1.What is meant by mental "capacity" and "incapacity"?
"Capacity" means the ability of a person to act freely and to understand fully the nature and effect of their actions."Incapacity" means an inability to understand the nature and effect of your actions; an inability to exercise independant judgment. There are degrees of diminished capacity.
As might be concluded from the above, determining capacity is as much an art as a science.

Gift The donor must understand the nature and effect of the gift (ie: the value of the gift relative to the value of the donor's entire estate) and the identity of the donee.

2.Settling a living trust
As settling a trust is similar to a gift - the settler must understand the nature and effect of the settlement.

3.Will and Power of Attorney
The test for making a will (testamentary capacity), or granting a Power of Attorney is the same - a person operating freely, without influence, and understands the nature and effect of the document and the assets that could be dealt with under the document. The individual must have a understanding of who is receiving the benefit of the assets disposed of in the will, or who the person is who will be exercising the Power of Attorney on their behalf.

In the case of Power of Attorney, the person must have the ability to assess the trustworthiness of the person who will become their attorney. With respect to a Power of Attorney, the other factors that will be considered in assessing capacity is that the individual understands that under a general Power of Attorney, the attorney will have complete authority over that persons affairs, that the attorney will be able to do anything with that person's property that the person could do themselves; that the authority granted to the Power of Attorney will continue should the person become mentally incapable, and in that instance will continue until revoked by the court.

4.Can a person who has diminished mental capacity sign a Representation Agreement?
A representation agreement signed under Section 7 of the Representation Agreement Act can be made by an individual who has diminished capacity. A so called "Section 7" Agreement allows a representative to make decisions with respect to simple financial matters, legal matters, health care and certain business or asset matters. In this instance, if the person has sufficient capacity to communicate that they want a representative to assist in making certain decisions, if they have the ability to express certain preferences and if they are aware of the nature of the agreement they are making and that they are giving authority to another person to make certain decisions on their behalf, and it is clear the individual trusts the person who is to be appointed a representative, then that person, even though they are of diminished mental capacity, can make a Section 7 Representation Agreement.

5.Is it advisable to transfer my assets into joint names with my children to avoid taxes and probate fees?
Placing property in joint names of yourself and a child involves an outright transfer of an undivided interest in the property to that child and can be used where you have family (or perhaps a close friend) to whom you want to give that particular property. Transferring assets into joint tenancy has a benefit of being relatively inexpensive, it ensures that the property passes directly to the surviving joint tenant on death, and you maintain some control over the property because of your one half interest. On the down side, there are considerable disadvantages to placing property in joint names simply to avoid probate fees. Where one of the joint tenants becomes incapacitated, the joint tenancy will continue until one of the joint tenants dies. Because it is an absolute gift of one half of the property, there is a loss of control, ie you cannot undo what has been done. The transfer of capital assets to joint tenancy is considered a disposition for tax purposes, it may attract capital gains or other income tax consequences. Putting an asset into joint tenancy exposes one half of that asset to claims of creditors of the other person. In the case of a child who has financial or marital difficulties, this can result in your asset being tied up as a result of those claims.

We recommend that you consult your lawyer or our Trust Officer at McConnan Bion O'Connor & Peterson if you are contemplating transferring an asset into joint names with another individual for the purpose of minimizing tax consequences on your death.

6.What is a Power of Attorney?
The grant of a General Power of Attorney means that you are giving another person the ability to deal with your affairs while you are not incapacitated. It has the benefit of being relatively inexpensive and of course it can be revoked at any time. On the down side, it gives the other person significant control over your assets and therefore a high degree of trust is required. The granting of a Power of Attorney does not protect your assets from the claims of creditors or other parties, it simply gives your attorney the power to deal with those assets on your behalf.

Enduring Power of Attorney: An Enduring Power of Attorney is similar to a General Power of Attorney however it is a Power of Attorney that survives your mental incapacity. To be an Enduring Power of Attorney the document must specifically provide that it is meant to continue after you become mentally incapacitated. It can not be revoked following incapacity, and of course with Powers of Attorney there is no statutory monitor to keep track of what the attorney is doing. Again, the need for a high degree of trust in your attorney is paramount.

7.What is a Representation Agreement?
A Representation Agreement is a relatively new concept in British Columbia; it arises out of the Representation Agreement Act which came into affect in early 2000. There are two levels of Representation Agreement, a basic Section 7 agreement which gives limited powers to a representative to deal with certain aspects of a persons estate and their personal needs. The Section 7 agreement can be granted by a person having diminished capacity.

A Representation Agreement made under Section 9 can go into great detail as to how you want both your financial affairs and your person cared for during any incapacity or other event occurring which prevents you from making those decisions yourself. The Agreement can spell out under what circumstances your representative is empowered to act, and what input he or she must seek from yourself and others in making those decisions. We can provide for a monitor to make sure that your representative is carrying out the terms of your Representation Agreement. The Representation Agreement Act provides for a very specific manner in which Representation Agreements must be executed and we would encourage you to seek legal advice if you are contemplating a Representation Agreement.