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When someone is lacking financial capacity, what does it mean?

Camille Broadhurst

Whether we have “all our marbles” at the end of life’s journey is a question for the crystal ball.  However, as our life expectancy increases in parallel with the number of cases of dementia diagnosed each year, it may be better to plan for a “hole in the bag”. But what does it really mean in legal terms when we say someone is Lacking Financial Capacity?

You can make a plan for if you lose your ability to manage your own financial affairs.  Under an Enduring Power of Attorney you can appoint a trusted person to make financial, legal and property decisions on your behalf now and in the event that you are lacking financial capacity.

Your attorney could access your bank accounts, pay your bills, invest and trade assets on your behalf.

If you do lose ability and do not have an Enduring Power of Attorney in place, the NSW Civil and Administrative Tribunal Guardianship Division may appoint a family member, friend or the NSW Trustee and Guardian as a financial manager to act on your behalf.

To remove any doubt as to who will manage your financial affairs if you lose the ability, contact our estate planning team to prepare an Enduring Power of Attorney on your behalf.

The responsibility to establish the willmaker had testamentary capacity at the time of executing their Will falls on the person championing the Will’s validity. This can generally be discharged by establishing, on the fact of it, that the Will was duly executed by a free and capable willmaker.  However, where counter-evidence raises doubt to displace this presumption, the champion must prove the willmaker had testamentary capacity on the balance of probabilities.

Accordingly, where a solicitor prepared the Will of the willmaker, he or she may be called upon to account for his or her assessment of testamentary capacity; making it extremely important for such solicitor to document the assessment in detail in file notes or otherwise.

It is recommended that a solicitor should ask questions deriving from the Banks v Goodfellow test to satisfy themselves of the willmaker’s capacity.  Where the assessment raises red flags, a solicitor may seek counsel from a medical expert (preferably the willmaker’s medical practitioner) but the opinion of a medical expert is not determinative in nature.  However, it may give a solicitor insight into the degree, nature and permanency of any mental affliction.

Where testamentary capacity is a genuine concern, the solicitor should advise the willmaker that the court may not uphold a Will made in the absence of testamentary capacity.  If this is the case, such Will is set aside and the last valid Will is upheld (if any).  Where there is no prior valid Will, the laws of intestacy will apply.

In the classic case of Banks v Goodfellow, Cockburn CJ states that a Will ought not to stand where reason, judgement and moral sense are perverted by mental disease and the mind has become prey to delusions and suspicions that disturb its functions.

With no special expertise or training in the assessment of testamentary capacity, a solicitor is only reasonably expected to navigate this onerous landscape by following the test in Banks v Goodfellow and using as a yardstick that the greater and more complex the estate, the higher the level of testamentary capacity required.

If you are unsure about the definitions of “lacking financial capacity”, please reach out to our Estate Planning team who can take care of all your Estate Planning needs.

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