Recognizing Capacity, Diminished Capacity, and Undue ...

Recognizing Capacity, Diminished Capacity, and Undue Influence

in Your Clients Allison J. Frasier, Attorney at Law

Washington County Bar CLE - October 22, 2014

Defining Capacity

• Merriam-Webster defines it as “the ability to do something: a mental, emotional or physical ability” • Continuum of Capacity

• Not all or nothing • Lucid Intervals

• Required level of capacity is dependent upon the specific legal actions being taken • Is important when considering putting in place

legal documents and client representation

Defining Capacity

• Capacity depends upon jurisdiction • A diagnosis of a particular condition affecting

the mind, such as mild cognitive impairment or dementia, does not mean the individual necessarily lacks capacity for the desired task

• LEGAL PRESUMPTION:

• An adult has the requisite capacity to sign legal documents and make personal decisions

Standards of Capacity

• Most common and applicable definitions of capacity in MN and most other jurisdictions:

• Testamentary Capacity • Contractual Capacity • Capacity to Marry

Testamentary Capacity • Refers to whether someone has the capacity to

make a will (or will substitute) • A testator will be found to have testamentary

capacity if when making the will the testator understands “the nature, situation, and extent of his property and the claims of others on his bounty or his remembrance, and he is able to hold the things in his mind long enough to form a rational judgment concerning them” Matter of Estate of Congdon, 309 N.W.2d 261, 266 (Minn. 1981).

Testamentary Capacity

• Factors to consider in determining whether testamentary capacity exists: • Reasonableness of the proposed distribution • Conduct before and after signing the document • Any prior adjudication regarding the testator’s mental

capacity; and • Expert testimony concerning the testator’s physical

and mental condition • In re Estate of Anderson, 384 N.W.2d 518, 520

(Minn. App. 1986)


• Testamentary capacity is a less stringent standard than the capacity to contract

• An individual subject to conservatorship may

still be found to have testamentary capacity, Matter of Estate of Congdon, 309 N.W.2d 261, 266 (Minn. 1981).


• Capacity to Make a Trust • The Restatement (Second) of Trusts §11

• Capacity to make a trust depends upon the instrument used to establish the trust

• A trust established by will requires testamentary capacity

• Capacity to Execute a Power of Appointment

under a Trust • Requires testamentary capacity

Norwest Bank Minnesota, N.A. v. Beckler, 663 N.W.2d 571, 579 (Minn. App. 2003)

Contractual Capacity

• Must have an ability to reasonably comprehend the nature and effect of the act and the business being transacted. In re Estate of Nordorf, 364 N.W.2d 877, 880 (Minn. App. 1985).

• The more complicated the transaction, the higher level of capacity is necessary.

• Examples: • Power of Attorney for Finances • Nursing Home/AL/Memory Care Contract • Deeds


• Capacity to Execute a Power of Attorney for Finances

• Requires contractual capacity in MN, Younggren v. Younggren, 556 N.W.2d 228, 232 (Minn. App. 1996)

• Capacity to Execute a Deed • Requires contractual capacity in MN, Fisher v.

Schefers, 656 N.W.2d 592 (Minn. Ct. App. 2003) • Presumption is that person who signed deed

had capacity to do so; burden of proof is on party trying to set aside the deed. Id.


• Capacity to Create a Trust • Testator establishing a trust by deed or

unilateral declaration must have contractual capacity

• Restatement (Second) of Trusts §11

Capacity to Marry

• Marriage is fundamental civil right, Loving v. Virginia, 388 U.S. 1, 12, 87 S. Ct. 1817, 1824 (1967).

• One who has been judged an incompetent may

contract a valid marriage if he has in fact sufficient mental capacity for that purpose. Johnson v. Johnson, 8 N.W.2d 620, 622 (Minn. App. 1943)

Capacity to Marry

• Matter of the Guardianship O’Brien, 847 N.W.2d 710 (Minn. App. 2014). • Although a ward may be found incompetent

to make commercial contracts, that finding does not automatically render him incompetent to make a marriage contract, because the nature of marriage contracts differs from that of other contracts.

• The standard for a ward’s competency to marry is that he understands the meaning, rights, and obligations of marriage.

Diminished Capacity or Lack of Capacity - Definitions

• No clear guidance – can piece together based on definitions found in statute

• Remember the law presumes that an individual has capacity

• Context of Health Care Directives: • In order for an Agent to act under an HCD, MN

statute says the individual must lack “decision-making capacity”

• Defined as “the ability to understand the significant benefits, risks, and alternatives to proposed health care and to make and communicate a health care decision.”

