What should an estate-planning attorney do when a client comes to her office to discuss an estate plan that's out of line with what the attorney would recommend or otherwise deem appropriate? What if the client is adamant about this plan even though it's inefficient for tax purposes or will likely cause conflict within the client's family? When an attorney finds herself in this situation, she should consider the possibility that the client is suffering from diminished capacity. Before drafting and executing the requested plan, the attorney should determine whether the client has sufficient capacity to understand and implement the plan and, if she doesn't, the attorney must consider her ethical obligations to the client. Sufficient capacity is a prerequisite for implementing an estate plan and, unfortunately, there are no bright line rules an attorney can rely on to determine capacity or how to deal with a client with diminished capacity.

State law provides attorneys with a standard by which to judge the capacity of a client. The Restatement (Third) of Property (Restatement Third Property) and the Restatement (Third) of Trusts (Restatement Third Trusts), for example, set forth a capacity standard for testamentary planning and one for inter vivos transfers. Once an attorney has determined that her client has diminished or no capacity, the attorney must determine her ethical obligations to the client by looking to the state's rules on ethical conduct. Many states base their ethical rules on the Model Rules of Professional Conduct (the Model Rules), which we discuss below. Although state law and ethics rules provide some guidance as to what to do when a client may have diminished capacity, neither provides clear instructions and, in some cases, further muddies the issues.

Required Capacity for Wills

An individual has testamentary capacity and is considered competent to create a will if she's capable of knowing and understanding in a general way: (1) the nature and extent of her property, (2) the natural objects of her bounty, and (3) the disposition that she is making of that property. In addition, she must be capable of conveying these elements to another and forming an orderly desire regarding the disposition of property.1 The Restatement Third Property applies this same capacity standard to grantors of revocable trusts and to individuals making revocable beneficiary designations for their retirement accounts, life insurance proceeds, annuity contracts and other non-probate assets.2

The second element of testamentary capacity is arguably the most ambiguous. Most would agree that an individual's natural objects of her bounty include her immediate family members, such as a spouse and descendants. State law implies that an individual's grandparents and the descendants of her grandparents are an individual's natural objects by designating them as intestate heirs when closer family members aren't alive.3 But, pinning the definition of natural objects to an individual's intestate heirs is troublesome. For example, stepchildren may be close to the individual, but wouldn't necessarily receive property if the individual died without a will. Instead of defining natural objects with reference to intestacy, the Restatement Third Property requires the testatrix to be capable of identifying the individuals who are close in relationship to her, but not necessarily related by blood. This explanation seems fair but, because it's subjective, it does little to resolve the ambiguity raised by this factor.

The capacity requirement doesn't require a testatrix to actually bequeath her property to objects of her natural bounty. In fact, many who execute a testamentary plan do so to devise property to individuals other than their heirs apparent or to make gifts in unequal amounts. That said, the possibility of a future claim of incapacity is stronger when a testatrix disinherits family members or treats them unequally.

A testatrix need only have testamentary capacity at the moment she executes the instrument, which means that a testatrix adjudicated incompetent to manage property can execute a will or will substitute so long as she has a moment of clarity. The adjudication, however, will shift the burden of proof to the proponent of the will to show that the testatrix had testamentary capacity. In most other situations, the burden of proof to show that testamentary capacity was missing is on the person contesting the will.4

Required Capacity for Gifts

Testamentary capacity requires less mental competency than is required to make irrevocable lifetime gifts. An individual making an irrevocable gift must satisfy the elements of testamentary capacity (as described above) and, in addition, must be capable of understanding the effect that the gift may have on the future financial security of the donor and of anyone who may be dependent on the donor.5 This capacity standard applies to individuals making inter vivos gifts outright or to irrevocable trusts for the benefit of others.6

The additional requirement here is necessary, given that an individual who makes an irrevocable gift during life can't undo it without court intervention, if at all. In contrast, a testatrix who later becomes capable can create a new will that more accurately reflects her wishes. This is easy to do because beneficiaries of a will or will substitute merely have an unenforceable expectancy interest in the property they may receive. An irrevocable gift, however, vests the property in another; it becomes the domain of someone other than the donor, someone who may not be willing or able to return it.

