Capacity conversations – Key insights from the trustees sector

Issues arising from diminished capacity in connection with global trusts are (sadly) becoming more commonplace.

To kick-start an industry-wide conversation on how to mitigate risk and address this sensitive topic, Farrer & Co brought together international experts and produced a short video series to explore the issue and provide practical insights and guidance for fiduciaries.

On Tuesday 4 March, Farrer & Co welcomed trust professionals and advisers to an afternoon tea event, to launch the series and provide a forum to listen and discuss industry perspectives.

The key takeaways from this event are summarised below.

Thank you to Bryony Cove, Charlotte Fraser and Constance McDonnell KC for speaking at the event.

Assessing capacity – what to look out for?

We heard and shared firsthand accounts of behaviours that might indicate the individual is suffering from diminished capacity, including:

• Changes in communication – Is the settlor, beneficiary or power holder communicating unexpectedly? This could mean more or less than usual, or in a different way, such as not wanting to meet in person, or sending unexpected late-night emails.
  
  
• Changes in inhibitions – Delegates gave examples of situations where a settlor or beneficiary increasingly spoke using swear words after a brain injury and, or came to meetings dressed very casually when previously they had been a meticulously smart dresser.
  
  
• Unusual distribution or investment requests.
  
  
• Unusual defensiveness or aggression – Attendees shared that for the person losing capacity, the situation can be frightening, and that fear can display as anger or defensiveness.
  
  
• Introduction of a new person into their life – Many delegates shared examples of a person (who could be a family member, a carer or another external influence) becoming increasingly involved in the settlor’s or beneficiary’s affairs where they had not been previously.
  
  
• An unexpected or new need for additional or repeated explanations of the same information.
  The “fridge” test
  
  
• We shared the story of a medical capacity assessor who, when visiting a patient, takes the opportunity to look in their fridge and check whether it is well stocked, if food is out of date, etc. We talked about the ability of trustees and advisers to obtain an insight into other aspects of the settlor’s or beneficiary’s life, and how that can be harder or can be masked by wealth where there are staff, but we agreed that a visit at home can offer more insight if possible.

Why capacity is not a problem reserved for the elderly

Loss of capacity can come in various guises, including:

• Known or suspected substance use – This can have a huge impact on behaviour, motivations and capacity. All delegates agreed our industry would benefit from increased training on addictions and the impact of addictive behaviour on capacity and decision making.
  
  
• Bereavement and divorce – Both of which all attendees acknowledged can have an impairing effect on decision making.
  
  
• Vulnerability, coercion and control – Recognising that we may need to reflect on whether decision makers have capacity in a situation where they are adapting their behaviour and decisions to minimise their real or perceived risk.

Proactive trusteeships – what can we do now?

Best practice to identify and address these issues to protect vulnerable beneficiaries and settlors, includes:

• Reviewing existing trusts – Are they fit for purpose? It’s better to amend trust deeds to deal with capacity now rather than in a capacity crisis moment.
  
  
• Introduce a family or structure Capacity Policy – Can the family agree now a suitable set of mechanics to assess capacity?
  
  
• Normalise questions around capacity – Make capacity a standing agenda item that needs to be raised for normal risk management purposes.
  
  

• Consider recording meetings – This can provide a powerful record of what has been agreed and discussed, as well as potentially capturing wishes in a settlor’s own words and providing additional evidence in relation to capacity.

• If a capacity assessment is required – Think carefully about exactly what a
  medical expert is being asked to assess. Instructions given to an expert are crucial in ensuring their report applies the correct tests for the situation.

• Be brave – Do not be afraid to ask questions if you have doubts.
  
  

A Question of Trust - watch the full series now

Loss of capacity of those involved in trusts is an increasingly prevalent legal issue, and a growing cause of disputes.

In this video series, we bring together international experts to explore the issue of capacity, how to mitigate risk, pragmatically address this sensitive topic, and provide practical insights and guidance for fiduciaries.

WATCH NOW

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, March 2025