Minn. Stat. §145C.01, subdivision 1b

Incapacitated Person – Guardianship context

• In order for a guardian to be appointed for an

individual the court must find that the proposed ward is an incapacitated person

Definition of Incapacitated Person

“An individual who, for reasons other than being a minor, is impaired to the extent of lacking sufficient understanding or capacity to make or communicate responsible personal decisions, and who has demonstrated deficits in behavior which evidence an inability to meet personal needs for medical care, nutrition, clothing, shelter, or safety, even with appropriate technological assistance.” Minn. Stat. §524.5-102(6) (guardianship statutes)

Determination of Capacity

• Presume capacity, but what if after meeting with a client it is questionable, what next?

• What is the individual proposing to do? (i.e.

what level of capacity is required?) • May require evaluation from several sources:

• Face-to-face meeting with the individual • Written opinion of a medical professional • Discussion with those closest to the

individual

Factors to Assess Capacity

• Can use factors within different areas to inform

our opinions about an individual’s capacity or lack thereof:

• Impairment • Functional Capacity • Decisional Capacity

Factor 1: Impairment

• Generally refers to a person’s diagnosed disability or medical condition which may affect the person’s decision-making ability • No statutory or legal definition of

impairment • Could involve the diagnosis of a dementing

illness • Could relate to a tragic life event (death of

spouse or child) • Could be the diagnosis of a mental illness

(i.e. severe clinical depression)

Factor 2: Functional Capacity

• Refers to a person’s ability to take action to meet personal needs, or demonstrated behavior to indicate a person can take appropriate or necessary action to have needs met • How well is the person meeting his/her

personal needs? • How much assistance is needed with

decision-making?

Factor 3: Decisional Capacity • Refers to a person’s ability to understand,

make and communicate responsible personal decisions to make sure the person’s needs are met. • Is the person aware of unmet or inability in

managing personal needs? • Is the person aware of alternate choices

available to meet those needs? • Is the person able to express a choice? • Does the person understand and appreciate

the choice made, and the risks and benefits?

Factors to Help Determine Level of Capacity

Medical Documentation

• Recent physician evaluation, including a list of any medications which may affect decision making skills • Prior diagnosis of dementing illness • Behavior assessments • Activities of Daily Living (ADLs) – this should also include an assessment of functional capacity to act on decisions to assure personal and financial needs are met

Factors to Help Determine Capacity From the A.B.A. Comm. On L. & Aging & Am Psychological Assn., Assessment of Older Adults with Diminished Capacity: A Handbook for Lawyers, 13-17 (2005). Social/Emotional/Behavioral Factors

• Social History – background of the person, events leading up to the alleged incapacity, etc.

• Difficulty communicating

– Loss of hearing, loss of speech, lack of focus

• Comprehension Issues – Lack of education, skills, training – Drug/Alcohol consumption

• Stressful Event/Life Changing Event (recent death or move)

Factors to Help Determine Capacity Social/Emotional/Behavioral Factors (cont.)

• Delusions

– From being fearful to unrealistic thinking

• Emotional Distress/Inappropriateness • Poor Personal Hygiene

‒ Unkempt clothing, hair, teeth

• Ability to perform (or not) Activities of Daily Living (ADLs)

– Dressing, grooming, bathing, toileting, eating, walking, transferring between bed to chair

• Cultural or religious influences

• Limitations because of culture or religion

Model Rules of Professional Conduct

• Rule 1.14: Client with Diminished Capacity

• (a) When a client’s capacity to make adequately considered decisions in connection with representation is diminished, whether because of minority, mental impairment or for some other reason, the lawyer shall, as far as reasonable possible, maintain a normal client-lawyer relationship with the client.



• (b) When the lawyer reasonably believes that the client has diminished capacity, is at risk of substantial physical, financial or other harm unless action is taken and cannot adequately act in the client’s own interest, the lawyer may take reasonably necessary protective action, including consulting with individuals or entities that have the ability to take action to protect the client and, in appropriate cases, seeking the appointment of a guardian ad litem, conservator or guardian.



• (c) Information relating to the representation of a client with diminished capacity is protected by Rule 1.6. When taking protective action pursuant to paragraph (b), the lawyer is impliedly authorized under Rule 1.6(a) to reveal information about the client, but only to the extent reasonably necessary to protect the client’s interests.


• Comment to Rule 1.14 – Paragraph 6 • Lends guidance to the attorney who may be

trying to determine the capacity of his or her client

• [6] In determining the extent of the client’s diminished capacity, the lawyer should consider and balance such factors as: • The client’s ability to articulate reasoning

leading to a decision; • Variability of state of mind and ability to

appreciate consequences of a decision;


• Comment to Rule 1.14 – Paragraph 6 ctd.

• the substantive fairness of a decision; and • The consistency of a decision with the

known long-term commitments and value of the client.

• In appropriate circumstances, the lawyer may

seek guidance from an appropriate disagnostician.

