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The Importance of Capacity in Estate Planning

Jan 26, 2017 2:30:15 PM Sheri MacMillan Estate Planning

Capacity of Estate Planning ServicesWhile many know estate planning manages your assets after death, few are aware that a truly effective estate plan will also plan for remainder of your life. As such, a well-designed estate plan should consist of three key documents: a will, an Enduring Power of Attorney and a Personal Directive

When combined with other estate planning techniques, these three documents can secure the future of you and your family for years to come by: 

  • Ensuring you enjoy the quality of life that you want for yourself
  • Protecting your assets
  • Distributing your estate as you see fit
  • Allowing your family to benefit from the wealth you have created

Two of these documents – the Personal Directive and Enduring Power of Attorney – will be enacted during your lifetime.

Your Personal Directive assigns an agent to make personal decisions on your behalf, such as where you will live, who will look after your dependants, how you will spend your time and who will be allowed to visit you.

An Enduring Power of Attorney, on the other hand, manages your financial decisions. This can include buying and selling real estate, purchasing consumer goods, paying bills and banking on your behalf.

This is where capacity comes in.

Capacity, in estate planning, refers to the ability to make your own decisions and the loss of capacity, which refers to the inability to make decisions for yourself, often acts as a trigger mechanism for these two documents.

The loss of capacity can be a major concern because it can subject a person to influence by other family members, business partners, or members of the public, that are interested in perpetrating some sort of fraud. 

That is why both of these documents are crucial.

If these documents are not in place, the court will grant someone the authority to make decisions, on your behalf. Not only will this be costly and time consuming, but you risk having a guardian that would not manage your finances or your personal decisions the way you would choose to.

How to Determine a Loss of Capacity

In situations where a sudden loss of capacity occurs, measuring capacity isn’t an issue but, in other situations where capacity is lost slowly over time, as is the case with dementia, determining when you have lost capacity is difficult.

At what point are you no longer able to make decisions for yourself?

Here are some common signs of mental incapacity 

  1. Difficulty remembering important details or other memory issues
  2. Inability to recognize family members
  3. Confusion or decreased attention span
  4. Behaving out of character
  5. Decreased appreciation for risk (as it applies to themselves or others)
  6. Issues speaking or following a conversation
  7. Lack of hygiene or dressing strangely

While these symptoms are indicators of incapacity, it is important to understand that their presence does not necessarily mean you have lost capacity.  

That is why it is crucial that the decision be left to those who know you the best and can recognize adverse changes in your behaviour.

You also want to ensure that the person who is making the decision can be trusted to act in your best interest.

While you do not want to risk someone, with ulterior motives, claiming incapacity to soon, you also do not you want a loss of capacity identified too late.

Someone who is losing capacity can usually maintain a superficial conversation, without showing signs of lost capacity, it isn’t until you spend a great of time with them, that you will really notice a difference.

And, if the loss of capacity is not identified soon enough, you risk making unwise decisions or decisions that you would not normally make, unless under undue influence.

Whether it is a family member, a close friend, a medical professional, or combination thereof, you want to be sure the right decision is made for you and your wellbeing, at the right time.







At MacMillan Estate Planning, our team of professional trust and estate practitioners, chartered accountants, financial planners, and legal professionals look forward to assisting you with the design of your estate plan and will ensure you build, protect, and enjoy your wealth. The information provided is general and may not be suited to your objectives or sufficient to ensure the protection of you and your family. You should not act on this information without providing MacMillan Estate Planning with the opportunity to ensure that it is suitable for your unique situation.

Sheri MacMillan

Written by Sheri MacMillan

Sheri MacMillan is the Founder & President of MacMillan Estate Planning Corp, Canada’s elite estate planning firm and is a highly respected industry leader

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