Sunday Times

Power of at­tor­ney, men­tal in­ca­pac­ity and the law

Step­ping in to help man­age in­ca­pac­i­tated rel­a­tives’ af­fairs may leave you li­able

- By PA­TRI­CIA HOLBURN and LAURA DU PREEZ Society · Discrimination · Human Rights · Laos · Sandton · Andorra · United Kingdom · Australia · Canada · New Zealand · United States of America · Glacier · Cliffe

● When you’re as­sist­ing your el­derly rel­a­tives with their fi­nan­cial af­fairs and in their daily lives, do you have the le­gal au­thor­ity to do so?

Many peo­ple wrongly as­sume that if an el­derly rel­a­tive grants them power of at­tor­ney to act on their be­half they are good to do so for the rest of that per­son’s life.

But a power of at­tor­ney is valid only as long as the per­son grant­ing has the men­tal ca­pac­ity to be able to grant it, Lize de la Harpe, a le­gal ad­viser at Glacier, told a re­cent South African In­de­pen­dent Fi­nan­cial Ad­vis­ers As­so­ci­a­tion sem­i­nar.

A power of at­tor­ney pro­vides au­thor­ity when you act for phys­i­cally in­ca­pable rel­a­tives, but your ac­tions on be­half of a rel­a­tive who is men­tally in­ca­pable may not be recog­nised un­less you have been ap­pointed cu­ra­tor by the high court, or ad­min­is­tra­tor by the master of the high court, or are a trus­tee of your rel­a­tive’s spe­cial trust.

In­ca­pac­ity is a grow­ing global and lo­cal prob­lem and SA doesn’t have leg­is­la­tion to ad­e­quately deal with it, Jo­hann Ja­cobs, di­rec­tor and na­tional head of trusts and es­tates at Cliffe Dekker Hofmeyr, told the an­nual Fidu­ciary In­sti­tute of SA’s con­fer­ence in Sand­ton.

This in­ca­pac­ity can put an el­derly rel­a­tive’s es­tate at risk and the prob­lem is ex­ac­er­bated by the fact that many re­tirees be­longed to de­fined con­tri­bu­tion pen­sion schemes, which means they have to man­age their money to gen­er­ate a pen­sion that is of­ten not guar­an­teed, he said.

Fam­ily as­sis­tance seems log­i­cal, but isn’t al­ways prac­ti­cal or recog­nised in law. The law pro­vides for cu­ra­tor­ship, ad­min­is­tra­tion or a spe­cial trust, but these reme­dies tend to be oner­ous, time-con­sum­ing, in­flex­i­ble and ex­pen­sive, both Ja­cobs and De la Harpe said.

“The reme­dies the law pro­vides are re­ally in­ad­e­quate and out­dated,” Ja­cobs said.

Cu­ra­tor­ship is ex­pen­sive and lengthy be­cause you need rep­re­sen­ta­tion and have to ap­ply to the high court. The per­son bring­ing the ap­pli­ca­tion has to have a per­sonal in­ter­est or be re­lated, said Ja­cobs. There are two steps:

● A cu­ra­tor ad litem or friend of the court must be ap­pointed to make sure the ap­pli­ca­tion is au­then­tic and there is a need to place the per­son un­der cu­ra­tor­ship be­cause they no longer have the abil­ity to man­age their own af­fairs; and

● When the court is sat­is­fied, a cu­ra­tor bo­nis is ap­pointed to man­age the af­fairs of the in­ca­pac­i­tated per­son. The cu­ra­tor may need to pro­vide se­cu­rity such as a type of in­sur­ance bond as an in­dem­nity against their ac­tions.

The found­ing af­fi­davit in the ap­pli­ca­tion must set out the history and the fi­nan­cial de­tails of your el­derly rel­a­tive or friend. Med­i­cal re­ports, and a psy­chi­a­trist’s and neu­rol­o­gist’s re­port are also re­quired, said Ja­cobs.

Ja­cobs said a cu­ra­tor­ship ap­pli­ca­tion can cost R40,000 to R80,000, and more if there is any lit­i­ga­tion, which can hap­pen if fam­ily mem­bers dis­agree.

