September 19, 2024 • 9 mins
SIMPLY MONEY September 2024 WHAT ARE THE CAPACITY STANDARDS FOR SIGNING LEGAL DOCUMENTS?
ELDER LAW ATTORNEYS ARE OFTEN CALLED UPON TO DETERMINE IF A CLIENT HAS THE LEGAL CAPACITY TO SIGN CERTAIN DOCUMENTS. HOW DO THEY MAKE THAT CALL? WELL, THE TESTS ARE DIFFERENT FOR DIFFERENT THINGS. WHEN CONFRONTED BY THE PROSPECTS OF A GUARDIANSHIP, THE TEST IS IN THE STATUTE:
CAN A PERSON MANAGE HIS/HER AFFAIRS OR THE AFFAIRS OF A DEPENDENT?
THAT IS A VERY BROAD AND VAGUE TEST. THE COURT USUALLY LOOKS FOR CLUES THAT A PERSON IS AT RISK FOR PHYSICAL HARM OR FINANCIAL LOSS. THE COURT ALSO RELIES ON A PROFESSIONAL ASSESSMENT BY A DOCTOR OR MENTAL HEALTH PROFESSIONAL. THE LAW PRESUMES THAT WE ARE COMPETENT UNLESS PROVEN OTHERWISE BY CLEAR AND CONVINCING EVIDENCE. ONLY THE COURT CAN MAKE THAT LEGAL FINDING.
BUT THE TEST IS DIFFERENT FOR SIGNING DOCUMENTS.
I. SIGNING A WILL:
CALLED TESTAMENTARY CAPACITY. THIS TEST REQUIRES THE PERSON SIGNING TO BE FREE OF DELUSION AND TO:
1. UNDERSTAND THE NATURE OF HIS/HER PROPERTY
2. UNDERSTAND HIS/HER RELATIONSHIP TO THOSE WHO WOULD BE HIS NATURAL BENEFICIARIES
3. LEAVE HIS PROPERTY IN A MANNER CONSISTENT WITH 1 AND 2 ABOVE
4. BE ABSENT OF UNDUE INFLUENCE
II. CAPACITY TO SIGN A CONTRACT
1. COMPREHENSION OF WHAT IS “GOING ON” IN THE TRANSACTION
2. REASONABLE TERMS IN THE AGREEMENT
3. UNDERSTAND THE NATURE AND QUALITY OF THE CONSEQUENCES OF THE AGREEMENT
4. ABSENCE OF UNDUE INFLUENCE
III. CAPACITY TO SIGN A POA. THE SIGNOR MUST:
1. KNOW AND TRUST THE AGENT
2. UNDERSTAND THAT HE/SHE IS GIVING THE AGENT THE POWER TO ACT IN HIS/HER STEAD
3. BE ABSENT OF UNDUE INFLUENCE
WHAT IS THE LAWYERS DUTY IN ALL THIS IS?:
1. TO CARRY OUT THE CLIENT’S WISHES
2. TO MAKE A REASONABLE INQUIRY INTO THE CLIENT’S CAPACITY
3. TO MAKE A REASONABLE DETERMINATION ABOUT THE CLIENT’S CAPACITY
4. TO DETERMINE THE ABSENCE OF UNDUE INFLUENCE.
EVERYONE IS PRESUMED TO HAVE CAPACITY.
ELDER LAW ATTORNEYS ARE OFTEN CALLED UPON TO DETERMINE IF A CLIENT HAS THE LEGAL CAPACITY TO SIGN CERTAIN DOCUMENTS. HOW DO THEY MAKE THAT CALL? WELL, THE TESTS ARE DIFFERENT FOR DIFFERENT THINGS. WHEN CONFRONTED BY THE PROSPECTS OF A GUARDIANSHIP, THE TEST IS IN THE STATUTE:
CAN A PERSON MANAGE HIS/HER AFFAIRS OR THE AFFAIRS OF A DEPENDENT?
