When a deceased client’s family challenges a will and alleges incapacity or undue influence at the time the will was drawn up, it doesn’t just affect asset distribution, it could also legally involve the advisor, Meagan Jennings, an estate litigator at law firm BLG LLP, said at the Independent Financial Brokers of Canada’s annual virtual conference Wednesday.
Advisors need to know the red flags of incapacity and undue influence, and take the right actions to protect their clients and themselves.
Incapacity
The testator needs to have the capacity to contract, namely, be over age 18, understand the nature of the contract and understand the contract’s specific effect in the circumstances, Jennings said.
To check that the client has mental capacity, advisors can ask them specific questions to which they know the answer. This could include asking about the nature and approximate value of assets, relationships and names of family members, and their past history of financial gifts and testamentary instructions.
Common red flags of incapacity include:
- Recent medical issues with memory or cognition, such as a brain tumor or dementia diagnosis
- Disorientation to time, place or situation, such as not knowing what season it is
- Vision, hearing problems or unfamiliarity with the official working language
- Appearing unkempt or inappropriately dressed for the weather
- Difficulties remembering things and staying focused
- Bizarre reasoning or distorted reality, such as denying the existence of business partners
However, poor judgement, such as gambling or taking the advice of fortune tellers, isn’t the same as incapacity, Jennings noted. If advisors are concerned about a client’s mental capacity, they should write that in their notes and discuss getting the client’s capacity professionally assessed.
Advisors can request an opinion from a medical professional and get the client’s permission to speak with their family doctor, for example.
Undue influence
Generally, testators need to have a sufficiently independent mind to oppose competing influences, Jennings said.
Testamentary undue influence is when a person is coerced into doing something they didn’t want to. Any person alleging undue influence after the death of a testator needs to prove that on a balance of probabilities, the influence was so great that the document could not be said to reflect the wishes of the deceased.
Common red flags of undue influence include:
- Social isolation, neglect, abuse
- Dependence on specific beneficiaries, such as for groceries or care-taking
- Seeing multiple professionals to execute many planning documents in a short period of time
- Substantial pre-death wealth transfer to a beneficiary
- Lack of explanation for excluding other beneficiaries
- A beneficiary is conveying instructions to the advisor
- Abrupt or inconsistent changes in instructions
Advisors can find time to meet with clients alone to ensure instructions come directly from the client, note the nature of the client’s relationships with beneficiaries, note indicators of undue influence in files and determine recent changes in relationships and living environments.
When you’re involved in legal proceedings
Advisors are often among the first non-family members to examine concerns of incapacity or undue influence, Jennings said. And a court may order an advisor’s notes as evidence or call them as a witness.
To protect their practice, advisors can turn down client instructions if they see red flags, and note down the circumstances under which each request was made. Jennings also encouraged advisors to contact their insurer to see if counsel will be provided to pre-empt a negligence defense.