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Dementia, Alzheimer’s and the protection of assets

Mental capacity, power of attorney and other things to consider.

Illnesses such as Alzheimer’s, dementia and sometimes Parkinson’s may impair someone’s ability to act rationally or to understand the consequences of their decisions.

After a diagnosis, people are usually very concerned as they don’t know what the future will hold or for how long they’d be able to manage their own affairs – particularly where they have business interests.

Dr Eben Nel, chairperson of the Fiduciary Institute of Southern Africa (Fisa), says practitioners are increasingly confronted with clients who have been diagnosed and who would like to structure their affairs to protect their interests while they are still able to do so.

In the normal course of business, any (healthy) person may be briefly unable to fulfil certain legal actions. In these cases, a power of attorney can provide a solution, Nel explains.

A power of attorney is a written document that empowers someone to act on behalf of another person. It usually deals specifically with the person’s estate or financial affairs.

Where a person is travelling internationally or recuperating after an operation, a power of attorney can be granted to a family member or friend to act on their behalf – for example to renew their vehicle registration.

But the power of attorney is limited. No individual can give more power to a third party than they have themselves.

“A power of attorney is only valid as long as the principal is competent to act for him or herself and has contractual capacity,” says Nel, adding that when the principal becomes incapable of acting on their own behalf, the power of attorney automatically lapses, and the agent – the person to whom power of attorney was given – loses all authority.

This may put the agent in a predicament. For example, if a person gave someone a power of attorney to sell their property while they were healthy, but the transaction took place after the principal’s mental capacity had been impaired (in other words they would not have been able to make the decision themselves) the transaction would be unlawful. South African law does not recognise enduring power of attorney.

If the agent was aware that the principal’s mental capacity was impaired, but continued with the transaction, their actions would be illegal and they may be held liable, Nel adds.

Against this background, a power of attorney is not a suitable solution if your mental capacity has been impaired due to depression, schizophrenia, Alzheimer’s, dementia or sometimes Parkinson’s disease and you would like someone else to act on your behalf.

Where the condition is permanent, an interested party can apply for the appointment of an administrator or curatorship.

An interested party would usually be a spouse, child or a partner in a business, but can be anyone with an interest in the individual’s financial affairs. The Master (in the case of the appointment of an administrator) or the High Court (in the case of curatorship) will determine if there is an adequate interest, Nel explains. Both legal procedures only deal with the estate (financial affairs) and not the personal issues of the individual.

In general, an interested party would usually apply for the appointment of an administrator where a person has been diagnosed with a mental illness or where their mental capacity has been impaired. The application is simpler, more accessible and cheaper (around R5 000) than curatorship. The Master will require a report from an independent person (where the estate is larger than R200 000 or the annual income exceeds R24 000) as well as two medical practitioners (one of whom must be a mental health practitioner), Nel explains.

In his experience, the Master is usually comfortable to appoint a family member as administrator.

While an interested party may also bring an application for curatorship, this is usually a last resort (where administration was unsuccessful) as the procedure can be cumbersome and expensive (around R50 000). The High Court will require reports from a curator as well as two medical practitioners – one of them a psychiatrist, Nel says.

“The curator, who is usually a professional person, is entitled to annual fees as well as a termination fee when the curatorship comes to an end. The curator takes full control of all assets and expenditure of the person under his curatorship and reports annually to the Master of the High Court.”

A trust may also be set up. Nel says anyone can set up a discretionary living trust or a testamentary trust in their will for the benefit of someone with limited mental capacity. Parties should however take note of the tax implications, since the extension of interest-free loans to the trust will trigger punitive tax consequences. However, in certain instances, the trust may qualify as a special trust and will be taxed as an individual on all income retained in the trust (thus at a lower rate).

Where someone is diagnosed with an illness that will have an impact on their mental capacity in future, it is important to involve the person in the decision-making process while they are still healthy. In such instances the person could make their wishes known about the potential future appointment of an administrator or curator. It is also important to update the will as there may come a time when it is no longer possible to change the will, he adds.

Brought to you by the Fiduciary Institute of Southern Africa (Fisa).

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We’ve been trying to get something like an enduring power of attorney in SA for many years now…it seems to be falling on deaf ears (we’ve even written to the minister but no reply) and the practical reality is that many people continue to use the GPA even though it is legally not valid anymore…a change in legislation is long overdue but none of the professional bodies seem to be driving it.

An “Enduring Powers of Attorney Bill” was drafted in the 1990’s, but it died a quiet death. In the mid 2000’s, a bill entitled “Assisted Decision Making” was published for comment and the Association of Trust Companies (FISA’s predecessor)did comment on the bill, but that died a quiet death as well. You’re absolutely right that legislative change is needed, hence the decision from FISA to highlight this once again. Dignity SA has an Advanced Directive on their website to deal with the appointment of medical proxies who can talk and take decisions on your behalf when you cannot when it comes to medical treatment and life support. You can also in that indicate what treatment would be acceptable to you in those circumstances. Although not legally binding, it is an expression of wishes. What we need w.r.t. the financial side is an “advanced directive” of sorts that will be legally binding and which can make provision for an enduring power of attorney with guidelines for the holder of this power w.r.t. certain property and certain scenarios.

Should we not be investing in getting to the source of this problem first? If Aspen could come up with the right drug to challenge Alzheimer’s Dementia and Parkinsons, we can kill two birds with one stone!
It’s interesting that practitioners have noticed an increase in dementia – enough to get FISA involved. It does seem to be affecting people, and younger people earlier and more often these days. One has to wonder if it’s not cell phones… just a thought and sorry to cast aspersions on Vodacom, Cell C and MTN.

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