Sbongakonke Khumalo, Legal Counsel at Ninety One

 

 

A Power of Attorney can be a useful tool to attend to a client or a loved ones’ affairs when needed. But there are some misconceptions, particularly around mental incapacity.  

 

As a general principle under South African law, a person may not act on behalf of another unless they are authorised to do so. Such authority may be granted by way of a Power of Attorney. A Power of Attorney is a legal document, whereby an individual (the principal) who has full contractual capacity to manage their affairs appoints someone (the agent) to act on their behalf. The Power of Attorney sets out the nature and scope of the agent’s powers, which may include the signing of legal documents, entering into contracts, opening and closing bank accounts, investing money, selling, or purchasing property and instituting legal action.

 

In South Africa, there are different types of Powers of Attorney:

 

• A General Power of Attorney which grants broad authority to the agent to act on various matters on behalf of the principal; and

 

• A Special Power of Attorney which authorises the agent to act in specific situations.

 

A Power of Attorney is a useful tool that can be used in instances where a person is temporarily or indefinitely outside of the country and needs a trusted family member to act on their behalf, or when an elderly parent, due to their age, finds it difficult to attend to their affairs and decides to grant a Power of Attorney to their adult child. Depending on one’s set of circumstances, it is important to ensure that it covers a wide scope of powers and is detailed enough to cater for all reasonable eventualities or actions that fall within the management of one’s affairs. A Power of Attorney will continue to be valid until the death of the principal, unless cancelled by the principal, or the principal ceases to have mental capacity.

 

Ninety One may, in certain instances – for example, where a Power of Attorney document is very old – contact the principal to confirm the validity of the Power of Attorney. We follow this approach to ensure that clients’ investments are protected and only authorised instructions are processed.

 

What happens when a client no longer has mental capacity?

 

Under South African common law, for a legal transaction to be valid, the law requires that the parties be able to understand the nature, purpose and consequences of their actions and they must have capacity to act. The capacity to enter into legal transactions is very closely related to a person’s mental condition.  Mental incapacity is when a person is unable to understand and appreciate the nature and consequences of an act or decision or is incapable of managing their own affairs.

 

Once a principal no longer has capacity as described above, the Power of Attorney falls away and the agent no longer has the legal authority to act on the principal’s behalf. In addition, under South African law, there is no concept of an enduring Power of Attorney, which remains valid despite the principal becoming contractually or mentally incapacitated. An agent can only do what the principal can do, and they can never have more powers than the principal.

 

In our experience, financial advisors and clients are often not aware that a Power of Attorney becomes invalid once the principal loses mental capacity to act, and in their opinion, this is in fact when a Power of Attorney is most needed. Where there is a risk that the principal may become mentally incapacitated, it may be worth considering establishing a trust while they still have mental capacity, to manage the financial aspects of the principal’s estate. This allows for the trustees of the trust to manage the assets. One must, however, be mindful of the cost and tax implications, among other factors.

 

Once the principal no longer has mental capacity, no one is authorised to act on their behalf, unless a curator or administrator is appointed.  The process to be followed for each of these appointments is summarised below.

 

• Appointment of a curator:  An interested party can approach the High Court for a curator to be appointed. A curator bonis handles financial matters, while a curator ad personam handles personal affairs like medical consent and living arrangements. Curatorship applications are a costly exercise and require medical assessments.

 

• Appointment of an administrator:  The Master of the High Court can appoint an administrator under the Mental Health Care Act No. 18 of 2002, which is a simpler and less expensive alternative to the appointment of a curator bonis. This option is only available in the case of a positive diagnosis of mental illness or severe/profound intellectual disability, and only for smaller estates (assets up to R 200 000 and annual income up to R 24 000).

 

 

Notwithstanding Powers of Attorney being a helpful tool that can assist in the management of one’s affairs, their non-enduring nature limits their usefulness where the principal is no longer competent to manage their own affairs (e.g. dementia or Alzheimer’s disease). The financial planning process must therefore give due consideration to the management of a client’s affairs in the event of mental incapacity, to ensure that the appropriate solutions are in place and/or anticipated.

 

It’s important to remind clients to keep their wills and beneficiary nominations on policies updated, particularly as and when certain circumstances change. Once a client becomes mentally incapacitated, they will not be able to update an existing will, sign a new will, or update beneficiary nominations.

 

 

ENDS