THAT IS A VERY BROAD AND VAGUE TEST. THE COURT USUALLY LOOKS FOR CLUES THAT A PERSON IS AT RISK FOR PHYSICAL HARM OR FINANCIAL LOSS. THE COURT ALSO RELIES ON A PROFESSIONAL ASSESSMENT BY A DOCTOR OR MENTAL HEALTH PROFESSIONAL. THE LAW PRESUMES THAT WE ARE COMPETENT UNLESS PROVEN OTHERWISE BY CLEAR AND CONVINCING EVIDENCE. ONLY THE COURT CAN MAKE THAT LEGAL FINDING.
BUT THE TEST IS DIFFERENT FOR SIGNING DOCUMENTS.
I. SIGNING A WILL:
CALLED TESTAMENTARY CAPACITY. THIS TEST REQUIRES THE PERSON SIGNING TO BE FREE OF DELUSION AND TO:
1. UNDERSTAND THE NATURE OF HIS/HER PROPERTY
2. UNDERSTAND HIS/HER RELATIONSHIP TO THOSE WHO WOULD BE HIS NATURAL BENEFICIARIES
3. LEAVE HIS PROPERTY IN A MANNER CONSISTENT WITH 1 AND 2 ABOVE
4. BE ABSENT OF UNDUE INFLUENCE
II. CAPACITY TO SIGN A CONTRACT
1. COMPREHENSION OF WHAT IS “GOING ON” IN THE TRANSACTION
2. REASONABLE TERMS IN THE AGREEMENT
3. UNDERSTAND THE NATURE AND QUALITY OF THE CONSEQUENCES OF THE AGREEMENT
4. ABSENCE OF UNDUE INFLUENCE
III. CAPACITY TO SIGN A POA. THE SIGNOR MUST:
1. KNOW AND TRUST THE AGENT
2. UNDERSTAND THAT HE/SHE IS GIVING THE AGENT THE POWER TO ACT IN HIS/HER STEAD
3. BE ABSENT OF UNDUE INFLUENCE
WHAT IS THE LAWYERS DUTY IN ALL THIS IS?:
1. TO CARRY OUT THE CLIENT’S WISHES
2. TO MAKE A REASONABLE INQUIRY INTO THE CLIENT’S CAPACITY
3. TO MAKE A REASONABLE DETERMINATION ABOUT THE CLIENT’S CAPACITY
4. TO DETERMINE THE ABSENCE OF UNDUE INFLUENCE.
EVERYONE IS PRESUMED TO HAVE CAPACITY.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
You're listening to Simply Money, presented by all Worth Financial.
I me Me Wagner along with Steve Ruby. You know,
one of the things I love about what we do
as financial advisors as we often partner with people and
we have long term relationships with them, and I very
much enjoy, you know, watching people transition into retirement and
spending time with their grandchildren. But sometimes it gets to
(00:26):
the point where then you start to realize that that
person that you've been working with no longer can make
the calls about their financial or legal situations. And joining
us tonight is Mark Reckman from the Estate Planning our
estate planning expert from the law firm of Wood and Lamping,
talking about what the capacity standards are for signing legal documents.
(00:48):
This sounds like a lot of legal eese, Mark, but
I also want to bring up this is a really
high emotion time when you start to figure out that
either your spouse or your parents or so when you
care about may no longer have the capacity to.
Speaker 2 (01:03):
Do this absolutely right. And what you find out is
that different documents have different capacity tests, and that's of
course just makes it more complicated. And also what you
found out is that the circumstances dictate a lot of this.
If you're talking about a parent who's signing a power
(01:24):
of attorney to their child, and if there's a healthier
relationship and a child who's responsible and trustworthy, then we
have a very different situation than if it's my next
door neighbor who's coming over to the house to help
me out a little bit. These things. While the capacity
standards are the same in these cases, the truth is
(01:44):
the circumstances are different and we approach them a little differently.
Speaker 3 (01:49):
So what about for a full guardianship, because this is
going to give you a lot of control over the
person that you're supporting. What kind of tests are we
looking at to ensure that somebody concerns as a guardian?
Speaker 2 (02:02):
Well, that's right. A guardianship is a formal court proceeding
and it's controlled by by Ohio statute or Kentucky or Indiana.
