On Monday, France’s wealthiest woman, L’Oreal heiress Liliane Bettencourt, lost control of her vast fortune after she failed a court-ordered incompetence test.

As part of the test, she was asked to remember three words: tulip, armchair and duck. When asked to recall the words a few seconds later, she was unable to remember them.

That failure pretty much decided a legal challenge filed by her daughter to gain control of the family fortune.

A client’s cognitive and physical decline into legal incompetence is one of most complex challenges advisors can face, Claire Sullivan, partner and member of the Tax Group at Aird & Berlis LLP, said at this year’s IAFP Symposium.

Sullivan explained that an assessment of legal competency becomes necessary under five broad sets of circumstances:

  • The individual’s family believes substitute decision making is required
  • A legally incapable child becomes an adult
  • A catastrophic injury results in a damage award, to be managed by a guardian
  • A lawyer or other personal advisor questions the individual’s capacity
  • Family conflict arises on capacity issues such as validity of power of attorney or the granting of power of attorney

Advisors should be on the lookout for a number of key signals that competency has become an issue for their client:

  • Do the client’s decisions reflect a change in attitude toward someone close to them without adequate explanation?
  • Does the client show susceptibility to influence or weakness? Is somebody else controlling the client?
  • Is there obvious cognitive impairment?
  • Is the client’s family environment one of conflict? Is there reason to believe the client is highly vulnerable?

Sullivan related a story about discerning incapacity in the first elderly client she dealt with as a young lawyer. The mother of one of her firm’s big clients needed a will drawn up, so Sullivan visited her at her home to make the necessary arrangements. The woman explained the decisions she had made about certain aspects of the will, but was simply unable to come to firm decisions about other parts of the will.

“‘That’s okay,’ I said, ‘you think about it and I’ll talk to you again.’ But after about the third or fourth time going back I thought, ‘I can’t get her to give me instructions—what do I do?’ One of the other lawyers in our office told me to contact her children, find out her doctor’s name, and write him a letter” to determine if something is wrong with her.

“He sent me a little letter back saying she’s nuttier than a fruitcake. He actually said that in the letter.”

The first step Sullivan takes when she has questions about capacity isn’t necessarily to have the individual assessed by someone who has gone through the hoops of becoming a formal capacity assessor.

“The first thing I’ll do is make arrangements to see their family doctor for this purpose and then I’ll write him a letter explaining why I need the capacity assessment,” she explained.

“When you’re asking for capacity, you have to ask for specific capacity. So in the letter I say, ‘They’re going to sign a will, they’re going to sign powers of attorney, here’s all the documents, here’s what they told me all their assets are, or what I know to be their assets, and here are all the legal tests for capacity under the Substitute Decisions Act and common law. And then the doctor or capacity assessor has everything they need to make that assessment.”

The Ontario Ministry of the Attorney General’s website provides an overview of the capacity assessment regime and addresses a wide range of common questions and issues.