Estate Planning on behalf of a Spouse with Diminished Capacity.

In California, what options does a person married to a spouse who suffers from cognitive impairment have to get the couple’s affairs in order, e.g., to establish and fund a trust?  Let us discuss.

Let us consider a married person with diminished capacity – e.g., unable to have an involved estate planning discussion or unable to understand the terms of a living trust  —  but who nonetheless still retains sufficient capacity to understand and to execute a power of attorney to appoint someone else who has capacity to engage in estate planning.   In California, a person can execute a power of attorney if they have the capacity to sign a contract, which is anyone except minors, persons of unsound mind, and persons deprived of civil rights can contract.  Thus an adult who is neither of unsound-mind nor deprived or their civil rights can sign a power of attorney.

However, what if the spouse with diminished capacity is of unsound mind (and so unable to sign a power of attorney)?  When the married couple’s estate consists of community property assets (such is often the case in a long marriage) then a court petition under section 3100 of Probate Code can ask the court to authorize a particular transaction.  This is usually transferring the community property to the well spouse as the well spouse’s sole and separate property.  With complete ownership of the assets, the well spouse can then engage in estate planning for the couple’s best interests.

Being able to use the section 3100 petition, however, depends on the character of the subject assets being community property.   If a proposed transaction involves mixed community and separate property, i.e., one in which a spouse also has a separate property interest, then for good cause the court may still include that separate property in the transaction.

Nonetheless, if some of the incapacitated spouse’s assets are exclusively his or her own separate property alone — such as, bank accounts from before their marriage or real property assets acquired as an inheritance during their marriage — then this approach probably will not work, unless the court is willing to be flexible and to see the bigger estate picture which is mainly community property assets.  Clearly, however, if the incapacitated spouse’s major assets are his or her separate property assets alone then it very hard to impossible to argue that the section 3100 is applicable to such separate property assets.

Next, with separate property assets, commencing a conservatorship court proceeding may be necessary.  A conservatorship must be opened in order to then make a substituted judgment petition asking the court to authorize estate planning.

The section 3100 petition and the court conservatorship petition are court proceedings that each require the following:  (1) a determination of incapacity with respect to spouse with diminished capacity; (2) notification to the relatives within the 2^nd degree of the spouse with diminished capacity regarding the hearing; (3) representation of the interests of the spouse with diminished capacity; and (4) service of a citation to appear at the court hearing on the spouse with diminished capacity.   Each petition invites the possibility of opposition and further litigation.

Getting one’s affairs in order prior to losing one’s capacity avoids court petitions, usually brought by a spouse or child.  If a person has diminished capacity but still is not yet of unsound mind – a grey area to be sure —  then they may still be able to appoint an agent to engage in estate planning.  The foregoing is not legal advice.  If needing guidance regarding a person with diminished capacity consult an attorney. 

Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.