Advisers warned capacity rulings can be challenged in court

“We’re seeing a lot more older people, and a lot more people having issues with capacity,” he said.

“But you have to ask the question at what point do people no longer have capacity to do things?”

Mr Hay-Bartlem said capacity is not set in stone and can come in waves, which makes it a difficult issue with which to deal.

“There are different types of capacity at different times and there are different types of capacity for different decisions, so it’s not that simple,” he said.

“One really important thing to be aware of is, if there’s a fight about capacity, then we’re going to call the witnesses to give evidence because the courts’ view on capacity is there’s only one decision maker about whether a person had a capacity on a day or not.

“It’s not you. It’s not the doctors. It’s not me. It’s the court.”

He said if a dispute arises around the capacity of a client, the adviser will have to appear before the court or tribunal which will determine whether a document is effective or not.

“The court will make the decision. It will not look at a doctor’s letter on the side.

“The doctor may say ‘we’ll look at a range of factors’ and if you’ve witnessed documents or the next-door neighbour has witness documents, the court could be calling them to explain what went on at the time of the meeting when the people signed.

“So taking good notes and being aware of what’s happening when clients are signing documents is actually really important.

“As is being able to assess things and ask the right questions at that time.”

Mr Hay-Bartlem said in a hospital setting, doctors and nurses will not witness documents such as wills, so it is important for advisers to be thinking about what they may need to do if a situation arises around a capacity issue.

“[They need to think about] What evidence do I need to have? What notes do I take? What questions did I ask?” he said.

“The capacity tests around wills are pretty clear but the capacity tests around the rest of this stuff we don’t have as good evidence.”

He suggested that if an adviser knows their clients well, they can often determine what times of the day, or situations in which capacity may be questionable and decide to speak to the client at an alternate time.

“For things like SMSFs, there’s no explicit test yet for capacity,” he said.

“You might argue binding death benefit nominations are a testamentary instrument, therefore the same sort of test or capacity that applies for a will may well be the case.

“The rules for testamentary capacity are clear, they’ve been entrenched in the law for a long time.

“The person has to know they’re signing a will, understand their assets, understand who they should be looking after, who deserves the fruits of their bounty.

“It’s really interesting because when you witness a will, you’re not making a formal affirmation, that person has capacity.

“You, as the person witnessing, are actually making an affirmative confirmation that the person understands so there’s actually two very different tests for powers of attorney and wills.

“The court is the entity that makes the assessment based on the evidence you put before it, so when we want a capacity letter from a doctor, we are writing to the doctor and saying ‘Dear Dr, my client is coming to see us to do his estate planning. You know he’s got capacity. Can you please answer these questions? And we’ll give them a list of questions.

“That’s what we want to know – a document that someone signs saying ‘yes, this is all okay’ but it doesn’t actually work unless you explain it to client as well.”