Detecting capacity issues and undue influence

Knowing whether clients are capable and/or under undue influence as they age is crucial for advisors. But starting a discussion about a client’s mental state is far from easy, and there’s no single test for assessing capacity.

The two legal elements of capacity are “the ability to understand information relevant to making the decision” and the “ability to appreciate the consequences” of decisions, said Kimberly Whaley, lawyer and founding partner of WEL Partners, during a session on capacity, estate and trust planning at STEP Canada’s 20th national conference in Toronto on Tuesday.

Someone could struggle with one of the two rather than both, she said, and their issues can also be “time- and situation-specific” as opposed to chronic.

Noticing undue influence can be easier: new relationships or sudden changes in old ones are common red flags, she said. But case law shows that judges have found those influencing a client can be manipulative even when they’re not physically present, said Whaley.

So, even if a lawyer or advisor hasn’t met the third party who’s influencing their client and may not be aware of them, wills and plans could be contested if influence is found, she said.

When judges assess vulnerability, Whaley said, they consider a person’s age, infirmity and relationships, for example.

Read: IFIC proposes protections for senior clients

Dr. Kenneth Shulman of Sunnybrook Research Institute and the University of Toronto, who presented after Whaley at the event, said to take caution with clients who are 75 and older. During the STEP Canada session, he cited 2015 data from the Alzheimer’s Association that finds the projected number of people aged 65 and older with Alzheimer’s in the U.S. is set to rise from 5.8 million in 2020 to 13.8 million by 2050.

Capacity tests that doctors can use include the Mini-Mental State Exam or MMSE, the Montreal Cognitive Assessment or MoCA, and clock-drawing tests measured over time to help spot cognitive deterioration. However, in estate litigation, the medical evaluation of a person’s capacity is only one element in a court’s assessment.

A positive test score or diagnosis of incapacity will be used to inform a judge’s or court’s legal opinion, not to confirm a person is incapable, said Dr. Shulman.

The paradox of capacity assessments

So what’s an advisor with an aging book to do? Lawyer Ed Esposto of Aird & Berlis, who also took part in the STEP Canada session, cautioned that lawyers shouldn’t conduct capacity assessments—a warning that’s also relevant for advisors.

The paradox of capacity assessments is they shouldn’t be done by anyone other than qualified medical professionals, but the final decision “is not strictly based on medical opinion,” he said. “The legal answer” to the question of whether a person is capable of crafting a will or handling their finances “ultimately comes from the judge.”

Read: The perils of will kits in estate planning

Advisors and other professionals can focus on identifying when you can take instruction from a client—when a person is capable of giving clear, consistent instructions, for instance—and when you can’t due to an illness or influences a client is under. In the grey area, or where you’re unsure of a client’s capacity, Esposto said, clients may need to seek additional help from medical and legal professionals.

However, it’s important to document all discussions and be transparent with clients if you are wary of serving them. If a lawyer doesn’t help someone craft a will and it was that person’s “last chance,” he wouldn’t want to be held liable for that client’s last wishes not being carried out, said Esposto.

Dr. Shulman noted a common mistake is lawyers will say they’ve read out a will and the client agreed to all parts. This isn’t enough, he stressed, given incapacity can manifest in different ways. For example, a person’s social graces may remain, meaning they could appear healthy and happy, and dress well.

According to case law that Whaley presented, those helping clients craft or amend wills must meet with their clients alone, to mitigate undue influence, and keep thorough notes about a person’s demeanour and requests. To assess the client’s mental well-being, they should ask detailed questions about their requests and the extent of their assets, in multiple ways, to see if they get consistent responses, for instance.

What to look for

Red flags to look out for as you serve clients can include: a dramatic change in their views or habits; inconsistent or unnatural provisions in wills; concerns from family; and, of course, death bed transactions, Dr. Shulman said.

Read: Does your elderly client need dispute resolution?

While there’s no easy way for advisors to spot and deal with incapacity, it’s a growing concern. Taking pains to know your client, track their behaviour and concerns, and staying up to date on recent healthcare trends is a good start.

Read this story: Clients with mental health issues at risk of poor financial decisions