No Time Like the Present: The Importance of Capacity in Estate Planning

When it comes to estate planning, there is truly no time like the present. It is often assumed that death is the only deadline for creating or updating your estate plan. However, losing legal capacity has the same effect. Once you’ve fallen below the legal threshold (and mental capacity is lost), you can no longer legally create or update your estate plan.

In addition, if there is grey area as to whether or not a person has legal capacity at the time of making a Will or Power Attorney, it can invite disastrous results when it comes time to rely on those documents and to administer a person’s property and affairs. For example, one of the main grounds for attacking a Will or a Power of Attorney, and dragging an estate into protracted and costly litigation, is to argue that the person lacked the required legal capacity at the time that they made the Will or Power of Attorney.

In particular, there are two different legal tests for determining capacity: one for Wills, and another for Powers of Attorney. So let’s look at the tests.

To make a legally-valid Will, a “testator” (the person making their Will) must be of sound mind, memory, and understanding. This is laid out in the seminal case of Banks v. Goodfellow, which states the following:

  1. The testator must understand the nature of the Will and the effect that it will have. Namely, the testator must understand that the Will dictates how their property will be divided upon their death.
  2. The testator must understand the extent of their assets and liabilities. Namely, the testator must be aware of the property that they own, its value, and understand how it will be distributed according to the Will.
  3. The testator must understand the legal obligations that they owe to people and the legal and moral claims that could be made against their estate. Namely, there are a variety of obligations that might be owed and that may affect the division of a person’s property upon death, such as a claim by a spouse, a minor child, a “dependant” adult child, etc. The testator must understand how these claims affect their ability to freely gift their property by way of their Will.
  4. The testator must not suffer from any delusions. Namely, the testator must be acting coherently and logically and must be unaffected by irrational thoughts.

As you can see, there is a high threshold that needs to be met before a person can legally create or update a Will. A lawyer is tasked with the duty to confirm that a testator has the required legal capacity. When in doubt, a health care specialist may need to be called upon to assist in the determination. Where there is grey area, avenues open up for a Will to be challenged by disgruntled family members following a person’s death. Proper diligence at the time of making a Will creates the best defense against those types of challenges.

To make a valid Power of Attorney, a person also needs legal capacity, but fortunately the test is less rigourous. The test is set out in our provincial legislation, The Powers of Attorney Act, 2002. Any adult who has the capacity to understand the “nature and effect” of a Power of Attorney may make a valid one. More particularly, a person (the grantor) must understand, among other things, that a Power of Attorney grants another person the power to legally make decisions on behalf of the grantor with respect to the grantor’s property, financial affairs, and personal affairs.

The above test for determining a grantor’s capacity to make a Power of Attorney is not to be confused with other capacity tests in the legislation. There is a different test for capacity as it relates to a person carrying out the role of being an attorney for another person, as well as to determine when a grantor loses the capacity to continue managing their own affairs, which typically springs the attorney into the job. 

Proper estate planning can help both to ensure that you have legally-binding documents in place, and to avoid costly conflict between your family members and beneficiaries when you are gone.

If legal capacity is not an issue, then the best time to put an estate plan in place is always the present. If there is grey area, working with a lawyer to assess legal capacity without delay can help create a path forward and to put the estate plan on a sturdier foundation.

Contact the Wills and Estates team at Lakefield LLP if you would like to make an appointment to discuss your estate plan.

The information in this article does not constitute legal advice. The law may have changed since this article was first published. You should consult with your lawyer to confirm the current state of the law and obtain advice specific to your situation.