Same rules apply

Most will drafters are very careful about testing capacity to make a will. They'll obtain a medical report (where required), record meetings carefully and ensure that they see the testator alone. However the same issues apply equally to lifetime transactions but, do they get the same attention?

Re Estate of Joyce Smith (deceased); Kicks and another v Leigh [2014] EWHC 3926 [ch] illustrates some of the things that should be considered when faced with an elderly or potentially vulnerable client, who is seeking to make a significant lifetime transaction.

Mrs Smith's death claim was made regarding the proceeds of the sale of her home, which had been transferred by the solicitors to a bank account in the joint names of Mrs Smith's daughter and son-in-law, Mr & Mrs Leigh.

Mrs Leigh claimed that the transfer was a gift to her from her mother. Other family members claimed that the transfer should be set aside either on the grounds that Mrs Smith lacked mental capacity to make the gift, or that the gift was procured by undue influence.

The judge was not satisfied that there was sufficient evidence to prove that Mrs Smith lacked mental capacity. However the claim that the gift was procured by undue influence succeeded, and Mrs Leigh was ordered to return the proceeds of sale.

Considerations: capacity

When considering the level of capacity required, consider the following from
Re Beaney (deceased) [1978] 2 ALL ER 595:

'If its effect is to dispose of the donor's only asset of value [or a significant proportion of the assets] and thus for practical purposes to pre-empt the devolution of his or her estate under the will or intestacy, then the degree of understanding required is as high as that required for a will and the donor must understand the claims of all potential donees and the extent of the property to be disposed of'.

Considerations: undue influence

Consider the three questions that the judge asked in Re Smith:

1. Was there a relationship of trust and confidence or, ascendency between Mrs Smith and her daughter? RBS v Etridge (No. 2)[2002] 2AC773 asserts: 'Presumed undue influence arises out of a relationship between two persons where one has acquired over another
   a degree of influence or ascendency,
   of which the ascendant person then takes unfair advantage'.

2. Was the gift of the proceeds of sale a transaction which called for an explanation? 'If a gift is so large as not to be reasonably accounted for on the ground of friendship, relationship, charity or other ordinary motives in which ordinary men act, the burden is upon the donee to support the gift' (RBS v Etridge).

3. If the answer to (a) and (b) is yes; has the defendant rebutted the presumption of undue influence?

Client's must be seen alone to ensure instructions are given of their free will and with capacity. In Re Smith, the solicitors did not see Mrs Smith and nearly all of the instructions came from Mr or Mrs Leigh. Many of the documents signed by Mrs Smith were in Mr Leigh's handwriting.

Where is the client actually living? Although Mrs Smith was in a nursing home, her daughter gave her own address for correspondence. If your client is elderly and vulnerable or unwell, you should consider getting a medical opinion on capacity. You should send a detailed letter of instruction to the doctor about the proposed transaction and test for capacity.

Be aware that clients can sometimes put on a good social face or be heavily coached as to what to say. You should ask probing, open questions about the proposed transaction.

Causes for concern

If the beneficiary of the transaction is present during instructions; if the client changes their mind frequently, and/or doesn't recall previous instructions, or doesn't understand relevant information about the proposed transaction or people involved; if the transaction defeats a gift in a longstanding will with no clear explanation; if the beneficiary of the transaction is a new acquaintance or carer; and if the client has been recently bereaved, (Key v Key [2010] EWHC 408) as bereavement can cause symptoms equivalent to depression and cognitive impairment similar to dementia.

If the client does have capacity and gives instructions of their own free will, keep full notes and consider getting your client to make a statement about the reasons for the transaction, to rebut any undue influence presumption. 

Margaret Windram is an associate at Thomas Eggar

She writes the regular in-practice article on wealth structuring for Private Client Adviser

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