With the aging of America's population and the significant transfer of wealth that will occur in the near future, real estate professionals will be required to acquire a completely different set of skills to deal with the elderly client on a personal level. The demographics suggest (see Appendix) that real estate professionals will more frequently face the question of whether a client has the capacity to make certain legal choices.

A client's legal capacity or competency to perform a particular act is a threshold question that must be one of a real estate professional’s first considerations. The professional should understand the standards for the capacity required to perform certain legal acts and what steps can be taken to maximize a client's independence and protect against elder abuse.

Whether a person has the capacity to perform a particular act is examined as of the time of the act. Even if several signs point to mental incompetence, it is possible for a person to have "lucid intervals" during which he or she has requisite capacity to enter into a contract or make a testamentary disposition of property. Uribe v. Olson, 42 Or App 647, 651 (1979); Gentry v. Briggs, 32 Or App 45, 50 (1978). However, clear and convincing proof is required to show that the legal act was performed during a lucid interval. Gentry v. Briggs, 32 Or App at 50.

For a person to be considered as having sufficient mental capacity to make a valid Will, the person must:

Mental competency to make a Will is determined at the precise moment that the Will is executed. Gentry v. Briggs, 32 Or App 45, 49, 573 P2d 322, rev denied 282 Or 189 (1978), Ingraham v. Meindl, 216 Or 373, 376, 339 P2d 447 (1959); Whitteberry v. Whitteberry, 9 Or App 154, 158, 496 P2d 240 (1972).

A person must possess greater competency to execute a deed than to execute a Will. First Christian Church v. McReynolds, 194 Or at 72. A person can enter into a valid contract if the person's reasoning ability enables the person to understand the nature and effect of the act. Kruse v. Coos Head Timber Co., 248 Or 294, 306 (1967). Lack of capacity is not proved simply because a person is easily influenced and is a dependent person, or because the person states that he or she does not understand a contract. A person of below average intelligence can enter into a binding legal contract. The relevant question is whether the person is capable of understanding the act itself. Conveying an inter vivos gift requires the same degree of capacity as making a contract. Kugel v. Pletz, 22 Or App 249, 251 (1975).

ORS 125.005 defines "incapacitated" as:

ORS 125.005 defines "financially incapable" as:

"Incapacitated" persons who are unable to make decisions about their health and safety may require a court-appointed Guardian. An inability to manage financial resources may require the appointment of a Conservator. In both instances, the rights and the decision-making abilities of the person are substantially reduced.

Supreme Court Justice Douglass once said that we all have the "right to folly." Put another way, we all have the right to make the wrong decisions. The issue, therefore, is not whether we have made the wrong decision, but with what capacity the decision was made.

For example, is bouncing a few checks evidence of incapacity? Probably not, if it were, we may all be in trouble. On the other hand, overdrafts during the past few months, together with an increased history of unpaid bills, misplaced funds, unexplained gifts, susceptibility to influence and related problems may be evidence of an "inability to manage financial resources."

Except for the language of the statute, there are no clear rules for determining capacity. Each case must be evaluated independently. The Court places weight in the opinions of doctors, psychologists, public social workers, private case managers, family and friends (in my opinion, in that order). The Court (or the Court visitor) will attempt to contact all relevant parties to get an overall picture of the individual's capacity.

A real estate professional can take steps to maximize the chances of finding the requisite capacity of elderly or infirm clients. One step is for the real estate professional to use a functional approach to determine capacity. In this approach, the real estate professional assesses capacity by observing the client's decision-making process as it relates to the substance of the act to be taken. This approach contrasts with the conventional objective tests of capacity that are unrelated to the act. One commentator identifies six factors that can be applied in using the functional approach:

Gorn, A Guide to Representing Older Clients, cited in 1 Serving Elderly Clients 5 (LRP Publications 1995).

The real estate professional should be familiar with the community resources that are available to the elder client. If the professional concludes that a client may lack the capacity required to take the desired action, the professional should talk to the client and family about enlisting the help of a professional, such as an elder law attorney, social worker, geriatric nurse, family therapist, or similar practitioner with expertise and experience with the elderly.

To prepare to deal with questions of client competency, a real estate professional can take several steps:

1. Generally. A power of attorney is a written instrument in which one person, as "principal", appoints another to serve as his or her agent or "attorney-in-fact." A power of attorney confers upon the agent the authority to act in place of the principal for the purposes stated in the instrument. The principal must have the legal capacity to execute the document. (For a discussion about the capacity needed to execute a power of attorney, see page 2 above.)

2. "Durable" Power of Attorney. Under the common law, a power of attorney was not a useful tool for dealing with a person’s assets in the event of incapacity or cognitive impairment because of the requirement that the principal remain capacitated in order for the actions of his or her agent to be valid. This shortcoming was remedied by the Oregon Legislature. ORS 127.005 now provides that a power of attorney will continue beyond disability or incapacity.

It is not necessary for a power of attorney to specifically address the issues of incapacity in the document. However, many documents do specifically address the issue and are known as "durable" power of attorney.

3. General vs. Special Powers — Gifting Powers. The power of attorney will be held to grant only those powers that are specifically enumerated in the document. The agent may neither go beyond nor deviate from the powers specifically conferred by the principal in the instrument. For example, the agent has no power to make a gift of the principal’s property unless a gifting power is expressly conferred in the instrument.

