Power of Attorney need to know, especially if incapacity or dementia strikes
Category Property Tips
It is common for older persons such as ageing parents or relatives to appoint someone as their Power of Attorney by which the "principal" appoints an "agent" to act for him/her, either for a particular purpose (Special Power of Attorney) or generally (General Power of Attorney'), often if there are assets involved including property.
While it may seem ideal to assist someone in their time of need to ensure that they and their assets are taken care of, it is vital to know that a Power of Attorney is not permanent. There is an automatic termination in instances such as:
- Death of the principal (an executor is then appointed);
- Insolvency of the principal and his/her estate is sequestrated (a trustee is then appointed);
- Mental incapacity in the sense of no longer able to make his/her own decisions for reasons such as a stroke, coma, mental illness, dementia, Alzheimer's, general age-related diminishing capacity etc.
The last scenario often catches people unawares as it seems illogical for a Power of Attorney to lapse when it's needed most. In terms of the Law, an agent can only do what the principal can do and if the principal loses legal capacity, the Power of Attorney immediately fails. A Department of Justice document states: "In South Africa the Power of Attorney remains valid only for as long as the principal is still capable of appreciating the concept and consequences of granting another person his or her Power of Attorney".
While in practice there may be many cases of Powers of Attorney continuing to be used to everyone's benefit long after the principal has lost formal capacity, the agent in that situation acts without authority and risks personal liability.
What are the alternatives then?
Curator - the High Court can appoint a "curator" to manage the affairs of someone who is incapacitated. A "curator bonis" handles the financial affairs and a "curator ad personam" all personal affairs (such as consent for medical treatment, where to live etc). Curatorships are costly and prone to bureaucratic red tape and delay, paternalistic and, being public, demeaning to the principal.
Administrator - a simpler and cheaper alternative is the appointment by a Master of the High Court of an "administrator" in terms of the Mental Health Care Act. The administrator is only for cases of actual mental illness or severe/profound intellectual disability and only has power to deal with property (not personal affairs), and only for smaller estates (assets up to R200,000 and annual income up to R24,000).
Trust - a trust to address the purely financial aspects is worth considering while the person still has legal capacity, but do take advice on costs, tax and other implications.
Enduring or Conditional Power of Attorney - in 2004 the South African Law Reform Commission recommended changes to allow for an "Enduring Power of Attorney" (or "EPA") which would remain valid despite subsequent incapacity of the principal, and a "Conditional Power of Attorney" which would come into operation only on the incapacity of the principal. Nothing concrete has as come of this as yet and while some legal commentators suggest the courts may uphold a properly-worded EPA, the general consensus is that it will not be recognised.
Ultimately, the best advice is to take full legal advice on your particular circumstances.
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Author: Gina Meintjes
