Any legal interest in real or personal property can be transferred by gift. U.S. courts have held that the capacity to make a gift is similar to the capacity to enter into a contract. The donor must be of sound mind and should have the mental capacity to understand the nature and consequences of his act.
The donor must have the legal capacity to make a gift. A donor must be mentally fit to make a decision towards the transaction and should show an intent to make a gift, which is inferred from the nature and purpose of the gift. A gift to the wrong person is not valid. For instance, if A mistakenly gives gold jewelry to B who is believed to be A’s niece, but it is found out that B is not A’s neice, the gift is invalid because “there was no intention to benefit anyone but the niece.”
The Common-law courts have stated that the “sound mind” threshold of capacity is inadequate and needs further explanation. The courts have interpreted capacity as the ability to understand “the nature and extent of one’s property; the relationship between oneself and those persons who ought to be in one’s mind at the time, that is, the “natural objects of [one’s] bounty; and the disposition one is making of one’s property.” Also courts require that the donor must be able to assess these elements in relation to each other and form an orderly scheme of disposition. The failure to satisfy any of these elements deprives the donor of mental capacity. Illness or impairment of the mind incident to old age does not necessarily indicate so great a deterioration of capacity as would render the transaction of gift invalid.
The question of donor’s capacity varies in accordance with the complexity of the estate and the scheme of disposition. However, it is not necessary that the donor should be able to grasp the meaning of technical legal terms in the act or that he understand the minute details of a complicated arrangement.
Mental deficiency and mental derangement are two general types of mental conditions that prevent a donor from satisfying the standard of capacity and invalidate the transaction of gift. “The mentally deficient person suffers from a defect in mind or memory that precludes him from understanding the nature and extent of his property, the natural objects of his bounty, or the nature of the act he attempted. Mental deficiency may result from various causes, including congenital defect, age, sickness, serious mental illness, or injury.” However, “advanced age and reduced mental processes will not invalidate a gift, where the donor is competent to understand the nature and effect of the transaction.”[i]
A person who suffers from mental derangement on the other hand may be fully capable of understanding the disposition he is making. Yet the distorted mental frame, which is termed as “insane delusion” prevents him from acting rationally with respect to the above mentioned considerations. If such delusion affects the subject matter of the transaction, the gift will be deemed to be invalid. Baseless beliefs about family members like that a wife is plotting to kill the donor, that a child is illegitimate, or that a relative has been stealing from the donor are examples of insane delusion and will qualify as valid reasons to invalidate the gift. However, it is to be noted that these beliefs must be irrational and must not be based on any actual evidence before they will constitute insane delusions.
The capacity to make a donation inter vivos or causa mortis requires the ability to comprehend the general nature and consequences of the disposition being made. The degree of mental capacity required to make a gift of will is same as that of causa mortis.[ii]
[i] In re Estate of Carano, 1994 OK 15 (Okla. 1994)
[ii] In re Estate of Vardalos, 24 Ill. App. 3d 520 (Ill. App. Ct. 1st Dist. 1974)