We should all plan for our future. Certainly, we should all have a current will, and many of us would also benefit from making formal arrangements to account for the possibility of being unable to make our own decisions. We are often asked by clients how to apply for power of attorney to manage a family member’s affairs, often at a time when the family member is losing or has lost the capacity to make their own decisions. However, it is important to understand that arrangements such as putting in place a power of attorney, can only be made while a person has the necessary capacity. Your loved ones cannot apply for a power of attorney or make a will on your behalf if you begin to lose the capacity to make decisions for yourself.
What Is the Presumption of Capacity?
You need legal capacity to make decisions when making a will, buying or selling property, taking out a loan or investing money, making a power of attorney, appointing a guardian, or entering into a contract. “Capacity” requires the ability to understand the facts, evaluate the choices and their consequences, and make a decision based on a reasoned assessment.
In Australia there is a basic legal presumption that every adult has the mental capacity to make legal decisions for themselves. (This contrasts with the presumption that children lack this capacity and cannot make important decisions without the input of their parents or guardians.) However, this presumption of mental capacity in adults can be rebutted if there is evidence that the adult does not have the necessary decision-making ability. An adult may not have mental capacity to make certain decisions due to a lifelong intellectual disability, an acquired brain injury, an age-related cognitive condition, or a mental illness.
How Do You Determine If Someone Has Capacity?
Unfortunately, it is not an easy task to determine if someone has mental capacity. In fact, there is not even a single legal definition of what constitutes “mental capacity”. This is because different forms of capacity are needed to make different types of decisions.
The lack of a single definition of mental capacity can make it difficult for everyone involved to determine if someone has the capacity to make a particular decision. However, there are some general principles that can help clarify what is meant by legal capacity, and what happens when there is a question about the legal capacity of an adult.
What Capacity is Required?
It is important to understand that capacity is not a diagnosis, where someone is assessed as “incapable” and is then unable to make any legal decisions. Rather, if there is a question about the capacity of a person, then an assessment is made on a case-by-case basis as to whether the person has the capacity for each particular decision. This assessment is often made by the solicitor involved in the legal matter and is usually based on expert advice from a medical report.
For instance, if someone approaches a solicitor to make a will, the solicitor starts by assuming that the person has the necessary capacity. If there is evidence to rebut this presumption (such as the person has difficulty understanding the purpose of a will when it is explained to them) then the solicitor may ask the person to obtain a medical assessment. This assessment will focus on the specific question: Does this person have the capacity to make a will?
Some legal decisions require more capacity than others. For instance, it is broadly understood that a person requires more capacity to manage all of their financial affairs than to simply make a will. Conversely, a person who is deemed incapable of making a will may still have the capacity to revoke an existing will; and someone with the capacity to make a will may not be able to appoint an enduring power of attorney. These comparisons are based on the complexity of the information that the person must be able to understand and evaluate to make the decision that is right for them.
What Can I Do for My Loved One?
Solicitors often have requests from someone who wants to be appointed power of attorney for a loved one who is losing capacity. It is important that everyone involved understands that only the person who is the subject of the power can appoint the attorney, and they must do this while they have the capacity to do so.
Appointing a power of attorney is considered a complex decision. This is because a power of attorney exposes a person to a risk of potential harm and exploitation.
If you have a loved one who has lost capacity to manage their own affairs, and they do not have arrangements in place to have someone make a decision for them, then you will need to seek an order from the Tribunal in your state or territory to give you (or someone else) the authority to make decisions for them.
This is general information only and you should obtain professional advice relevant to your circumstances. If you or someone you know wants more information or needs help or advice, please call 02 9150 6991 or email [email protected].