According to Cooper Grace Ward associate Sarah Camm, all capacity boils down to is whether someone has the “cognitive ability to enter into a document” – whether that takes the form of a contract to sell their property or an enduring power of attorney or a will.

“Capacity can also affect whether someone can continue in their role as a director of a company or a trustee of a trust. Broadly speaking, to have capacity means you’re able to understand the nature and effect of the decision that you’re being asked to make,” Camm said.

“The level of understanding and the precise test for capacity is going to depend on the decision that you’re being asked to make, or the document that you’re signing.”

With court challenges around estate benefits showing few signs of slowing down, understanding testamentary capacity – referring specifically to capacity to enter into a will – can avoid some of these issues.

Essentially, Camm explained, anyone over 18 will have testamentary capacity, subject to a few conditions.

“If they understand the nature of making a will, they understand the extent of their property, they’re able to comprehend the different people who might have a claim on their estate, and they don’t have an illness or disorder of the mind that will affect their ability to weigh the claims of those people who might have an interest in their estate.”

However, whether a cognitive impairment, such as dementia or some other illness that affects cognition, means that a person lacks testamentary capacity is not always straightforward.

“It will depend on whether that person can still understand the nature of making a will, the extent of their property, and can weigh the different people who might have an interest in their estate,” Camm said.

Importantly, if there are questions around testamentary capacity, there are still options that can ensure a client’s wishes are established.

“If a person makes a will and there’s a question about whether they had capacity, the will can be challenged in court. If the court finds that the will was invalid, then that person’s estate will be distributed either on intestacy or in accordance with a previous will that they had made, and that was valid,” Camm said.

“If there are serious doubts about capacity before a person makes a will, there is the option of applying to the court for a statutory will, which is a will that’s authorised by the court to be made on behalf of that person that doesn’t have capacity.

“The court will need to be satisfied that the terms of the will, that they’re approving, are the terms of the will that the person would have made if they had capacity to do so.”

Camm stressed that the issue of whether or not a person has capacity is a “really complex issue” with a range of variables.

“It depends on the type of decision that’s being made, the time that the decision is being made, and the precise subject matter of that decision.”

“The consequences for signing documents, where there is no evidence about capacity and questions about capacity come up later on, can be really wide-reaching. It is important that advisers and clients are considering capacity in all transactions.”