Addressing Mental Capacity: Law, Pitfalls & Best Practices

Mental capacity in its basic form is the ability to make a decision and the loss thereof can happen to any one of us at any time. For the healthy, it may be the result of a sudden illness or injury. For older people, the onset of incapacity may be slower; the result of the progression of an illness such as Alzheimer's disease or just part of the normal aging process.

Understanding incapacity or capacity may seem as complex as the mind itself, but for the purposes of this article the following terms will carry their legal definitions as provided by Stroud's Judicial Dictionary of Words and Phrases. 6th ed. London: Sweet & Maxwell.

"capacity": an ability or fitness to receive: In law it signifies when a man or body politick is able to give, or take lands, or other things, or to sue actions." "legal incapacity: A person may be incapacitated by law or statute from acting in certain circumstances such as being a Minor; in the past being a woman or in event of a mental disease or disorder. The Law The Mental Health Act ('MHA") provides a mechanism for a person suffering from a mental disease or disorder to be declared legally incapable of acting and under Section 34 of the MHA the court is able to be appointed as custodian of their assets. This is usually subject to submission of an application supported by two medical certificates, certifying the mental disease or disorder that the person is suffering from. The court isn't able to handle the property and affairs of a mentally incapacitated person and would usually do so through a receiver. There is no test or formula set out in the MHA to determine Mental Incapacity.

Giving a Lifetime Gift The leading case of Re Beaney (Deceased) [1978] 1 WLR 770 sets out the test of capacity to make a gift, and states that capacity to make a gift will vary depending on the size, nature and circumstances of the gift.

The degree of understanding required for the making of a valid inter vivos gift was relative to the transaction to be effected. If the subject matter and value of the gift were trivial in relation to the donor's other assets, a low degree of understanding would be sufficient. If however the effect of the gift was to dispose of the donor's only asset of value and to pre-empt the devolution of this estate under his will or on his intestacy, the degree of understanding required was as high as that required for a will and the donor had to understand the claims of all potential donees along with the...