“The number of cases of dementia is estimated to almost triple by 2050” (World Health Organisation)
Although the actual prevalence per capita of dementia is reportedly on the decline, aging populations ensure that it is becoming more and more of a problem in society – for older people, their families and caregivers.
If someone close to you (normally an aging parent or relative) needs – or may in the future need – assistance with their financial affairs, your first thought will probably be a power of attorney by which the “principal” appoints an “agent” to act for him/her, either for a particular purpose (a ‘special power of attorney’) or generally (a ‘general power of attorney’). You may well have the same thought if you yourself are approaching old age and starting to plan for your future needs.
A power of attorney is certainly a quick, cheap and easy solution but be careful – it’s only a temporary one. It is not “forever”!
The downside – automatic termination (just when help is most needed)
Of course a principal can cancel his/her own power of attorney at any time, but what is not so well known is that it terminates automatically if and when the principal –
- Dies (an executor is then appointed); or
- Becomes insolvent and his/her estate is sequestrated (a trustee is then appointed); or
- Becomes mentally incapacitated in the sense of being no longer able to make his/her own decisions for whatever reason – perhaps a stroke, coma following an accident, mental illness, dementia, Alzheimer’s, general age-related diminishing capacity etc.
It’s this last scenario that catches most people unawares, because it seems so illogical for the power of attorney to lapse just when it’s needed most.
But that, unfortunately, is the law. An agent can only do what the principal can do, so if a principal loses legal capacity, the power of attorney immediately fails. Or as a Department of Justice document neatly puts it: “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”.
In practice there are probably many cases of powers of attorney continuing to be used to everyone’s benefit long after the principal has lost formal capacity, but an agent in that situation acts without authority and risks personal liability for doing so if the validity of anything done under the failed power of attorney is challenged.
So what are the alternatives?
- The High Court can appoint a “curator” when a person becomes unable to manage his/her own affairs. A curator bonis handles all the person’s financial affairs, a curator ad personam his/her personal affairs (such as giving consent for medical treatment, where to live etc). Unfortunately curatorships are costly, prone to bureaucratic red tape and delay, paternalistic and, being public, demeaning to the principal.
- 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. An administrator only has power to deal with the person’s property (not personal affairs), and this alternative is only available in cases of actual “mental illness” or severe/profound intellectual disability, and only for smaller estates (assets up to R 200,000 and annual income up to R 24,000).
- A trust to address the purely financial aspects might also be worth considering whilst the person in question still has legal capacity. Take advice however on the costs, tax and other implications.
What about an “enduring” or “conditional” power of attorney?
In 2004 the South African Law Reform Commission recommended changes to our law to allow for alternatives like –
- An “enduring power of attorney” (or “EPA”) which would remain valid despite the subsequent incapacity of the principal; and
- A “conditional power of attorney” which would come into operation only on the incapacity of the principal.
Unfortunately nothing concrete has as yet come of that, and although some legal commentators suggest that our courts might perhaps uphold a properly-worded EPA, the general consensus appears to be that they will not be recognised.
It boils down to this – take full legal advice on your particular circumstances.