Capacity refers to ability to manage one's own affairs
The Six (6) Greater States have defined incapacity in legislation
Alternative definitions of incapacity might be considered
Capacity may arise in different contexts
Capacity arises in the context of creation a Power of Attorney
Capacity arises for consideration after the creation of a Power of Attorney
Managing the issue of capacity is not an easy task
There are many potential causes of incapacity
In California, a lengthy definition is found in §811
Mention s.4235, note 1994 report says re 4235
“Section 4235 is drawn from the Missouri Durable Power of Attorney Law. See Mo. Ann. Stat. § 404.714(4) (Vernon 1990). This section does not provide anything inconsistent with permissible practice under former law, but is intended to recognize the desirability of consultation in appropriate circumstances and provide assurance to third persons that consultation with the attorney-in-fact is proper and does not contravene privacy rights. As to the right to obtain medical records under the durable power of attorney for health care, see Section 4721. See also Section 4455(f) (receipt of bank statements, etc., under statutory form powers of attorney). The right to obtain information may be enforced pursuant to Section 4941(f).”
Often a durable Power of Attorney is said to be a Power of Attorney that triggers entitlement of an agent to perform tasks if the principal loses capacity, or survive incapacity of the principal.
However, these are merely different designs of a durable Power of Attorney.
The notion of "durability" should align with the intention of the principal as to whether its operation is to survive their loss of capacity.
What is important is to give effect to the proposition that the principal may choose to provide that the Power of Attorney continues to operate if the principal loses capacity.[3]
What needs to be avoided is any approach that involves mysterious notions, such as a Power of Attorney always terminating upon the principal losing capacity.
The difference between these two approaches is that the first approach tends to fundamentally protect and preserve freedom of a principal's to structure their affairs however they see fit, whereas the second approach tends to limit this freedom.
Imagine a principal wants to say in a Power of Attorney that "at any time between my overseas departure and return dates if I have capacity this agent may perform certain tasks they can do so" ("the First Power of Attorney") and say in another Power of Attorney that "at any time between my overseas departure and return dates if I lack capacity this (possibly other) agent may perform certain tasks" ("the Second Power of Attorney").
Legislation that inhibits the making of arrangements of the kind seen in the Example above, it is problematic.
For example:-
There is no reason why legislation should work to prohibit the making of arrangements of the kind seen in the Example.
There are excellents reasons for legislation to protect the right of a principal who is a person to make arrangements of the kind seen in the Example.
The best approach is to accept that:-
Often a durable Power of Attorney is said to be a Power of Attorney that triggers entitlement of an agent to perform tasks if the principal loses capacity, or survive incapacity of the principal.
However, these are merely different designs of a durable Power of Attorney and what is important, is that in each example the intention of the principal is that operation of the the Power of Attorney survives their loss of capacity.
What is important is to give effect to the proposition that whatever terms the principal sees fit to include in their Power of Attorney.
For example if the principal wants to say "at any time between my overseas departure and return dates if I have capacity this agent may perform certain tasks" they can do so and equally for example, say in another Power of Attorney "at any time between my overseas departure and return dates if I lack capacity this agent may perform certain tasks". It is as simple as to say if legislation inhibits this sort of arrangement, the legislation is problematic.
There is simply no excuse why legislation should work to prevent these kind of arrangements and excellent reasons for legislation to protect the right of a principal who is a person, given that for example, this is only an ordinary kind of arrangement that many people may prefer to adopt, if they were travelling, or going into hospital or similar.
The justification for ensuring these kind of arrangements are feasible is basic human freedom, accepting that at stake is a transaction with over 2500 of history,
Any policy kind of argument that arrangements of this kind are complicated in some manner because the capacity of the principal is determinative of an agent's authority are easily dismissed given that, for example:
of that other circumstances prevail (such as the principal lacking capacity)
the principal
What is importance in these
large number of considerations
To understand why the confusion is so substantial, it is necessary to understand the historical contexts of Power of Attorney.
Until recently, it was generally assumed that
It is helpful to approach these matters on the following basis:-
a Power of Attorney may terminate or become questionable in terms of being reliable in any particular circumstances, unless:-
It is fundamentally helpful to work backwards from a series of simple propositions
may terminate or become questionable in terms of being reliable in any particular circumstances, unless:-
A person who is unable to demonstrate capacity is unable to create a valid and enforceable Power of Attorney.
