So there is definitely an overlap, right?
There shouldn't be an overlap from a presentational perspective. Mentalism is presented as real, magic is presented as an illusion. It is plausible that someone can discern a thought of card using muscle reading but it is not plausible that someone can use their mind to turn over the card they are thinking of in the deck (e.g. Invisible Deck). The first is mentalism, (purported demonstration of a skill) the second is mental magic (a magic trick with a psychic phenomenon presentation).
Further, you shouldn't do something that is portrayed as being real (disclaimers or not) followed by something that is clearly a trick. Think of it this way, if someone performed a palm reading for you and then performed a pick-a-card trick, the trick would diminish the strength of the palm reading. Similarly, if you do a drawing duplication based on reading the image that the spectator is thinking of as they draw and then follow it by making a rabbit appear from a hat, the duplication looks like a trick.
I think the main thing is that spectators don't care what the trick is categorized as.
But they can tell the difference between pure mentalism (demonstration of mental powers) and mental magic (magic trick with psychic presentation). The first is believable and the second is a trick with a good, but not believable, presentation. The difference is between the audience leaving with the thought "do you think that was real?" compared with the the thought "I wonder how he did that?"
I've been to a show done by a mediocre mentalist where the other members of the audience left wondering if it was real and shows by a famous magician where the mental effects were MORE POWERFUL AND BETTER PERFORMED but the audience left speculating how it was done.
Now, all this is being said by someone who performs as a magician but who has studied mentalism to understand how we can use those concepts to improve magic.
I agree they just like to be amazed
But understanding the differences between the mentalism and mental magic allows us to structure our presentations for the maximum effect. Just taking a mediocre magic trick and using a presentation that talks about mental powers doesn't necessarily make it better. The lack of plausibility in most mental magic presentations actually diminishes the power of the effect -- not only is it viewed as trick but the explanation is viewed as borderline insulting to the audience's attention. "I've had the ability to make cards in the deck turn over without anyone noticing using solely my mental powers since I was five year old." Yes, that is an exaggeration but a lot of descriptions of mental magic come close.
Finally, even mentalists fall into the trap of the lack of credibility in their explanations. A mentalist should be able to demonstrate one or two skills, not every skill in the book (e.g. foresight, mind reading, influence, muscle reading, clairvoyance, etc.). Less is more.
Understanding how your presentation actually affects your audience is what makes magic, mental magic and mentalism amazing.