There are many times where the capacity of a person comes into question whether it be before or after certain legal documents are signed. Depending on what the legal document or situation is, the standard for determining a party’s capacity could greatly differ.
Contractual Capacity
To form a binding agreement, a meeting of the minds on the essential terms of the contract is required. The general standard when determining whether an individual has the capacity to enter into a contract is whether the party has an ability to understand the nature and effect of the act and the business being transacted. Thus, if the business being transacted is highly complicated, presumably a higher level of understanding may be needed to comprehend its nature and effect.
Testamentary Capacity
Testamentary capacity refers to an individual’s ability to sign a Will. Section 251.001 of the Texas Estates Code provides that every person eighteen years of age or older, being of sound mind, has the right and power to make a will, under the rules and limitations prescribed by law. Capacity is determined on the day the will is executed.
Donative Capacity
Donative capacity refers to a party who makes a gift to another while living. The standard for a party seeking to prove that something was a gift must establish (1) the intent to make a gift; (2) delivery of the property; and (3) acceptance of the property. In re Royal, 107 S.W.3d 846, 852. A person claiming that a gift was made, must do so by providing clear and convincing evidence of such.
Capacity to Create a Trust
Under Section 112.007 of the Texas Property Code, a person has the same capacity to create a trust by declaration, inter vivos or testamentary transfer, or appointment that the person has to transfer, will, or appoint free of trust. While this statutory provision is unclear as to what constitutes capacity, it is generally recognized in Texas that the settlor of a trust must understand and appreciate the nature and consequences of the trust document in which they are creating.
Capacity to Execute a Durable Power of Attorney
The general standard for determining whether a person has capacity to create a power of attorney for financial purposes has been based on the capacity to contract. With powers of attorney, the burden to prove that a person lacked the capacity shifts to the challenger who must show that the signer “did not understand the nature of consequences of his act at the moment the power of attorney was executed.” Seigler v. Seigler, 391 S.W.2d 403, 404.
Capacity to Execute an Advanced Directive
Generally, the capacity to execute an Advanced Directive (which includes a Medical Power of Attorney, Directive to Physicians and Out of Hospital Do Not Resuscitate Order) is done on a decisional basis. Section 166.002(4) of the Texas Health & Safety Code has “competent” defined as “possessing the ability, based on reasonable medical judgment, to understand and appreciate the nature and consequences of a treatment decision, including the significant benefits and harms of reasonable alternatives to a proposed treatment decision. Alternatively, when revoking an Advanced Directive, the capacity standard is irrelevant, in that the principal or patient can revoke the document at any time without regard to that person’s mental state or capacity.
Knowing and complying with the various standards of capacity can play a very important role when making certain legal decisions or signing certain legal documents. Taking the necessary steps to ensure that your capacity will not be called into question as determined under the general legal standards in Texas can become an important part in safeguarding a person’s rights and wishes.
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