This is all written right into the laws. There's a
process procedure and in each state there is a test
and it will surprise you when I read when I
tell you what that test is. In Ohio is considered
(02:25):
to be incompetent if they can no longer manage his
or her own affairs or the affairs of a dependent.
That's it. And of course I'm sure your reaction is, well,
that couldn't be more vague.
Speaker 1 (02:40):
Yeah, I was going to say, who the heck charge that?
How do you determine it?
Speaker 2 (02:44):
Yeah, well, that's exactly. And of course it's determined by
the probate court, the probate judge or the probate magistrate
in the county where the person lives. And so what
the legislature is basically trying to do here is to
use a fletch tests and allow the court to make
individual judgments. So what happens in a guardianship is that
(03:06):
you go into the to a hearing, You submit testimony
about what the circumstances are. You give examples of areas
in which the person has not been able to act
on their own behalf or to protect their own interest.
Almost always there's expert testimony from a psychologist or a
doctor or a medical professional to support that, and so
(03:29):
there's a lot of evidentiary steps. So while the test
itself sounds very vague, and implementation is done actually with
great care, how.
Speaker 1 (03:38):
Often do you even get to the point in a
situation where you have a family espouse, someone coming to
you and the person is just you know, in denial
about where it is, and it has to get to
this point of actually going to a court and having
them decide whether they can sign one of these documents.
Speaker 2 (03:57):
Well, denile is a powerful thing, and we have regularly. Fortunately,
there are less intrusive alternatives to a guardianship. There are
ways that I can acquire authority to act on my
wife's behalf or my mother's behalf without going through a
formal guardianship, and these are used the vast majority of time.
(04:20):
So the guardianship process is usually preserved for situations where
we have a very uncooperative ward or in situations where
we don't have a relationship, so that if, for example,
I find myself in a position where I to help
my neighbor but I'm not a member of family, a
guardianship is inappropriate mechanism because with the supervision of the
(04:45):
private court, my job is reviewed by an objective third party.
Speaker 3 (04:50):
So I don't know where I remember this from, but
wasn't this an ongoing battle? It was definitely public between
Britney Spears and her father. The whole guardianship thing, I
think or it was.
Speaker 2 (05:02):
There was a lot of a lot of drama there
and a lot of accusations that the father was taking
financial advantage of her, but there were also outvations of
poor judgment on her part, examples that I read about
in the legal journals that we get. We're rather striking Steve.
She's she's not a normal person, got it.
Speaker 3 (05:25):
I mean, obviously it's very important to have these tests
in place so that somebody has not financially taken advantage
of but at the same time to be able to
protect them from themselves if needed. To kind of add
to what you just said, now, obviously there's going to
be different tests for different kinds of documents, different alternatives
beyond just guardianship, you know, for let's say, for signing
(05:47):
a will. What are we looking at there?
Speaker 2 (05:51):
So the test for signing a will is very different
than a test for a guardianship. We call this testamentary capacity.
That means do I have the capacity to sign the will?
And here in Ohio, the test requires the person to
be signing of the will to feed number one free
of delusion, number two, to understand the nature of his property.
(06:14):
Number three, understand the relationship that person has so the
person named in the powerbortry. In other words, this is
my daughter, this is a son in law, this is
my neighbor, this is my mother, whatever it might be.
You have to be able to understand the relationships. Number four,
the will has to lead the assets in a manner
(06:40):
that's consistent with the relationships I just described. And finally,
that's but not least, the person signing the will must
be absent of undue influence.
Speaker 1 (06:51):
Mark, I just want to say, from a practical standpoint, right,
so say this is me and you know it's my dad, right,
and all this that I have some concerns about, you know,
whether he has the capacity and maybe he's doing some
work around his house. Right, are there's some kind of
a contract that he wanted to do, that he wanted
to execute, and I have concerns about whether that's in
(07:13):
his best interest?
Speaker 2 (07:14):
Right?
Speaker 1 (07:14):
What are the steps that I go through and able
to go through this process? Do I bring him to
an attorney such as yourself?
Speaker 2 (07:23):
Like, how does this work? Well? That's right. Lawyers are
almost always to some degree involved in making this assessment.
