The use of powers of attorney (either notarised or not) is very common in personal affairs and business matters. Please exercise caution when you authorise another person to act on your behalf. You should ask yourself:
When a person who has given power of attorney passes away or loses their mental capacity the power of attorney immediately ends. The reason for this is that the agent cannot have more power than his or her principal has. If you no longer have the ability to cancel the power, it changes the inherent revocable nature of the power of attorney. It is unlawful for anyone to act on the extinguished power.
On death, your executor takes control of your estate. The Master of the High Court must appoint the executor. Any transactions made with the assets of the deceased after death – by any person other than the executor – are invalid and will be reversed where possible or recovered by the estate.
Loss of mental capacity is not so simple. Simply being forgetful or vague does not mean the person has lost mental capacity. However, having dementia does, for example. If the person does not understand all the implications of what he or she has authorised the agent to do, then one has to look at alternatives.
In certain jurisdictions abroad, such as the UK, Canada, Australia and New Zealand, the concept of the ‘enduring or lasting’ power of attorney is recognised. Although the SALC (South African Law Commission) submitted draft legislation to the Minister of Justice in 2016 nothing further has transpired. Therefore, you cannot place any reliance on this in South Africa.
There are alternatives – such as setting up a special trust for the benefit of the person. This would be an inter vivos trust created for a person with a “disability” as defined in section 6B(1) of the Income Tax Act. This type of trust (called a Special Trust A-type) pays tax at the same rate as natural persons, instead of at the rate of ordinary trusts.
In this instance, the word “disability” is defined to include a “moderate to severe limitation of a person’s ability to function or perform daily activities because of a physical, sensory, communication, intellectual or mental impairment, if the limitation has lasted or has a prognosis of lasting more than a year, and is diagnosed by a duly registered medical practitioner...”.
So you have a ‘window of opportunity’ to settle the person’s assets in the trust to be managed by professional trustees for his or her sole benefit. The trust deed will provide for the distribution of what is left of the trust fund when the initial beneficiary passes away.
However, as a colleague recently pointed out to me, these things normally happen at such a pace that by the time, for example, the family or the business partners realise there is a problem, the ‘patient’ has already lost his or her ability to provide instructions to transfer assets to a trust. Hence, it is too late to implement that option. You then have to consider the legal steps below.
The rather cumbersome and expensive process of instructing attorneys to launch a high court application for the appointment of a curator ad litem and finally a curator bonis is the only real alternative.
The curator will take over the ‘patient’s’ estate and administer it in the best interests of that person.
The Mental Health Care Act does allow a simpler procedure, but it only caters for small estates – for persons earning no more than R24 000 p.a. or with an estate not exceeding R200 000.
Both of these processes will at least provide for the legal and orderly management of their affairs.
It is important to bear in mind that, if the person executed a valid last will and testament before he or she lost their mental capacity, that Will remains valid. A Will is not revoked by a loss of mental ability or any other disability for that matter. Obviously, once mental capacity is lost one cannot execute a new Will either.
If one considers the potential vulnerability of older people and those with mental or physical challenges as against the often flawed and even abused power of attorney and costly high court procedures, there is an urgent need for a secure alternative. The emergence of technology (rather than old-fashioned paper-based documents) also presents an opportunity for the lawmakers to embrace new ways of enabling people to give instructions and to securely verify those instructions.
The thought of a power of attorney somehow lasting beyond my ability to understand what’s going on around me does not fill me with confidence. The special trust seems to be the best solution, but foresight is required. We can look forward to the eventual promulgation of the ‘Assisted Decision Making: Adults with Impaired Decision-Making Act’ with anticipation, but also a measure of patience.
Article written by David Thomson, Senior Legal Adviser, Sanlam Trust