The costs make it im­prac­ti­cal for any­one with a small es­tate, De la Harpe said.

There are also lim­i­ta­tions as to what the cu­ra­tor can do — for ex­am­ple, un­less spec­i­fied, a cu­ra­tor won’t have in­vest­ment pow­ers, Ja­cobs said.

In ad­di­tion, the cu­ra­tor’s re­quire­ments on those caring for an el­derly rel­a­tive are fairly oner­ous — ex­penses need to be preap­proved and proof must be pro­vided, Ja­cobs said.

An­other op­tion is to ap­ply to the master of the high court for ad­min­is­tra­tion in terms of the Men­tal Health Act.

This ap­pli­ca­tion re­quires fi­nan­cial in­for­ma­tion and re­ports from health prac­ti­tion­ers (but not nec­es­sar­ily spe­cial­ists), so it is a lot cheaper than cu­ra­tor­ship — about R2,500.

But both Ja­cobs and De la Harpe said it is not ideal as it only pro­vides for peo­ple who are men­tally ill or in­ca­pac­i­tated as de­fined in the act and does not cater for peo­ple who have just phys­i­cal in­ca­pac­ity.

Ja­cobs said ad­min­is­tra­tion is for peo­ple with an an­nual in­come of R24,000 or less and cap­i­tal of less than R200,000. If the amounts are higher, the master must ap­point an in­ves­ti­ga­tor to con­firm the value of the es­tate be­fore an ad­min­is­tra­tor can be ap­pointed.

The master is more flex­i­ble on the se­cu­rity the ad­min­is­tra­tor must be pro­vide, and ac­counts and proof of ex­penses need to be pro­vided an­nu­ally only, Ja­cobs said.

De la Harpe said an ad­min­is­tra­tor can­not sell prop­erty un­less au­tho­rised to do so by the court or with the master’s con­sent.

A spe­cial trust with an el­derly rel­a­tive

The reme­dies the law pro­vides [to help man­age el­derly rel­a­tives’ es­tates] are re­ally out­dated Jo­hann Ja­cobs

Head of trusts and es­tates at Cliffe Dekker Hofmeyr

as the pri­mary ben­e­fi­ciary is an­other op­tion, Ja­cobs said. The trust would need to be set up be­fore your rel­a­tive be­comes in­ca­pac­i­tated.

You can­not, how­ever, put the en­tire es­tate in a trust, which leaves you with a “par­al­lel es­tate”, he said.

Many peo­ple as­sist el­derly rel­a­tives with their ac­counts and fi­nances in­for­mally but when deal­ing with fi­nan­cial in­sti­tu­tions and the re­quire­ments of leg­is­la­tion such as the Fi­nan­cial In­tel­li­gence Cen­tre Act, you may not have the le­gal au­thor­ity or right.

De la Harpe warned ad­vis­ers act­ing on a power of at­tor­ney for a men­tally in­ca­pac­i­tated client that they do so at the risk of be­ing held li­able for these trans­ac­tions.

A gen­eral or spe­cific power of at­tor­ney can’t fix this prob­lem, which is why SA needs an en­dur­ing power of at­tor­ney, Ja­cobs said.

“I think this is re­ally the so­lu­tion and we’ve got to form a lobby group to get this through,” Ja­cobs said.

De la Harpe said an en­dur­ing power of at­tor­ney is used in the UK, Aus­tralia, Canada and New Zealand, and Ja­cobs said it is also used in some states in the US.

Both also high­lighted the fact that the Law Re­form Com­mis­sion tack­led this prob­lem in a draft bill in 2001, but noth­ing has come of this.

De la Harpe said SA des­per­ately needs to adapt its laws to cater for the short­falls in as­sist­ing the in­ca­pac­i­tated.

She said there should ei­ther be le­gal pro­vi­sion for as­sisted de­ci­sion-mak­ing or the el­derly should be al­lowed to give ad­vance in­struc­tions about the man­ag­ing of their af­fairs, pos­si­bly in the form of an en­dur­ing at­tor­ney with suf­fi­cient safe­guards to en­sure that peo­ple are pro­tected against abuse and ex­ploita­tion, she said.

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