Normally, an agent’s self-dealing would be a breach of the agent’s fiduciary duty to the principal. However, at times, an agent’s transfer of the principal’s property into his or her own name may be necessary in order to accomplish appropriate disability or estate planning goals. For example, it is not uncommon for spouses to create power of attorneys for each other. Often these documents include special powers allowing the "well spouse" to later transfer the "ill or institutionalized spouse’s" property or assets into the sole name of the "well spouse."

Any special power granted must be specifically addressed in the document. Therefore, a recitation authorizing the transfer of property without consideration should include language specifically authorizing the agent to transfer the principal’s property into his or her sole name (or the names of others) without consideration and a general (or specific) description of the property subject to the special power.

When a person becomes unable to manage his/her resources, several public programs (such as Social Security and/or Railroad Retirement) provide for a representative payee or fiduciary to receive benefits on behalf of the beneficiary. This authority is limited to the receipt and distribution of the public benefits only and does not give the payee authority over other assets belonging to the person. For example, a representative payee does not have the authority to sell real property belonging to the person.

The Revocable Living Trust is an excellent way to provide for decision-making if the trustor becomes incapacitated. The trust appoints a decision-maker (successor trustee) upon the incapacity of the trustor. The trust document can incorporate specific instructions about how funds will be used if your client becomes incapacitated.

The issues involving gifting or transfers without consideration during the lifetime of the trustor are similar to those found in powers of attorney (see page 10 above). Such powers are "special powers" and must be specifically addressed in the trust document.

1. Generally. A conservator may be appointed by the court if, based upon medical testimony, it is determined that the individual lacks the capacity to manage his/her financial resources. (For a detailed discussion about capacity in conservatorships, see page 3 above).

The conservator can be an individual, bank, trust company or professional fiduciary. The conservator is empowered to take possession of the protected person’s assets and income, and provides for payment of the person’s expense. The conservator has all the powers that the person would individually possess to manage financial affairs, with or without prior court approval. (See the discussion of a conservator’s powers at page 12 below.)

The procedures for the establishment of a conservatorship are similar to that of guardianship. (In fact, the two powers are often requested at the same time.) Unlike guardianship, the appointment of a conservator does not require an investigation by a Court Visitor. The appointment of a conservator does, however, require that the conservator be bonded.

2. Emergency Conservatorship. Normally, the procedure for the appointment of a permanent conservator takes approximately 20-30 days to complete. A temporary or emergency conservator can be appointed immediately, without notice and time for filing objections, if the Court determines that an emergency exists and that the assets and property of the protected person are at risk. This procedure is often used to stop and prevent abuse to the protected person’s estate. ORS 125.600.

3. Rights of a Protected Person.

a. ORS 125.455(1). A protected person, if mentally competent, may perform the following actions:

b. ORS 125.455(2). A protected person cannot perform the following actions:

4. Conservator’s Actions Requiring Prior Court Approval.

a. ORS 125.430. A protected person’s principal residence may be sold by a conservator only with the prior approval of the court.

b. ORS 125.450. Any sale or encumbrance to a conservator, the spouse, agent or attorney of the conservator, or any corporation or trust in which the conservator has a substantial beneficial interest, or any transaction that is otherwise affected by a substantial conflict of interest is voidable unless the transaction is approved by the court after the filing of a motion with the court seeking approval of the transaction.

c. ORS 125.440. A conservator may perform the following acts only with prior court approval:

1. Create revocable or irrevocable trusts of property of the estate.

5. Conservator’s Actions Authorized Without Prior Court Approval. ORS 125.445 authorizes a conservator to perform the following acts without the need of prior court approval:

ORS 124.100 allows for a civil action to be brought against a person who has caused physical or financial abuse to an elderly or incapacitated person, for damages including economic and non-economic loses, attorney fees, and fees for a conservator or guardian ad litem incurred in bring the action.

1. For Physical Abuse. An action may be brought under ORS 124.100 for physical abuse if the defendant engaged in conduct against an elderly or incapacitated person that would constitute any of the following:

In addition, an action may be brought for physical abuse if the defendant used any unreasonable physical constraint on the plaintiff or subjected the plaintiff to prolonged or continued deprivation of food or water.

Also, an action may be brought for physical abuse if the defendant used a physical or chemical restraint, or psychotropic medication on the plaintiff without an order from a physician licensed in the State of Oregon

2. For Financial Abuse. (1) An action may be brought under ORS 124.100 for financial abuse in the following circumstances:

1. Person "Permitting Abuse". ORS 124.100 (4) states that a civil action may be brought against a person for permitting another person to engage in physical or financial abuse if the person knowingly acts or fails to act under circumstances in which a reasonable person should have known of the physical or financial abuse.

2. Exempt Persons Under the Statute. The following persons or institutions are exempt from action under ORS 124.100(4):

Here are a few of the statistics reflecting the changing demographic profile of the elderly population in the coming decades:

• The Census Bureau refers to the "human tidal wave" that will "change the face of America" beginning in 2010. From 2010 to 2020, the number of those 65 years and older will increase from 40 million to 53 million. During the succeeding decade, the elderly population will expand by another 17 million, bringing the total elderly to 70 million in 2030 (more than the current populations of France and Belgium combined).

• Generally, predictions are that the progressive concentration of elderly in the South and West will continue. The Census Bureau projects that the elderly population will double in seven western states (including Oregon) by 2020.

• The number of elderly needing nursing home care will be 3.4 million in 2010 and reach between 4.3 and 5.3 million in 2030.

• The "oldest old" (85+) is the fastest-growing part of the population. In 2000, there was an estimated 4.3 million persons over 85. This number is projected to reach 6 million by 2010. These numbers will skyrocket to 18.8 million by 2050 (more than the current population of Australia).