Incapacity is a legal term that refers to an individual’s impairment in making decisions or taking actions due to their current physical or mental condition. Common areas of impairment relate to the ability to engage in the basics of self-care (such as adequately washing or feeding oneself) and/or the ability to attend to and manage one’s financial affairs.

There are many relevant capacities for UHNW individuals. These include the capacity to make or revise estate plans, comprehend and sign legal documents, and manage their finances alone or in conjunction with their advisors. More broadly, signs of declining mental capacity in an aging family leader may impact the complex decision-making required to serve as an executive in a family enterprise. 

Formal determination of full or partial incapacity (also termed lack of capacity) is a legal process that may be related to a medical determination that someone lacks decision-making ability on the basis of a particular diagnosis, e.g., a diagnosis of dementia or severe mental illness. Most trusts and many legal documents describe the process by which an individual may be declared incapacitated without having to go to court.

Capacity and competency are often considered by the general public to be equivalent. However, competency is increasingly an outmoded term that refers to a global ability to make decisions for oneself in an all-or-none way, i.e., competent or incompetent.  Capacity is more specific to a particular ability, such as making a will or engaging in decisions about one’s personal healthcare or treatment choices. Incapacity in one ability may not necessarily translate to incapacity in another ability.