Mental Capacity and Trusts

Trusts are essentially contracts. The creator of the trust contracts with the trustee to hold certain property for someone's benefit. In California, revocable trusts have almost completely replaced wills as the method to dispose of a person's property when they die. The problem is, the mental capacity necessary to execute a will is different than the mental capacity necessary to execute a contract. Testamentary capacity to make a will is quite low. To execute a will, you basically have to know: (1) what your property is, (2) who the people you are giving your property to are, and what you are giving them, and (3) that you are making a will and what that means. Capacity to enter into a contract is higher. When someone is alleged to lack the capacity to execute a trust, which is essentially a will substitute, which standard do you use?

The answer, of course, is it depends. Mom and Dad executed a trust in 1992. Mom died in 1993. Dad, who had started a relationship with Girlfriend while Mom was still living, amended the trust to make substantial gifts to Girlfriend. Not surprisingly, when Dad died, Children petitioned to have the amendments set aside on the grounds that Dad lacked capacity, and was unduly influenced by Girlfriend to make the gifts to her. Girlfriend claimed the lower will capacity was all that was needed, whereas the Children alleged the higher contract standard applied.

The California Court of Appeals for the Second District (Los Angeles) held that, where a trust or trust amendment closely resembles a will in content and complexity, the lower testamentary capacity for wills is proper. In other words, if the trust is a will substitute, the level of capacity needed to execute it should be no higher than that necessary to execute a will.

Although trusts have been used as will substitutes in California for over 20 years now, the law is still catching up in the reconciliation between the law of wills and the law of contracts.

Andersen v. Hunt, Case No. B22107

Upcoming Speaking Dates

It's embarassing that I haven't posted since March, but my day job just keeps getting in the way.

Anyway, Mark your calendars for September 19, 2011. I will be presenting for the National Business Institute on revocable living trusts and ethical considerations for estate planners. Here are the particulars:

September 19, 2011
Marriot City Center
1001 Broadway, Oakland, CA 94607
8:30 a.m. to 4:40 p.m.

The seminar is entitled "Trusts 101" and is directed toward estate planning attorneys, financial planners, accountants and trust officers.

For more information, visit .