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What mental capacity standards apply in California civil litigation?  Last month we presented on this subject at the Placer County Bar Association’s annual spring conference in Roseville.  I’ll offer highlights here.

Short answer: it depends.  The mental capacity standard varies depending on the setting.  The policy rationale for the different standards is elusive, so as our clients present issues we focus on what standard governs instead of pondering why we have a hodgepodge of rules.

California Law Presumes Mental Capacity

Litigation may be won or lost based on who carries the burden of proof.  With respect to mental capacity disputes, the starting point is the law’s rebuttable presumption, codified in California Probate Code section 810, that all persons have capacity “to make decisions and to be responsible for their acts or decisions.”  Accordingly, even when a person has an adverse mental health diagnosis such as dementia (also known in the DSM-5 as “major neurocognitive disorder”), the contestant has an uphill climb under the burden of proof.

Indeed, a diagnosis is only a starting point for analysis.  Under California Probate Code section 811, the contestant must prove a material functional impairment by offering evidence of a mental function deficit that “significantly impairs the person’s ability to understand and appreciate the consequences of his or her actions with regard to the type of act or decision in question.”  Such a showing typically requires testimony from an expert witness.

Capacity disputes are often adjudicated long after the moment in question – for example, I’ve litigated will and trust contests where the disputed documents were signed well over a decade earlier.  The evidence in the subject’s medical records is likely to be spotty as to the degree of mental incapacity.  Family and friends have fading recollections.  This may leave the contestant with little affirmative evidence to prove that the subject was incapacitated when executing the will, trust instrument, deed or beneficiary designation.

Contractual Capacity in California – A Variable Standard that Turns on Complexity

When does a California resident lack sufficient mental capacity to sign a contract or complex trust instrument?  There are two code sections to apply.

Under California Probate Code section 812, the contestant may show that the subject was unable to communicate regarding the decision.  Alternatively, the contestant may show that the subject was unable to understand and appreciate: (1) the rights, duties and responsibilities created or affected by decision, (2) the probable consequences for affected persons, or (3) the risks, benefits and alternatives.  In other words, could the subject consider the pros/cons of entering into the contract?

Under California Civil Code section 39, contracts and conveyances are subject to rescission (cancellation) if a party was of “unsound mind,” which is presumed if the he or she was “substantially unable to manage financial resources or resist fraud or undue influence.”   However, “isolated acts of negligence or improvidence” are, without more, insufficient to show the party was of “unsound mind.”

For example, consider an 85-year-old business owner with dementia (perhaps caused by Alzheimer’s disease) who is no longer able to run the business because she cannot manage the books, deal with vendors, stay on top of payables, or supervise employees.  If she sells her business to another and the lengthy asset sale agreement has complex provisions, she may be unable to make an informed decision such that her successors in interest can set aside the sale.

Testamentary Capacity in California – An “Extremely Low” Standard

In contrast, when a California resident executes a will or a simple trust instrument, the “testamentary capacity” standard applies.

Under California Probate Code section 6100.5, there are two such capacity standards.

A person lacks general testamentary capacity if he or she is unable to: (1) understand the nature of “testamentary act,” (2) recollect the general nature and situation of his/her property, or (3) remember and understand relations to his or her family members and other affected persons.

Alternatively, a person lacks testamentary capacity if he or she suffers from a disorder with delusions or hallucinations that are the “but for” cause of testamentary disposition.  Hence, it is not enough that Uncle Louis thinks his nephews are aliens.  Rather, he must disinherit them because of his delusion that they are aliens, which likely will be hard to prove.

The California Court of Appeal has described the testamentary capacity standard as “exceptionally low.” Marriage of Greenway (2013) 217 Cal.App.4th 628, 642.

Since many estate plans feature a trust instrument and a “pourover will,” which distributes any assets held outside of the trust to the trustee to be administered per the terms of the trust, the testamentary capacity standard ultimately may be the controlling one.  This is so because even if the trust document is knocked out under the contractual capacity standard, the will may survive under the testamentary capacity standard.

Marital Capacity in California – Lower than “Exceptionally Low”

Under California Family Code section 300(a), marriage “is a personal relation arising out of a civil contract between two persons, to which the consent of the parties capable of making that contract is necessary.”

Given that marriage is a fundamental right, California courts have established a low capacity threshold.  Indeed, the court in Marriage of Greenway described the various capacity standards as a “sliding scale” and opined that marital capacity requires “the least amount of capacity,” less than testamentary capacity.

Medical Decision Capacity in California – Like Contractual Capacity

Physicians frequently have to decide whether patients can provide informed consent to a treatment or procedure.  If not, they will look to a surrogate decisionmaker such as an agent under an Advanced Health Care Directive.

Under California Probate Code section 813, a patient can provide informed consent to receive a treatment, or to decline such treatment, if he or she can: (1) respond knowingly and intelligently to queries, (2) rationally participate in the treatment decision, and (3) understand the nature of his or her illness, the nature of the proposed treatment, and the benefits, risks and alternatives.  This is akin to the contractual capacity standard in section 812.

Physicians seem to take a liberal view of medical decision-making capacity, consistent with the general presumption of capacity.

Most civil capacity disputes do not involve medical decisions, but if an ER doctor or hospitalist had a patient sign a consent to a procedure, the assessment may be probative in other contexts.  The rationale goes like this: if Dr. X concluded that Mom could weigh the pros and cons with respect to a potentially-threatening surgical procedure, then surely Mom’s dementia had not progressed to the point where she could no longer revise the terms of her trust.

Mental Incapacity May Extend the Applicable Statute of Limitations

When is a prospective plaintiff so mentally impaired that he or she should not be expected to file a lawsuit within the otherwise applicable limitations period?  Under California’s “delayed discovery” rule, a plaintiff must bring a claim within a certain number of years after he or she knew or should have known of the facts giving rise to the claim.

Holding a mentally incapacitated party to the objective “should have known” standard would be unfair.  Accordingly, under California Code of Civil Procedure section 352, if a person lacks “the legal capacity to make decisions” when a cause of action accrues, “the time of the disability is not part of the time limited for the commencement of the action.”

Consider, for example, an elder with chronic mental function deficits who deeds over valuable real estate as a “gift” to a conniving relative.  Six years later, the elder dies.  While California’s financial elder abuse statute (Welfare and Institutions Code section 15657.7) has a four-year statute of limitations, the time will not have started to run if the elder lacked contractual capacity when signing the deed and thereafter, such that the elder’s successors in interest may be able to pursue the claim.

Takeaway Point – Pick the Right Standard

As the Marriage of Greenway court observed, it is unclear why we in California have varying standards for mental capacity from one setting to another, but the key is to identify and apply the right rule to the situation at hand.