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Wednesday, July 21, 2010

Fewer options as capacity diminishes

It's a myth that estate planning is only for the elderly. Over the last ten years or so, the majority of my clients have been individuals and couples in their 40s, 50s and 60s. They want to plan early because early planning means that all of their options are open.

In order to make a valid Will, the person signing the Will (the "testator") must have testamentary capacity. This refers to the ability to understand the nature of a Will,and to understand the consequences of the decisions being made when a Will is signed. If you wait too long, you may run out of time, as we don't know which of us will one day be affected by mental incapacity due to an injury or illness. A Will that is made while the testator is suffering from early signs of incapacity is somewhat easier to contest by someone who is disappointed by its contents.

Eventually loss of capacity means that the testator can't make a Will at all. That could mean that an old, out-of-date Will is used, or that there is no Will at all and the estate is distributed according to intestacy law.

Estate planning is about more than getting a Will made. As we talk about frequently on this blog, the other major component of estate planning is putting something in place to deal with possible future mental incapacity. As with making a Will, choices become fewer if you wait too long.

A person who has mental capacity can choose to prepare an Enduring Power of Attorney and Personal (health care) Directive. Once capacity begins to diminish, the need for these documents increases but the ability to make them begins to decrease. In the early stages, it isn't too late to create documents, and the individual can choose between, for example, putting someone fully in charge, and supported decision-making.

In these documents, the individual can name decision-makers of their choice, and can decide limits, controls and guidelines for their representatives. They can give instructions about investment, about giving to charities, and about any financial arrangements involving their adult children.

If the opportunity to sign documents is lost, the options narrow down to the point where the individual loses control of the decisions and other people must step in and ask the court to appoint a trustee and/or adult guardian.

Estate planning is something that you should do well before you think you'll need it.

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