And obviously the probate court is the only legal entity
that can make a binding assessment. Lawyers are simply making
judgment call and in many cases, like the example you've
(07:44):
given here, Amy, we're talking about a contract. There are
there is a test here in Ohio to judge whether
or not someone has the capacity to sign a contract. Lawyers,
if they're involved, they have to make an assessment along
these lines. Although as you can well image and the
vast vast majority of contracts are signed without the benefit
(08:04):
of the lawyer. The capacity of the sound contract has
four elements to it. Number one, the person signing must
be aware. They must comprehend what is going on in
the transaction. Number two, the terms of the contract must
be reasonable, and that is a very very broad concept.
Number three, the person's signing must understand the nature and
(08:26):
quality of the consequences of what the agreement requires. And
then number four, the person signing must be free of
any undue influence. Here you'll hear that theme in every
test we talk about today.
Speaker 1 (08:42):
A lot of think through and I know it's an
emotional time and also a legal thing. Right you want
to make sure that your loved ones or this person
that you care about is fully protected. Great expertise from
Mark Grekman are State planning excerpt for the law firm
of Wood and Lamping. You're listening to Simply Money, presented
by all Worth Financial here on fifty five krs the
talk station
You're listening to Simply Money, presented by all Worth Financial.
I me Me Wagner along with Steve Ruby. You know,
one of the things I love about what we do
as financial advisors as we often partner with people and
we have long term relationships with them, and I very
much enjoy, you know, watching people transition into retirement and
spending time with their grandchildren. But sometimes it gets to
(00:26):
the point where then you start to realize that that
person that you've been working with no longer can make
the calls about their financial or legal situations. And joining
us tonight is Mark Reckman from the Estate Planning our
estate planning expert from the law firm of Wood and Lamping,
talking about what the capacity standards are for signing legal documents.
(00:48):
This sounds like a lot of legal eese, Mark, but
I also want to bring up this is a really
high emotion time when you start to figure out that
either your spouse or your parents or so when you
care about may no longer have the capacity to.
Speaker 2 (01:03):
Do this absolutely right. And what you find out is
that different documents have different capacity tests, and that's of
course just makes it more complicated. And also what you
found out is that the circumstances dictate a lot of this.
If you're talking about a parent who's signing a power
(01:24):
of attorney to their child, and if there's a healthier
relationship and a child who's responsible and trustworthy, then we
have a very different situation than if it's my next
door neighbor who's coming over to the house to help
me out a little bit. These things. While the capacity
standards are the same in these cases, the truth is
(01:44):
the circumstances are different and we approach them a little differently.
Speaker 3 (01:49):
So what about for a full guardianship, because this is
going to give you a lot of control over the
person that you're supporting. What kind of tests are we
looking at to ensure that somebody concerns as a guardian?
Speaker 2 (02:02):
Well, that's right. A guardianship is a formal court proceeding
and it's controlled by by Ohio statute or Kentucky or Indiana.
This is all written right into the laws. There's a
process procedure and in each state there is a test
and it will surprise you when I read when I
tell you what that test is. In Ohio is considered
(02:25):
to be incompetent if they can no longer manage his
or her own affairs or the affairs of a dependent.
That's it. And of course I'm sure your reaction is, well,
that couldn't be more vague.
Speaker 1 (02:40):
Yeah, I was going to say, who the heck charge that?
How do you determine it?
Speaker 2 (02:44):
Yeah, well, that's exactly. And of course it's determined by
the probate court, the probate judge or the probate magistrate
in the county where the person lives. And so what
the legislature is basically trying to do here is to
use a fletch tests and allow the court to make
individual judgments. So what happens in a guardianship is that
(03:06):
you go into the to a hearing, You submit testimony
about what the circumstances are. You give examples of areas
in which the person has not been able to act
on their own behalf or to protect their own interest.
Almost always there's expert testimony from a psychologist or a
doctor or a medical professional to support that, and so
(03:29):
there's a lot of evidentiary steps. So while the test
itself sounds very vague, and implementation is done actually with
great care, how.
Speaker 1 (03:38):
Often do you even get to the point in a
situation where you have a family espouse, someone coming to
you and the person is just you know, in denial
about where it is, and it has to get to
this point of actually going to a court and having
them decide whether they can sign one of these documents.
