We should all plan for our future. Certainly, we should all have a current will, especially those of us who need to make special arrangements for the care of children or pets. Many of us would also benefit from making a formal arrangement to account for a time when we could find ourselves unable to make our own decisions. These arrangements have different names according to where you live in Australia, but they are alike in that they give authority to someone we trust to make decisions – whether financial or personal – in our best interests. 

However, it is important to understand that these arrangements for the future can only be put in place while you have the necessary mental capacity. Your loved ones cannot make a will on your behalf or appoint a power of attorney or guardian if you begin to lose capacity to make decisions for yourself. 

What Is the Presumption of Capacity?

You need legal capacity to make decisions when making a will, buying or selling property, taking out a loan or investing money, making a power of attorney, appointing a guardian, or entering into a contract.  “Capacity” requires the ability to understand the facts, evaluate the choices and their consequences, and make a decision based on a reasoned assessment. 

In Australia there is a basic legal presumption that every adult has the mental capacity to make legal decisions for themselves. (This contrasts with the presumption that children lack this capacity and cannot make important decisions without the input of their parents or guardians.) However, this presumption of mental capacity in adults can be rebutted if there is evidence that the adult does not have the necessary decision-making ability. An adult may not have mental capacity to make certain decisions due to a lifelong intellectual disability, an acquired brain injury, an age-related cognitive condition, or a mental illness. 

How Do You Determine If Someone Has Capacity? 

Unfortunately, it is not an easy task to determine if someone has mental capacity. In fact, there is not even a single legal definition of what constitutes “mental capacity”. This is because different forms of capacity are needed to make different types of decisions. 

The lack of a single definition of mental capacity can make it difficult for everyone involved to determine if someone has the capacity to make a particular decision. However, there are some general principles that can help clarify what is meant by legal capacity, and what happens when there is a question about the legal capacity of an adult. 

What Capacity is Required?

It is important to understand that capacity is not a diagnosis, where someone is assessed as “incapable” and is then unable to make any legal decisions. Rather, if there is a question about the capacity of a person, then an assessment is made on a case-by-case basis as to whether the person has the capacity for each particular decision. This assessment is often made by the solicitor involved in the legal matter and is usually based on expert advice from a medical report. 

For instance, if someone approaches a solicitor to make a will, the solicitor starts by assuming that the person has the necessary capacity. If there is evidence to rebut this presumption (such as the person has difficulty understanding the purpose of a will when it is explained to them) then the solicitor may ask the person to obtain a medical assessment. This assessment will focus on the specific question: Does this person have the capacity to make a will? 

Some legal decisions require more capacity than others. For instance, it is broadly understood that a person requires more capacity to manage all of their financial affairs than to simply make a will. Conversely, a person who is deemed incapable of making a will may still have the capacity to revoke an existing will; and someone with the capacity to make a will may not be able to appoint an enduring power of attorney. These comparisons are based on the complexity of the information that the person must be able to understand and evaluate to make the decision that is right for them. 

What Can I Do for My Loved One?

Solicitors often have requests from someone who wants to be appointed as the power of attorney for a loved one who is losing capacity. It is important that everyone involved understands that only the person who is the subject of the power can appoint the attorney, and they must do this while they still have the capacity to make the decision. 

It is also worth noting that appointing a power of attorney is considered a complex decision, at least relative to decisions such as making or revoking a will. This is because the decisions contained in a will cannot harm the will-maker but a power of attorney exposes the person to a risk of harm and exploitation.

If you have a loved one who has lost capacity to manage their own affairs, and they do not have arrangements in place to have someone make a decision for them, then you will need to seek an order from the Tribunal in your state or territory to give you (or someone else) the authority to make decisions for them. 

If you or someone you know wants more information or needs help or advice, please contact us on (08) 8155 5322 or email [email protected].