If a Power of Attorney was created by a person who lacked capacity to create a Power of Attorney, a Court may declare the Power of Attorney is invalid (i.e. void ab initio, which means ‘as it if never existed’). That said, it would require someone to put the case before the Court and so, there are risks.
Terms like ‘has capacity’, “had capacity” or “with capacity” are often used to describe a principal being a person with ability to manage their own affairs relevant to a Power of Attorney.
Conversely, terms like ‘without capacity’, ‘lacking capacity’ or ‘incapacitated’ are often used to describe a principal without ability to manage their affairs relevant to a Power of Attorney.
This approach is oversimplified:-
All of the Six (6) Greater States have a definition of “incapacity” in their legislation.
A person might consider including an alternative definition of “incapacity” in a Power of Attorney, such as:
“..incapable of managing the affairs that my agent(s) are authorized to perform under this Power of Attorney by virtue of an injury, condition, disease or any other cause (whether known or unknown).”
This definition focuses upon whether tasks relevant to the Power of Attorney are able to be performed and does not specify physical or mental disability as a specific cause (although this definition might be expanded to include these concepts) and recognizes a cause may not be identifiable.
There may be circumstances where it is suitable to tie the test of capacity to the ability of the principal to perform the precise tasks specified in the Power of Attorney and other instances where a broader test is more appropriate.
Whether a principal has or had capacity might arise, for example:-
Where capacity at the time when the Power of Attorney was created is in dispute, issues include whether at the time that the Power of Attorney was created, the principal:-
Where capacity is disputed in respect of a point in time after a Power of Attorney was created, there may be questions as to whether at various points in time the principal had capacity.
This seems more likely to occur where for example, a Power of Attorney is said to only authorize an agent to act when the principal lacks capacity or in California in respect of a non-durable Power of Attorney that terminates upon the the principal losing capacity under §4155 (§4155 provides “the authority of an attorney-in-fact under a nondurable power of attorney is terminated by the incapacity of the principal to contract”).
Where a Power of Attorney under which the principal is a person is expected to be on foot for some time, there may be considerable purpose in maintaining adequate evidence of capacity over time, to best ensure that any dispute as to the capacity of the principal is easy to resolve.
Involving a lawyer in the preparation and execution of a Power of Attorney and ensuring that the lawyer is suitably authorised and instructed to disclose an account of the principal's presentation at the time it was made is often the most effective means to manage risks associated with a dispute as to whether a principal had capacity at the time a Power of Attorney was made.
If a dispute arises, a Court would be able to hear and potentially rely upon the lawyer’s evidence about the principal's presentation at the time that the Power of Attorney was signed by the principal.
Equally, a lawyer is capable of advising about what steps should be taken to minimize risk of dispute involving questions as to the capacity of the principal, such as obtaining suitable medical evidence.
One difficult issue that can arise in respect of a durable Power of Attorney is deciding whether agents may either:-
This issue is difficult because if the agent or agents may only exercise authority prescribed in their favour under the durable Power of Attorney at any given time to the extent that the principal lacks capacity it means that:-
The difficulties identified above in relation to an agent or agents only being able to exercise authority to the extent that the principal lacks capacity tend to justify the principal either:-
Considerations of this kind may have led to Florida prohibiting a principal from authorizing agents to commence to exercise authority after a future point in time (ie. a prohibiting springing Powers of Attorney - see §709.2108(3)).
An individual may want to specify tasks that may be performed by an agent and when an agent may perform those tasks, include tasks to be performed only if the principal has capacity and tasks to be performed only if the principal lacks capacity and whether or not the principal lacks capacity.
A person may lose cognitive ability as a consequence of a traumatic event, a condition or disease (ie. dementia, Huntington’s disease etc) or mental illness (ie. schizophrenia, personality disorder etc).
Incapacity may also result from a physical condition that renders a person unable to communicate sufficiently to demonstrate that they have cognitive ability (ie quadriplegia, multiple sclerosis, motor neurone disease etc) in which event, even if they have cognitive ability they are incapacitated in the relevant sense.
Traumatic events that might give rise to cognitive and physical incapacity (as opposed to diseases and illnesses) include:-
At least in principle, some occupations may involve greater risk of being exposed to a traumatic event than others (oil rig workers, law enforcement and prison workers etc.)