Why Require Capacity?

Why, as a society, do we care if an individual has sufficient capacity to form a will or make an irrevocable gift? First, we have an incentive to protect the testatrix/donor. Second, we have an incentive to protect her heirs apparent.

Setting a high standard for mental capacity protects both competent and incompetent individuals. A competent individual who's effectuating an estate plan can be comforted by the fact that should she later become incompetent and execute a new plan, it's the prior plan that will be implemented. Incompetent individuals are more vulnerable to exploitation and need society to intervene for protection; such protection renders void any instrument they execute.7

The second, and more cynical, rationale is that inheritance serves as an incentive for potential heirs to care for their elders. Knowing that a parent will provide for a child at the parent's death and that this estate plan can't be undone by incapacity can motivate a child to watch over the parent. This benefits the parent and society, which has an interest in our elders being cared for humanely.

The Attorney's Role

Clients hire estate-planning attorneys to recommend and implement functional estate plans. Instruments drafted for and executed by incompetent individuals are void. Further, an attorney who prepares an estate plan for an incompetent individual or an individual with diminished capacity may violate her ethical duties. Therefore, it's imperative that attorneys work with clients who have the capacity necessary to form a testamentary plan or make inter vivos gifts.

Determining Client's Capacity

Most attorneys lack neurological or psychological training, yet they're expected to analyze the cognitive abilities of their clients. Comment 6 to Model Rule 1.14 (the ethics rule dealing with attorneys' obligations to clients with diminished capacity) instructs an attorney to consider and balance the following when determining the extent of a client's diminished capacity:

  1. the client's ability to articulate reasoning leading to a decision;
  2. variability of state of mind and ability to appreciate consequences of a decision;
  3. substantive fairness of a decision; and
  4. consistency with the client's known long-term commitments and values.

Increase Client's Comfort Level

Making a client comfortable may enhance the client's understanding, while also allowing her attorney an opportunity to assess her capacity. To do this, an attorney should remove as many obstacles as possible. For example, an attorney working with a client who has poor eyesight should print documents in large fonts with bold type. If the client is hearing-impaired, the attorney should eliminate background noises by holding meetings in quiet areas away from office sounds like printers, ringing phones and opening/closing doors. Attorneys should speak in plain language as opposed to legalese and should provide drafts to the client in advance of meetings so that the client has sufficient time to contemplate a plan prior to execution. The attorney should also meet with a client more than once, if possible, to see the variability of the client's ideas.

Above all, the attorney should speak with a client alone to encourage her to be honest and forthright. However, there are situations in which having family members at meetings can enhance a client's capacity. For example, consider a situation that arises often for estate planners: Client Camille brings her elderly parent to an estate-planning attorney to draft her parent's testamentary documents. Camille's presence at meetings, which isn't an ethical violation if the attorney obtains the parent's informed consent, helps put the parent at ease. Camille's presence is also helpful because she may be able to supplement any information or details her elderly parent provides. With Camille's assistance, the attorney has a full picture of the parent's situation and is in a position to provide better estate-planning advice. But, including Camille at the meetings has its risks.

It's possible that Camille's vision of her parent's estate plan differs from her parent's vision. Perhaps Camille provides more care to her parent than her siblings do and expects a bigger share of her parent's estate as compensation. Her parent, however, intends to treat Camille and her siblings equally. Having Camille at the meetings, while potentially helpful in determining capacity, could result in Camille having information that she can use to exercise undue influence. An attorney must balance the benefits with the risks.

Making a client comfortable may help to avoid potential misunderstandings, while also giving the attorney a chance to form her own opinion of the client's capacity. Snap judgments by an attorney may result in a competent individual being considered incompetent because her ideas are in conflict with the attorney's personal values. Understanding why a client wants to implement a certain plan will allow the attorney to determine if the “why” is because of incompetence or a legitimate reason.

Comment 6 to Model Rule 1.14 permits an attorney, in appropriate circumstances, to seek guidance from an appropriate diagnostician. Notwithstanding this authorization, the attorney is still subject to the duty of confidentiality, so the information an attorney can relay to the diagnostician is limited.

