Ask Liza: What Capacity Is Required To Change Beneficiary Designations?

Ask Liza: What Capacity Is Required To Change Beneficiary Designations?

Dear Liza: Can someone with stage four Parkinson’s change the beneficiary on their life insurance?

My answer is: it depends. That’s a pretty lawyerly answer, I know, but the thing is that whether or not someone has legal capacity is fact-dependent and unique to each individual, and, in addition, it depends on what kind of legal document a person is signing.

Changing a beneficiary designation is changing a legal contract, and for that act, a person must have what’s called ‘contractual capacity.’ As a practical matter, this means that someone must have the capacity to understand the meaning and effect of the words in the contract that they’re signing.

In a more formal sense, under California law (that’s where I’m licensed to practice, but all states will have a definition in their Probate Code), someone who has a deficit in one or more of a long list of abilities that include such things as long and short term memory, the ability to understand and communicate with others, and the ability to understand and appreciate quantities, would be considered someone without contractual capacity.

So, a person may have Parkinson’s, but still have the capacity to understand what they are doing when they are changing a beneficiary designation. Being sick, all by itself, doesn’t determine capacity. It gets down to what that person could understand at the time that they made the change in the contract. And being able to understand and communicate that understanding is what’s required. If that person can’t physically sign their name, for instance, an Agent, acting for them under a Durable Power of Attorney, could make such a change at their direction, as long as such an act was authorized under that Durable Power of Attorney.

If someone with a serious illness wants to change their beneficiary designations on a life insurance policy, and wants to avoid a challenge to that change in the future, they could have a doctor state, in writing, that they still have the capacity to contract, and could sign the beneficiary change form in front of witnesses who could verify that, in fact, the person knew what they were doing and why they were doing it.

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