Recent amendments to the Civil Code
Trusts and LPAs
Needless to say, trusts play a very important role in situations of incapacity and remain a very viable option for persons wishing to cater for their possible incapacity by earmarking certain funds or assets and settling them on trust with a trusted trustee – whether professional (and hence experienced and regulated by the MFSA) or private – for his or her benefit during their lifetime and, thereafter, for the benefit of the selected beneficiaries. Trusts can also be set up relatively quickly and in a simple manner (including verbally), although in practice the process is somewhat lengthier.
However, one cannot deny the fact that while a trust involves the actual divesting of ownership by the settlor or creator of the trust and the consequential transfer of ownership to the trustee – and therefore they involve a more solemn act – an enduring or lasting POA involves no such transfer of ownership and kicks into effect only upon the incapacity of the grantor.
An enduring POA is, therefore, admittedly an easier option for the limited purpose for which it can be used (considering that trusts can be used more broadly and for many other purposes than an EPA can). With adequate planning, often trusts and LPAs are used together in order to cater for different aspects, with the LPA being used to regulate the ‘care’ aspects and the trust used to regulate the proprietary dimension.
Essentially an Enduring Power of Attorney – or a ‘mandate given by a person in anticipation of his incapacity’ as the law refers to it – is a mandate given by a person of full age – and who must, necessarily, have the required legal capacity, in anticipation of his incapacity, to a mandatary, for the latter to take care of the mandator or to administer his property. Typically, overseas, EPAs are used to allow the attorney/mandatary to pay the grantor’s bills, to sell his property or investments and to operate his bank accounts. However EPAs are also commonly used to allow the attorney/mandatary to make decisions about the grantor’s medical treatment
A person who qualifies and wishes to set up an EPA must have a notary public draw it up, in the presence of two witnesses, on pain of nullity. However, since the main purpose of the EPA is the ‘anticipation of incapacity’, there is an additional requirement, being the procurement of a medical declaration clearly indicating that the Enduring Power of Attorney is in fact actually required, and is considered to be in the best interests of the person for whom it is being drawn up.
Following this, the Enduring Power of Attorney must also be registered with the Director of the Public Registry for it to have legal effect, in the same way as notes of transfers of ownership of immovable property, notes of acts of emphyteusis, notes of public or secret wills, notes of marriage contracts, separations of property between spouses, or partitions of immovables, notes of applications for a European Certificate of Succession and of the issuance thereof, are registered with the Director. Overseas, LPAs need not be registered immediately (although it is usually recommended to do so in case there are any errors, in order for these to be able to be rectified before it is too late), but by cross referring to the registration of the above acts, it would seem that the EPA must be registered within 15 working days from the date of the act.
The determination of the start and end period of an Enduring Power of Attorney both depend on the element of ‘capacity’. The capacity required for execution as well as that required for revocation are the same. Therefore, if the mandator regains mental capacity, the Enduring Power of Attorney may be revoked on the presentation of a sworn medical certificate confirming that incapacity has ceased, as well as a public deed confirming termination drawn up in accordance with the necessary requirements.
Who to pick as attorney
Clearly, just as the choice of a trustee is a very delicate matter, a grantor should only appoint a person that he can trust as his attorney – the following categories of persons could be considered: Trusted family members or long standing friends, professional advisors asuch as lawyers, notaries or accountants. Practical considerations such as geographical proximity as well as the available time, skill and expertise of the attorney should also be considered in relation to what the attorney may be expected to do.
Safeguards against possible abuse
Ultimately an attorney is considered to be a fiduciary at law and therefore all the safeguards that apply to mandataries generally would also apply to a mandatary under an EPA. Maltese law specifically applies to the mandatary of an EPA the provisions dealing with the obligations of a mandatary of a normal POA (thereby implying that the other provisions applicable to mandate do not, however, apply). In particular, in case of non-performance the mandatary is answerable for damages and interest. Furthermore, the mandatary is answerable not only for fraud, but also for negligence in carrying out the mandate, although liability in respect of negligence is enforced less rigorously against a mandatary acting gratutiously than against one receiving a remuneration.
In terms of Maltese law, performance of an EPA is conditional upon the occurrence of the incapacity and only after the necessary approval of the court of voluntary jurisdiction is obtained on application of the mandatary. This means that for as long as the grantor retains his mental capacity, although he may have granted an EPA, this remains without effect and cannot be used – it only kicks in once the grantor loses mental capacity and the court of voluntary jurisdiction approves its use.
It is not clear from the law whether the mandatary must apply to the court of voluntary jurisdiction before exercising each act in terms of the EPA (which would make it somewhat impractical and more akin to a curator’s role, although, on the other hand, it would provide more security), however the law does give the Court the power to impose
“those [sic. Such] conditions that it may deem necessary.”
The law does not place any qualifications on the mandatary but it would seem that minors (who can, otherwise, be appointed as mandataries under normal POAs) may not be appointed to act seeing that the provision permitting this was not made applicable also to EPAs.
Entering into an Enduring or Lasting Power of Attorney is a relatively easy alternative to certain other forms of financial management. Familiarising oneself with the concept of EPA/LPAs is beneficial to all as many persons mistakenly think that if they were to lose their mental capacity a family member would automatically be able to continue making legal, medical and other decisions on their behalf – or alternatively they fear that in such circumstances all is lost and that unless they get into complex and possibly costly trust structures, there is no hope. However in reality this is not the case. Through an Enduring or Lasting Power of Attorney one is now able to ensure continuity of management of one’s affairs, hence reducing the risk of future financial and other hardship.
END OF PART 2 Dr Cremona is a partner of, and heads, the Trusts and Foundations Department of GANADO Advocates. He is a lecturer on the subject of trusts, foundations and fiduciary obligations at the University of Malta and is also Chairman of the Society of Trusts and Estates Practitioners (STEP), Malta branch. Dr Cremona is indebted towards Ms Bettina Gatt for her assistance in preparing this piece.