Speaker 2 (03:57):
Well, denile is a powerful thing, and we have regularly. Fortunately,
there are less intrusive alternatives to a guardianship. There are
ways that I can acquire authority to act on my
wife's behalf or my mother's behalf without going through a
formal guardianship, and these are used the vast majority of time.
(04:20):
So the guardianship process is usually preserved for situations where
we have a very uncooperative ward or in situations where
we don't have a relationship, so that if, for example,
I find myself in a position where I to help
my neighbor but I'm not a member of family, a
guardianship is inappropriate mechanism because with the supervision of the
(04:45):
private court, my job is reviewed by an objective third party.
Speaker 3 (04:50):
So I don't know where I remember this from, but
wasn't this an ongoing battle? It was definitely public between
Britney Spears and her father. The whole guardianship thing, I
think or it was.
Speaker 2 (05:02):
There was a lot of a lot of drama there
and a lot of accusations that the father was taking
financial advantage of her, but there were also outvations of
poor judgment on her part, examples that I read about
in the legal journals that we get. We're rather striking Steve.
She's she's not a normal person, got it.
Speaker 3 (05:25):
I mean, obviously it's very important to have these tests
in place so that somebody has not financially taken advantage
of but at the same time to be able to
protect them from themselves if needed. To kind of add
to what you just said, now, obviously there's going to
be different tests for different kinds of documents, different alternatives
beyond just guardianship, you know, for let's say, for signing
(05:47):
a will. What are we looking at there?
Speaker 2 (05:51):
So the test for signing a will is very different
than a test for a guardianship. We call this testamentary capacity.
That means do I have the capacity to sign the will?
And here in Ohio, the test requires the person to
be signing of the will to feed number one free
of delusion, number two, to understand the nature of his property.
(06:14):
Number three, understand the relationship that person has so the
person named in the powerbortry. In other words, this is
my daughter, this is a son in law, this is
my neighbor, this is my mother, whatever it might be.
You have to be able to understand the relationships. Number four,
the will has to lead the assets in a manner
(06:40):
that's consistent with the relationships I just described. And finally,
that's but not least, the person signing the will must
be absent of undue influence.
Speaker 1 (06:51):
Mark, I just want to say, from a practical standpoint, right,
so say this is me and you know it's my dad, right,
and all this that I have some concerns about, you know,
whether he has the capacity and maybe he's doing some
work around his house. Right, are there's some kind of
a contract that he wanted to do, that he wanted
to execute, and I have concerns about whether that's in
(07:13):
his best interest?
Speaker 2 (07:14):
Right?
Speaker 1 (07:14):
What are the steps that I go through and able
to go through this process? Do I bring him to
an attorney such as yourself?
Speaker 2 (07:23):
Like, how does this work? Well? That's right. Lawyers are
almost always to some degree involved in making this assessment.
And obviously the probate court is the only legal entity
that can make a binding assessment. Lawyers are simply making
judgment call and in many cases, like the example you've
(07:44):
given here, Amy, we're talking about a contract. There are
there is a test here in Ohio to judge whether
or not someone has the capacity to sign a contract. Lawyers,
if they're involved, they have to make an assessment along
these lines. Although as you can well image and the
vast vast majority of contracts are signed without the benefit
(08:04):
of the lawyer. The capacity of the sound contract has
four elements to it. Number one, the person signing must
be aware. They must comprehend what is going on in
the transaction. Number two, the terms of the contract must
be reasonable, and that is a very very broad concept.
Number three, the person's signing must understand the nature and
(08:26):
quality of the consequences of what the agreement requires. And
then number four, the person signing must be free of
any undue influence. Here you'll hear that theme in every
test we talk about today.
Speaker 1 (08:42):
A lot of think through and I know it's an
emotional time and also a legal thing. Right you want
to make sure that your loved ones or this person
that you care about is fully protected. Great expertise from
Mark Grekman are State planning excerpt for the law firm
of Wood and Lamping. You're listening to Simply Money, presented
by all Worth Financial here on fifty five krs the
talk station
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