Undue Influence - Definition

• Undue influence is influence of such a degree exerted upon the individual by another that it destroys or overcomes the individual's free agency and substitutes the will of the person exercising the influence for that of the individual

In re Wilson, 223 Minn. 409, 413 (1947)

Undue Influence - Definition (cont.)

• Whether undue influence was exercised on the testator depends on “the effect of the influence, which in fact was exerted, upon the testator's mind, considering his physical and mental condition, the person by whom the influence was exerted, [and] the time, place, and all the surrounding circumstances thereof.”

In re Wilson, 223 Minn. 409, 413 (1947).

Existence of Undue Influence

• Has undue influence occurred? • Factors to help determine whether undue

influence is in play: • Opportunity to exercise influence (i.e.

influencer consistently spends time with the individual)

• Confidential relationship (attorney-in-fact, health care agent, parent/child, neighbor if no other family members), evidence of trust


• Factors, continued: • Active participation in the transaction by the

influencer (does the influencer prepare the documents himself/herself or communicate directly with the attorney to do so)

• Disinheritance of those who probably would have been remembered (spouse, children, taking into account prior documents and wishes)

• Singularity of the changes in favor the influencer (taking into account prior documents and wishes)


• Factors, continued: • Actual exercise of influence or persuasion by

the influencer • Took individual to an attorney to change

documents • Took individual to a bank to change account

or open new accounts • Prepares checks for the individual to sign • Looking for evidence of acts, not just words

In Re Wilson, 223 Minn. 409, 413 (1947).

Red Flags: Undue Influence/Exploitation • Can use these “red flags” as a starting point to

assess whether undue influence or exploitation is taking place or whether an individual may be susceptible to undue influence or exploitation.

• Financial Exploitation:

• Opening new bank accounts or unusual bank activity

• Checks being signed by someone other than the individual

• Accumulation of bills or debts even though a power of attorney exhibits

• Recent signature of power of attorney, joint checking account, mortgage documents, etc.

Red Flags: Undue Influence/Exploitation

Financial Exploitation (cont.) • Use of an individual’s debit/credit card for

purchases • Large, even sums of cash withdrawn • Removing all forms of communication between the

individual and others • Purchases of personal property uncharacteristic of

the individual • Firing of caregivers • Change in doctors • Significant financial changes with no advice from

attorney or financial advisor • Smell test

Red Flags: Undue Influence/Exploitation

Personal/Emotional Exploitation

• Poor Personal Hygiene • Withdrawal from family/friends • Loneliness • Depression • Paranoia • Confusion or disorientation • Loss of weight/dehydration • Recent company by unfamiliar family or friend • Wandering • Memory loss of recent events/family

Legal Protections

• When an individual does lack capacity with regard to medical or personal decision-making or can no longer handle the management of his/her finances, legal documents may provide the necessary protection by providing a substitute decision maker • Health Care Directive –

• ( or Health Care Power of Attorney and Living Will)

• Financial Power of Attorney (if durable through a period of incapacity)

Alternative if there is no Health Care Directive or if Agents Disagree 1. Court Appointment of a Guardian

a. Clear and convincing evidence i. The court may appoint a guardian if it

finds by clear and convincing evidence that: 1. The individual is an incapacitated

person; and 2. The individual’s identified needs

cannot be met by less restrictive means.

Alternative if there is no Power of Attorney for Finances or if Attorneys-in-Fact Disagree 2. Court Appointment of a Conservator

a. Clear and convincing evidence i. The court may appoint a conservator if

it finds by clear and convincing evidence that: 1. The individual is unable to manage

property and business affairs because of an impairment in the ability to receive and evaluate information or make decisions…and

Alternative if there is no Power of Attorney for Finances or if Attorneys-in-Fact Disagree • ii. The court finds by a preponderance of the evidence

that: • 2. …the individual has property that will be wasted or

dissipated unless management is provided or money is needed for the support, care, education, health and welfare of the individual or of individuals who are entitled to the individual’s support and that protection is necessary or desirable to obtain or provide money.

Summary

• Whether an individual has capacity depends: • Upon task being proposed • Upon jurisdiction

• A particular diagnosis (i.e. dementia) does not automatically mean there is a lack of capacity for a particular task

• Remember the legal presumption – burden of proof is on the party to prove otherwise

• Look to Model Rule 1.14 for guidance on representing a client with diminished capacity

• If a client has diminished capacity be aware evidence of possible undue influence and/or exploitation

Disclaimer: This has been prepared for general information purposes only. This information is not legal advice. Legal advice is dependent upon the specific circumstances of each situation. The information contained in this

presentation should not replace the advice of competent legal counsel licensed in your state.

Recognizing Capacity, Diminished Capacity, and Undue ...

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