On the Deed: Mental Wellness and Capacity to Transfer Real Estate

Capacity to exercise the rights of a deed holder can mean different things for adult homeowners. Perhaps an owner is experiencing age-related cognitive decline. Or perhaps mental health issues are impacting the ability of a deed holder to make decisions with clarity of purpose.

Let’s take a look at some common scenarios, and get to grips with the key legal issues to spot. As we go through them, please keep in mind that we cannot give legal, financial, medical, or mental wellness advice. Please do not rely on this or other columns to make decisions about a deed. The intent here is to offer a broad orientation to the issues. Case-specific advice must come from legal professionals with the responsibility to take personal and situational factors into account.

That said, let’s dive into some common questions.

I Have a Parent With Dementia. Can I Transfer My Parent’s Deed Over to Me?

Often, this question is asked when the parent needs money for physical and memory-related care. The obvious route may well be to sell real estate, and perhaps move to an assisted living space.

You might believe it’s simplest and best to transfer the deed into your name before selling. But an authorized representative must sign for the mentally incapacitated deed holder. Who is authorized? Answering this question should involve an attorney.

First, the lawyer might ask: Has your parent’s condition been evaluated? Whether a person is legally competent to make contractual agreements should be based on a professional assessment.

Maybe your parent is suffering decline or impairment, but can still fully understand the act of transferring the deed. Then, they can legally transfer their own deed if they wish.

Your parent could be legally competent to sign over a deed, even when diagnosed with dementia, if your parent can comprehend the value of the property, remember who is close to them, express their wishes on who should inherit their assets, and fully understand the consequences of signing the legal instrument.

What if your parent doesn’t fully understand the consequences but nevertheless signs the deed over? What if there is undue pressure to sign? A deed transfer by an owner who appears to lack full understanding or intention could be subject to a later challenge.

If a professional assessment demonstrates lack of capacity, what’s next? Learn what it takes to establish a durable power of attorney or a conservatorship.

Can We Be Proactive, and Name a Representative Before One Is Needed?

Yes. A power of attorney (POA) is an advance directive that’s intended to be created before it becomes necessary. This can be done in advance of cognitive decline, or anticipated mental health issues that could incapacitate a person. Once a deed holder loses the ability to fully understand a contractual agreement, it’s too late to give anyone the power of attorney. In short, you’re right to think pro-actively.

While still mentally competent, the person (“principal”) can designate someone to hold power of attorney to sell or finance their real estate. A power of attorney doesn’t need a court order. It may be signed by the principal and their named agent in front of two adult witnesses, and recorded by the principal.

A non-durable POA creates authority to act for someone who still has legal capacity. The principal remains in control, and may revoke the authority. In contrast, a durable POA remains effective when the person who created it becomes incapacitated. A springing power of attorney comes into effect when the person is found to be incapacitated.

A POA can be limited. It can be good for transferring a deed only. If you’re designated as a representative on a POA document, you can work with a real estate agent to complete a transaction, create a new deed, and file it with the county recorder of deeds.

The laws and forms vary by state. So, state-based due diligence is essential.

Can the Deed Be Voided if Someone Didn’t Fully Understand the Transfer?

This is rare. If a deed signed, witnessed, delivered, and recorded with the county, there’s a legal presumption that the transfer was valid.

Nevertheless, during a later sale or financing activity, a title agent could want evidence of cognitive capacity during the past deed transfer. In extreme cases (where clear professional evidence is brought to bear), courts set aside improper deed transfers. These cases are called quiet title actions.

Sometimes, the deed is challenged even after a POA is created. A personal representative must always uphold the best interests of the person who established the power of attorney.

Now that we’ve briefly outlined the power of attorney, let’s get to guardians or conservators. They only come into being through court action, if there was no durable or springing power of attorney established before a person became legally incapacitated.  

Learn more about how improper actions under the POA can be challenged.

What Is a Guardianship? And a Conservatorship?

A guardianship can be all-encompassing, so that it enables many aspects of living to be supported for the principal. Or it can be limited to a guardianship of property, which focuses on assets and payments. A conservatorship is similarly limited.

Following the state’s law, Letters of Guardianship come from the county probate court. A guardian needs a judicial green light to make a deed transfer. This starts with filling out the court’s form for a petition for the ownership transfer.

Note that researchers have found title ownership supports mental wellness. Homeowners tend to have better cognitive abilities. Research shows that owning a home — as long as housing costs aren’t overpowering — provides a sense of control, which can reduce stress and even enhance longevity. These findings underscore the importance of always supporting a person’s remaining abilities, to the extent possible. 

A conservator holds Letters of Conservatorship — acourt’s approval to handle someone else’s affairs during a temporary or permanent period of incapacity. The conservator may submit tax and debt payments, move assets and investments, and enter into contracts on behalf of someone who cannot act on their own behalf. Yet a conservator must seek the court’s go-ahead for a deed transfer. (If speedy action is required, the conservator could request an expedited hearing.)

Guardians and conservators are under court oversight for their entire terms, and must complete accounting statements periodically. For guidance on which legal path fits your situation, contact a reputable and experienced attorney. Many offer initial consultations at no charge to potential clients.