The importance of mental capacity assessments in financial decision-making
Why might a mental capacity assessment be necessary when approaching financial decision-making?
A mental capacity assessment may be required in several circumstances, including when drawing up and entering into a Lasting Power of Attorney (LPA) for Property and Affairs as a donor, when considering an Equity Release or when applying to the Court of Protection for a Property and Financial Deputyship, and the person to be assessed may no longer be able to enter into an LPA.
A financial capacity assessment may also be necessary to demonstrate to an Attorney or legal representative that the donor lacks the necessary capacity, and their powers should now be activated to make financial decisions on their behalf, in their best interest.
Financial safeguards and risks of financial abuse
Capacity assessments for financial decisions can also protect against scrutiny and the risks of future potential contests by family, such as when choosing to gift a large sum to one child over another, either in their lifetime or by Will.
The assessments aim to protect the person’s rights and demonstrate their understanding of the matter and ability to weigh up the information available to them and communicate their decision. This ensures an informed judgment has been made when considering the risks and benefits of the decision and its implications.
The assessment can also provide a financial safeguard should the person wishing to make a large gift be deemed to lack capacity and, in the absence of the assessment, be a risk to their estate and future financial security. The assessment will ensure your wishes are heard and, where possible, that no undue influence has been exerted or pressure applied to make the decision in question.
Why are mental capacity assessments important in financial decision-making?
Mental capacity assessments are an essential component of financial decision-making, ensuring that the individual understands the relevant information and the decision to be made. All the assessments listed below have an element of financial decision-making, which is integral to evidencing mental capacity in each matter.
Scenarios where financial decision-making is assessed, and the legal framework is used
Purchasing or Selling a Property – This can be assessed under a General Property and Financial Capacity Assessment (Mental Capacity Act 2005) or a Contract Capacity (Fehily v Atkinson 2016). The assessments ensure your understanding of the property to be sold or purchased, the impact of the transaction on your financial situation and a general understanding of your affairs. Under a contract capacity, this will more specifically explore the terms of the proposed contract.
Equity release (Mental Capacity Act 2005) – It is important to ensure you understand your financial position, the terms of the equity release proposal and the potential impact on your future financial affairs.
Ability to manage day-to-day financial affairs (Mental Capacity Act 2005) – A General Mental Capacity Assessment for Property and Affairs will examine your finances, including any property you own, savings, investments, income and expenditure and your ability to manage financially related day-to-day tasks more independently.
These assessments are often completed where an appointed Enduring Power of Attorney (EPA) or Property and Financial Affairs Attorney is seeking confirmation as to whether the donor now lacks capacity for financial decision-making or whether they can continue to make some or all financially related decisions. These assessments can support you or your appointed attorney, and where applicable, their legal representative, to clarify how certain decisions will need to be made and by whom.
Executor (Mental Capacity Act 2005) – The role of an executor or administrator of an estate (where someone dies intestate) involves financial decision-making such as selling property, settling the deceased’s bills and ensuring the wishes set out in the Will are followed and those entitled to the estate receive their due inheritance.
Trustee (Mental Capacity Act 2005) – As a Trustee, financial oversight is required for the day-to-day and long-term management of the Trust to ensure its continued success, viability and financial security for the benefit of the named beneficiaries.
Testamentary (Banks vs Goodfellow 1870) – Whether creating a new Will or updating an existing one, your estate will be reviewed to ensure you understand the assets you are disposing of and the reasons for your decisions. This assessment is designed to ensure your wishes are respected, that those you feel are deserving are included, and to protect you from potential future claims or contesting of your Will following your death.
Lasting Power of Attorney Property & Finances (Mental Capacity Act 2005) – When revoking or entering into a Lasting Power of Attorney for Property and Affairs, to demonstrate capacity as a donor, you must demonstrate an understanding of your general affairs, the powers you are bestowing on your chosen attorney and the reasons for doing so.
If the intended donor lacks the mental capacity to enter into an LPA for property and affairs, your legal representative or the person wishing to assist you may apply to the Court of Protection to become your Property and Financial Deputy through a P&F Deputyship Order.
This application is also assessed under the Mental Capacity Act 2005, and the assessment explores your understanding of your property and affairs, which is recorded on a Court of Protection COP3 form.
Gifting (Re Beaney 1978 test) – As part of this assessment, your understanding of the intended gift and its potential impact on your estate is explored, alongside your wishes (past and present) and the rationale for the gift and chosen recipient.
If an individual is deemed to lack capacity to make the gift, an appointed Attorney or Deputy for Property and Affairs may wish to apply to the Court of Protection for permission to make the gift in their best interests. This application is completed on a Court of Protection COP3 form.
Mental capacity assessments completed by Thornton & Lee
Our mental capacity assessments ensure the application of the correct legal framework to ensure every assessment is robust, evidence-based and meets a Court standard.
To maximise your understanding and engagement, all our assessors are highly trained in complex presentations and alternative communication. Our approach is always supportive, to create a calm and relaxing environment.
Our assessments meet the high standard expected when assessing complex and often challenging situations. We strive to support you, your loved ones and legal representatives to move forward. Your voice, wishes, and views will always be at the forefront of our work, and we strive to ensure your experience is positive.
Contact our friendly and knowledgeable team today to see how we can support you with an assessment to help you move forward.