Ethical Obligations

Once the attorney determines that she's working with a client with diminished mental capacity, what are her ethical obligations to the client? Rule 1.14 of the Model Rules sets forth some guidance for this situation.

Model Rule 1.14(a) directs the attorney, as far as reasonably possible, to maintain a normal attorney-client relationship with the client. Comment 1 explains that a normal attorney-client relationship is based on the assumption that the client is capable of making decisions about important matters. How does one maintain a normal attorney-client relationship with someone who isn't capable of doing the lone element necessary to form a relationship?

Consider longstanding client Claire. Claire meets with her attorney to suggest changes to her current estate plan. At the meeting, Claire's attorney determines that Claire isn't able to understand the nature and extent of her property and, thus, lacks testamentary capacity. Upon reaching this conclusion, is the attorney-client relationship terminated?

American Bar Association (ABA) Formal Opinion 96-404 seems to answer this question in the affirmative. In the opinion, the ABA states that “because the relationship of client and lawyer is one of principal and agent, principles of agency law might operate to suspend or terminate the lawyer's authority to act when a client becomes incompetent.” The opinion then cites to the Restatement (Second) of Agency Section 122 (1958), which provides that an incompetent principal has no authority to empower her agent. After reading the ABA's interpretation of Model Rule 1.14(a), one would think that the incompetency of a client terminates the attorney-client relationship; however, the opinion continues by saying that subsection (b) “permits the client-lawyer relationship to continue even in the face of the client's incapacity.”8

Model Rule 1.14(b) permits, but doesn't require, an attorney to initiate protective action if she reasonably believes that the client is at risk of substantial physical, financial or other harm. Per Comment 5, protective action can include consulting with family members or professional services. These acts could be very useful for an attorney who needs assistance in determining the extent of a client's incapacity. However, attorneys are still subject to the duty of confidentiality set forth in Model Rule 1.6, so they must satisfy this exception before disclosing any confidential information. In other words, the attorney must be sure that a client is at risk of substantial physical, financial or other harm before she reveals any information to family members or other third parties.

For example, consider client Cora. Cora has an estate plan in place that will benefit her loving children and grandchildren. Cora tells her attorney that she wants to make a lifetime gift of a substantial portion of her wealth to a television evangelist. One could argue that Cora is at risk of substantial financial harm if she will be left with insufficient funds to meet her future needs. But what if Cora wishes to do the same with her property at her death? In both cases, her family members will suffer, but in the latter case, Cora will be unaffected by her changes during her life. In this scenario, Model Rule 1.14(b) doesn't seem to authorize the attorney to seek protective action or the opinion of others who may provide insight into the client's capacity.

There are no clear answers for what an attorney should do if her client is incompetent or suffering from diminished capacity. If the attorney continues to represent an incompetent client, she may be subject to liability for acting on behalf of a principal for whom she had no authority to act. If the attorney ends the representation, the attorney risks violating Model Rule 1.14(a) by failing to maintain a normal attorney-client relationship, especially when the attorney doesn't consider the client to be completely incompetent. In any event, walking away won't help the client. The third option is for the attorney to seek the appointment of a guardian. Comment 7 to Model Rule 1.14 authorizes an attorney to consider whether appointment of a guardian is necessary to protect the interests of a client with diminished capacity. The Comment continues by warning the attorney to use her professional judgment to determine whether “appointment of a legal representative may be more expensive or traumatic for the client than circumstances in fact require.”

Endnotes

  1. Restatement (Third) of Property: Wills and Other Donative Transfers (Restatement Third Property) Section 8.1 (2003).
  2. Ibid. at Comment e.
  3. See, e.g., Uniform Probate Code Section 2-103.
  4. Restatement Third Property, supra note 1, Comment h.
  5. Ibid. at Comment d.
  6. Restatement (Third) of Trusts Section 11.3 (2003).
  7. Restatement Third Property, supra note 1, Comment c.
  8. American Bar Association Formal Opinion 96-404 (emphasis added).

Ivan Taback is a partner and Vanessa L. Maczko is an associate in the New York City office of Proskauer Rose LLP