Will when you have capacity is the preferable option. It provides certainty that the Will reflects your wishes. There is less likelihood the Will will be disputed or challenged following your death and, ultimately, it is the more efficient and cost-effective option.
Powers of attorney
Similarly, signing enduring powers of attorney and related incapacity documents enables you to appoint a trusted person, such as a spouse or family member, who knows of your values and wishes, to act as your attorney if you are unable to make decisions for yourself. You can appoint an attorney to make financial, medical and personal care decisions for you.
Powers of attorney cannot be made by you if you have lost capacity. Australian courts and tribunals can appoint someone to manage your affairs and to make decisions for you if you are unable to make these decisions for yourself. However, there is a risk that the person appointed may not be the person you would have appointed if you had capacity, and the decision making may not be representative of your actual wishes.
The best thing you can do to preserve your legacy is to obtain advice on making a Will and power of attorney while you have capacity to do so.
In our next article, we will be looking at the risks of financial elder abuse in relation to Wills and powers of attorney.
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