Power of attorney is one of those phrases that you hear quite often, and there are some very real implications on an individual if they sign it over. Understanding what power of attorney is, and how it can affect you after certain life events, is important. This is especially the case when someone suffers a mental condition and becomes mentally incapacitated.
Power of attorney is essentially a notice that gives a third party the permission to act on your behalf and make decisions for you. This can be for specific matters (‘special power of attorney’) or for all matters (‘general power of attorney’), and is a valuable tool to allow people to make important life decisions when they are overseas or become too frail to physically sign documents.
In South Africa, we have seen an increase in power of attorney being signed over from people emigrating from the country. Emigration is not always a clean process and often times someone leaves the country before all of their financial matters are completely finalised. In this instance they would sign over authority to someone still in South Africa to expedite the process. Practically it is far easier to sign a document in South Africa than to send it to Australia, sign it and return it.
The most common instance where power of attorney is signed over is with the elderly. Especially when that person is too frail to physically sign documents. It is normally a very stressful time, and power of attorney can relieve some of the stress. It is also considered where someone does not have the mental capability to conduct their own affairs.
It may come as a surprise though that it is not possible under South African law to sign over power of attorney if someone becomes mentally incapacitated. When a person becomes unable to conduct their affairs due to a mental impairment, power of attorney ceases and at this point professional assistance needs to be brought in. If someone acts on an invalid power of attorney, it can be considered fraud.
So what can be done then when someone is mentally unable to deal with their own affairs if power of attorney is not an option? Well, there are two options: the relatives of that person can apply to either the High Court to be appointed as the curator or as the administrator of the incapacitated person’s affairs.
Curatorship is quite a lengthy process and involves the signing of affidavits by the family of the incapacitated person as well as the legal appointment of a representative, usually an advocate. The application must include medical evidence confirming that the person is in fact mentally incapacitated. Once the process is concluded and approved, the Master of the High Court will issue letters of curatorship granting authority to the curator. The curator is required to fulfil a number of obligations, including the submission of annual reports in a specific format to the master. It is for this reason that curators tend to be admitted attorneys.
Administration is not as strenuous as obtaining curatorship and although a cost is involved, it is cheaper to obtain and also follows a legal process. Initially the master will grant temporary administration rights to the administrator; after the investigation by the master is concluded and they deem that the person does in fact need an administrator, they will confirm the rights to the administrator.
A very important consideration is that when power of attorney is signed over for someone who is mentally incapacitated, the power conferred is absolute. This means that the person who in effect becomes the curator has full power under the law to conduct the affairs of the incapacitated person indefinitely and as they deem fit. There is often times where the family of the incapacitated person do not fully comprehend that all authority is transferred to the curator or administrator.
To help get around this situation, it is possible to move all the property of the individual into a trust prior to them becoming mentally incapacitated, however trusts can become prohibitively complex and lead to unexpected tax consequences. Trusts should only be executed by trust specialists, as they will be able to set up the trust in the best way possible for the situation.
There have been recommendations to change the law and make the power of attorney process simpler, however at this point, the bill that was drafted has not yet been published for comment. Hopefully the delays can be overcome, but right now we are still in this complex environment.
In situations where someone becomes mentally incapacitated it is important that the family members of that person partner with someone that has the experience and ability to assist them. Brenthurst Wealth can help take the burden off the family by guiding them through the power of attorney process. Brenthurst is a licenced financial service provider with a qualified legal and fiduciary department well versed in the requirements of setting up power of attorney, as well as applying to the Master of the High Court for curatorship and administration of estates of people who are mentally incapacitated.
* This content was prepared in collaboration with Brenthurst Wealth’s wills, estates, legal and compliance officer Malissa Anthony. If you need assistance with your financial plan contact the experienced advisors of Brenthurst. Details here: www.bwm.co.za