Arguably the most difficult issues pertaining to Powers of Attorney relate to capacity, partly because it is a fallacy to suggest incapacity works in absolutes, such that a person is either incapable or capable. For example, a person may lack capacity, but be far from incapacitated.
When considering a durable Power of Attorney, it is worthwhile to consider empowering agents to exercise authority whether or not you have capacity as opposed to only if you lack capacity, to reduce risks associated with argument about capacity.
Capacity in the cognitive sense it often applies in the context of Powers of Attorney has no relevance to a commercial entity, because they are not natural persons.
Where a commercial entity seeks to execute a Power of Attorney, the concept of ‘capacity’ might for example, refer to execution of a Power of Attorney being consistent with any relevant Articles of Association, partnership agreement, other document or legislation governing the existence of the legal entity.
Articles of Association, partnership agreement, other documents or legislation may for example, inform as to the entitlement or otherwise of a particular legal entity to create a Power of Attorney.
In California, multiple references are made in legislation to incapacity, see for example, §4120, §4124 and §4125). A lengthy definition is found in §811.
Notably, in California unlike some other US States, part of the verification process available to an agent to satisfy a third party of their bona fides includes authority for an agent to swear an Affidavit deposing to the lack of capacity on the part of the principal, which in turn, may be relied upon by the third party in the context of certain assurances and similar that in effect, protect the third party from any dispute as to whether in fact, the principal did or did not lack capacity at any relevant time. This is potentially significant, although more significant in US States like Texas where such authority is not afforded to an agent, leaving open the question as between any agent and third party as to whether the the principal may or may not lack capacity.
Legislation also acknowledges a key concept relevant to incapacity stating that “a temporary incapacity suspends the attorney-in-fact's authority only during the period of the incapacity”, cognizant of the reality that often, incapacity is transient. (§4152)
Incapacity is expressly provided to terminate a non-durable Power of Attorney, §4155.
The concept of capacity with respect to a Power of Attorney created by an individual operates differently in various contexts.
It is significant that this definition:-
Notably, unlike California where the verification process available to an agent to satisfy a third party of their bona fides includes authority for an agent to swear an Affidavit deposing to the lack of capacity on the part of the principal, which in turn, may be relied upon by the third party in the context of certain assurances and similar that in effect, protect the third party from any dispute as to whether in fact, the principal did or did not lack capacity at any relevant time, in Texas an agent cannot depose an Affidavit confirming the lack of capacity of the principal so as to remove this issue from the scope of any dispute.
Cases involving any genuine dispute as to capacity on the part of a principal are difficult disputes, often requiring family members and medical experts to give evidence, invariably involving considerable time and expense.
In New York, capacity is defined as (§1501):
“ability to comprehend the nature and consequences of the act of executing and granting, revoking, amending or modifying a power of attorney, any provision in a power of attorney, or the authority of any person to act as agent under a power of attorney."
The term “incapacity” is defined as “be without capacity” {§1501).
It may be of help to reflect upon §81.02 which defines incapacity for guardianship purposes.
The default statutory definition is (§709.2102(7)):-
“inability of an individual to take those actions necessary to obtain, administer, and dispose of real and personal property, intangible property, business property, benefits, and income”.
Given that a durable Power of Attorney in Florida must contain certain words or similar words to a set of words that include the word incapacity and this term is defined in §709.2102(7), it might be said that where the requisite words are included, the word ‘incapacity’ attracts the definition and another possibility may be that no alternative definition may be preferred.
The default statutory definition is (§2-3):-
“the principal is under a legal disability as defined in Section 11a-2 of the Probate Act of 1975. A principal shall also be considered incapacitated if: (i) a physician licensed to practice medicine in all of its branches has examined the principal and has determined that the principal lacks decision making capacity; (ii) that physician has made a written record of this determination and has signed the written record within 90 days after the examination; and (iii) the written record has been delivered to the agent. The agent may rely conclusively on the written record”
The term ‘person with a disability’ is also relied upon legislation (see for example, §2-6) and defined (§2-3).
In Pennsylvania, §102 states:-
“Incapacitated person” means a person determined to be an incapacitated person under the provisions of Chapter 55 (relating to incapacitated persons).