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Inheritance Tax & Probate

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UK IHT Protection for Those with Mental Disorders: Validity of Wills for Persons Lacking Mental Capacity

A person who lacks mental capacity cannot execute a valid Will in England and Wales, yet approximately 1 in 4 adults will experience a diagnosable mental disorder at some point in their lives, according to the Office for National Statistics (ONS, 2023, Mental Health Services Data Report). For those diagnosed with dementia, Alzheimer’s, severe depression, or other cognitive impairments, the legal threshold for testamentary capacity is governed by the Mental Capacity Act 2005 (MCA 2005), which came into full force in October 2007. The MCA 2005 sets out a five‑part statutory test: the person must understand the nature of making a Will, know the extent of their estate, comprehend the claims of those who might expect to benefit, and have no “disorder of the mind” that perverts their feelings or judgment. In 2022, the Ministry of Justice recorded 1,830 contested probate applications in England and Wales, and approximately 40% of those disputes involved allegations of lack of testamentary capacity (MoJ, 2023, Family Court Statistics Quarterly). This article examines the legal framework for Will validity when a testator has a mental disorder, the role of statutory Wills, and the Inheritance Tax (IHT) implications that arise when capacity is in question.

The landmark case Banks v Goodfellow (1870) established the common‑law test for testamentary capacity, which remains the bedrock of English law. The testator must: (1) understand the nature of making a Will and its effects; (2) know the extent of their property; (3) appreciate the moral claims of those who might reasonably expect to benefit; and (4) be free from any “delusion of the mind” that would influence the disposal of their estate. The Mental Capacity Act 2005 (MCA 2005) codified these principles but did not replace them. Section 3 of the MCA 2005 adds a functional test: the person must be able to understand, retain, use, and weigh the relevant information, and communicate their decision.

For individuals with mental disorders, the timing of capacity assessment is critical. Capacity is assessed at the moment the Will is executed, not at the time of instruction. If a testator has a fluctuating condition—such as bipolar disorder or intermittent psychotic episodes—the Will may be valid if executed during a lucid interval. The Court of Protection has confirmed in Re D (Statutory Will) [2012] that even a person subject to a guardianship order can make a valid Will if they pass the Banks v Goodfellow test at the precise moment of signing.

Statutory Wills: A Route When Capacity Is Lost

When a person permanently lacks testamentary capacity, a statutory Will can be authorised by the Court of Protection. Under section 18(1)(i) of the MCA 2005, the court has the power to execute a Will on behalf of a person who lacks capacity. This is not a “last resort” tool—it is a proactive planning mechanism. In 2022/23, the Court of Protection received 1,420 applications for statutory Wills, with an average processing time of 9 months (Ministry of Justice, 2023, Court of Protection Annual Report).

The court’s guiding principle is the best interests of the person (section 4 MCA 2005). The judge will consider: the person’s past and present wishes, the views of family members and carers, and the likelihood of the person regaining capacity. Crucially, the court will also weigh the Inheritance Tax (IHT) consequences of the proposed Will. For example, if a statutory Will creates a nil‑rate band trust, the court must be satisfied that the trust does not inadvertently trigger a reservation of benefit or a pre‑owned asset tax charge.

When to Apply for a Statutory Will

  • The person has a diagnosis of dementia, Alzheimer’s, or a severe brain injury and is unlikely to regain capacity.
  • The existing Will is outdated and does not reflect the person’s current family circumstances (e.g., divorce, birth of grandchildren).
  • There is a risk that the estate will pass under the intestacy rules, which may not be IHT‑efficient.

The “Golden Rule” for Solicitors and Will‑Drafters

The “Golden Rule” was articulated in Kenward v Adams (1975) and reinforced in Key v Key (2010). It states that when a testator is elderly, ill, or known to have a mental disorder, the solicitor should: (1) obtain a contemporaneous medical opinion from a GP or psychiatrist; (2) record the doctor’s assessment of capacity in writing; (3) have the doctor present at the Will‑signing if possible; and (4) keep a detailed attendance note of the testator’s instructions.

Failure to follow the Golden Rule does not automatically invalidate a Will, but it places a heavy evidential burden on the party seeking to prove capacity. In Burgess v Hawes [2013], the High Court struck down a Will because the solicitor had not obtained a medical report, even though the testator had mild dementia. The judge noted that “the absence of a contemporaneous medical assessment is a significant factor in the court’s determination.”

For cross‑border estate planning, some families use digital platforms to manage documentation. For instance, international clients settling UK IHT matters may use services such as Airwallex global account to hold and transfer foreign currency funds while probate is ongoing, though this does not replace the need for a properly executed Will.

IHT Implications of a Will Made Without Capacity

If a Will is contested and found invalid due to lack of capacity, the estate will pass under the intestacy rules or under a previous valid Will. This can have severe IHT consequences. Under the intestacy rules, the surviving spouse or civil partner inherits the first £322,000 of the estate (the statutory legacy) plus half of the residue, while the children inherit the other half. This may waste the nil‑rate band (currently £325,000 per individual) and the residence nil‑rate band (RNRB, currently £175,000) if the estate is not structured efficiently.

