Estate Planning and Capacity: the Importance of Planning for the Future Early


It’s no secret that Australia has an aging population. ABS statistics project that in 2042, our society will look quite different from what it does today. The number of Australians aged 65 and over is expected to increase rapidly, from around 2.5 million in 2002 to 6.2 million in 2042. That represents an increase from around 13 per cent to around 25 per cent of Australia’s population.

What are the implications of an aging population?

Estate planning is not just an activity for the elderly, but it is certainly a more pressing issue for those in the later stages of their lives. If estate planning is left too late, the consequences can be devastating, both for the person and their loved ones.

In order to make any estate planning documents (Wills, Enduring Powers of Attorney, Enduring Powers of Guardianship and Advance Health Directives), the law requires the maker to have soundness of mind and an understanding of what he or she is doing when making the Will, Enduring Power of Attorney, Enduring Power of Guardianship or Advance Health Directive. This requirement means that in some instances a person is not able to make one or more of these documents, because they lack sufficient capacity to do so.

What are the implications of incapacity for the individual?

The implications of a person being unable to make an estate planning document due to incapacity varies, depending on the person’s circumstances. It could result in the need for the State Administrative Tribunal to become involved and make orders in respect of the person’s financial affairs and/or medical treatment and care. It may result in the person’s estate being distributed on their death in accordance with an outdated Will that don’t suitably match the person’s circumstances. Alternatively, the person’s estate may be distributed in accordance with rigid entitlements set out in the Administration Act, if the person had never made a Will.

The primary issue with these fallback alternatives, is that the person doesn’t really get a say. Their ability to have a say on who looks after their finances, who stands to benefit from their estate and how their future care decisions are made, is essentially lost when they lose capacity.

How is incapacity determined?

It’s important to note that standards for capacity are task-specific. Whether a person has capacity to do something, depends on what it is they intend to do. Capacity to make a simple Will is different to capacity to make a complex Will. Capacity to make a Will generally, is different from capacity to make an enduring power of attorney. In the New South Wales case of Apice v Gutkovich – Estate of Abraham (No 2) [2010] NSWSC 1333, the Court found that Ms Abraham, a 93 year old lady with dementia, had capacity to make a particular Will (but not other particular Wills), despite the fact that she lacked capacity to manage her financial affairs and lifestyle decisions.

Conclusion

With our ageing population, matters of capacity are becoming increasingly relevant. The best thing we can do to avoid some of the worries that come with losing capacity is to ensure that those close to us have appropriate estate plans in place, early. If you are concerned because you know somebody who doesn’t have an appropriate plan in place and who may not have capacity, or may have declining capacity, we recommend that you encourage them to consult a lawyer as soon as possible so it does not become too late for them.

The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.