Mental Capacity to Transact

Elder financial abuse is an alarming problem in this era of aging population. Baby boomers are entering retirement with a higher life expectancy and more wealth than any generation before them. The combination of mental decline and substantial wealth renders many seniors vulnerable to overreach. Empirical studies suggest that financial abuse against seniors is hard to detect and likely prevalent. In private suits alleging elder financial abuse, courts often apply the mental capacity doctrine to avoid seemingly exploitative contracts, gifts and many other lifetime transactions. The formal rationales for avoidance are that the elderly party to the impugned transaction lacked mental capacity, and that the transaction was inequitable. Moreover, guardians and attorneys who manage property for the elderly may have perverse incentives to exploit their position. Presuming the worst from the property manager, courts and legislatures typically impose onerous fiduciary duties to minimize conflicts of interest and deter misconduct. Orthodox fiduciary law explicitly aims to overdeter. This Dissertation first argues that the mental capacity doctrine in prevailing American law is ill-suited for t