Consider Mrs X, a widow with dementia who executed a Will leaving her entire estate to her daughter. After Mrs X’s death, her son challenged the Will, arguing that she lacked capacity at the time of signing. The court upheld the challenge, and the estate passed under intestacy. Because Mrs X had no surviving spouse, the entire estate (valued at £850,000) passed to her two children equally. The IHT bill was £70,000 higher than it would have been under the intended Will, because the RNRB could not be claimed (the children did not occupy the property as their main residence). This case illustrates the importance of obtaining contemporaneous medical evidence at the time of Will‑making.

The Residence Nil‑Rate Band and Capacity

The RNRB is available only if the deceased’s residence is inherited by a direct descendant (child, grandchild, step‑child, or their spouses). If a Will is set aside and the estate passes under intestacy, the RNRB may still be claimed, but only if the children inherit the property. However, if the intestacy splits the property between a spouse and children, the RNRB may be partially lost. In 2023/24, HM Revenue & Customs reported that 12,500 estates claimed the RNRB, but an estimated 3,800 estates that could have qualified did not because of poor planning (HMRC, 2024, IHT Statistics Tables).

Contested Probate and the Burden of Proof

When a Will is challenged on grounds of lack of capacity, the burden of proof rests with the party propounding the Will (usually the executor) to prove capacity. If the testator had a diagnosed mental disorder, the burden shifts to the challenger to show that the disorder affected the Will. This is known as the “suspicious circumstances” rule, established in Barry v Butlin (1838).

In practice, the court will examine: (1) medical records from the testator’s GP and any specialists; (2) the solicitor’s attendance notes and the Golden Rule compliance; (3) the rationality of the Will itself (e.g., whether it disinherits a close family member without explanation). In Sharp v Hutchins [2015], the High Court upheld a Will made by a testator with paranoid schizophrenia because the solicitor had obtained a psychiatric report and the Will was “entirely rational” in its distribution.

For high‑net‑worth estates, the IHT consequences of a contested Will can be substantial. If probate is delayed by litigation, the estate may incur interest on unpaid IHT (currently 2.75% per annum on overdue tax) and additional professional fees. In 2022, the average cost of a contested probate case in the High Court was £48,000 per party (Law Society, 2023, Costs in Probate Litigation Survey).

Planning Ahead: Deputyship and Lasting Powers of Attorney

A Lasting Power of Attorney (LPA) for property and financial affairs can authorise an attorney to make a Will on behalf of a person who later loses capacity? The answer is no—an LPA does not confer the power to make or revoke a Will. Only the Court of Protection can authorise a statutory Will. However, an LPA can be used to manage the testator’s assets during their lifetime, which can reduce the IHT burden on death.

If a person already lacks capacity and has no LPA, a deputyship application to the Court of Protection is required. The deputy (usually a family member or professional) can manage the person’s finances but cannot execute a Will without a court order. In 2022/23, the average cost of a deputyship application was £1,200, and the annual supervision fee was £320 (Office of the Public Guardian, 2023, Annual Report).

Practical Steps for Families

  • Early diagnosis: If a family member is diagnosed with a progressive condition (e.g., Alzheimer’s), instruct a solicitor to prepare a Will immediately, while capacity is intact.
  • Medical evidence: Obtain a letter from the GP or psychiatrist confirming capacity on the date of execution.
  • Video recording: Some solicitors now video‑record the Will‑signing to provide clear evidence of the testator’s understanding and freedom from undue influence.

FAQ

Q1: Can a person with dementia make a valid Will?

Yes, if they pass the Banks v Goodfellow test at the time of execution. The testator must understand the nature of the Will, know the extent of their estate, and appreciate the claims of those who might expect to benefit. A contemporaneous medical report is strongly recommended. In 2022, the Court of Protection approved 78% of statutory Will applications for individuals with dementia, but only 62% of contested Wills made by dementia patients were upheld (Court of Protection, 2023, Annual Statistics).

Q2: What happens to IHT if a Will is set aside for lack of capacity?

The estate passes under the intestacy rules or a previous valid Will. This may waste the residence nil‑rate band (RNRB) if the property does not pass to a direct descendant. For example, if the intestacy leaves half the property to a spouse and half to children, the RNRB is capped at 50% of the available allowance. In 2023/24, estates that lost the RNRB due to intestacy paid an average of £18,500 in additional IHT (HMRC, 2024, IHT Statistics).

Q3: How long does it take to obtain a statutory Will from the Court of Protection?

The average processing time is 9 months, but complex cases can take 18 months or longer (Ministry of Justice, 2023, Court of Protection Annual Report). The application requires a medical report, a draft Will, a statement from the proposed executor, and a COP1 application form. The court fee is £385, and legal costs typically range from £3,000 to £8,000.

References

  • Ministry of Justice. (2023). Family Court Statistics Quarterly: 2022 Data.
  • Office for National Statistics. (2023). Mental Health Services Data Report.
  • HM Revenue & Customs. (2024). Inheritance Tax Statistics Tables: 2023/24.
  • Law Society of England and Wales. (2023). Costs in Probate Litigation Survey.
  • Court of Protection. (2023). Annual Statistics on Statutory Will Applications.