It’s hard to think about, but a day will come when you or your spouse, your parents or someone you care for will reach a point where they won’t be able to make decisions for themselves. That is when others will have to step in to manage their finances, make decisions about their day to day living, or decide what kind of medical treatment they should have.
Enter the power of attorney, a popularly turned to, cheap and easy-to-draft legal document that allows a senior person choose someone who will have the power to act on that older adult’s behalf. However, this document will fail just when it is needed most.
A major problem affecting powers of attorney granted is that it lapses the moment that the grantor is unable to mentally grasp or understand the effects of a decision – in other words once he or she becomes mentally infirm – whether it be through dementia, a stroke, a coma, Alzheimer’s etc. Therefore, the main reason to grant a power of attorney is foiled. Any action taken by the person who holds the power of attorney after the grantor has become mentally incapacitated can be set aside and the decision maker sued in their personal capacity.
Many people are caught unawares by this because it seems so illogical for the power of attorney to lapse just when it’s needed most. But that, unfortunately, is the law – as a Department of Justice document puts it: “In South Africa the power of attorney remains valid only for as long as the principal is still capable of appreciating the concept and consequences of granting another person his or her power of attorney”.
It is true that many powers of attorney continue to be acted upon long after the grantor is mentally incapacitated, but there is always the risk of challenge should events not pan out as expected, even though the grantee has acted in good faith. For example, what seemed to be a sound investment could fail or the sale of fixed property could lapse in a declining market amongst others. Obviously if the grantee acts dishonestly or in bad faith he is liable for actions against him.
So what are the alternatives?
The High Court can appoint a curator when a person becomes unable to manage his/her own affairs. Unfortunately, curatorships are costly and prone to bureaucratic red tape and delays.
A simpler and cheaper alternative is for the Master of the High Court to appoint an administrator in terms of the Mental Health Care Act. This person only has power to deal with the incapacitated persons property (not personal affairs), and this alternative is only available in cases of actual mental illness or severe/profound intellectual disability, and only for smaller estates.
A third option, whilst the person in question still has legal capacity, is to set up a trust to house your assets under the administration of trustees. This will ensure that should that day arise when you are unable to manage your own affairs due to mental incapacity, your loved ones will still be looked after, and your assets managed without interruption.
Government has been wrestling with the conundrum around the power of attorney dilemma for many years without success. In 2004 the South African Law Reform Commission recommended changes to our law to allow for alternatives like an “enduring power of attorney” which would remain valid despite the subsequent incapacity of the principal; and a “conditional power of attorney” which would come into operation only on the incapacity of the principal.
“Unfortunately nothing concrete has as yet come of that, and although some legal commentators suggest that our courts might perhaps uphold a properly-worded Enduring Power of Attorney, the general consensus appears to be that they will not be recognised.
David Knott is at Private Client Trust.