Beware, nothing lasts forever (not even powers of attorney)

If your aging parents have asked you for help with making decisions as to their personal welfare, financial affairs, medical treatment and so on, asking them to sign a power of attorney in your favour may be the answer.  Just be aware that it is only a temporary solution.

Let’s firstly distinguish between the two types of power of attorney you are most likely to come across –

Special or General?

  1. A special power of attorney allows you to act as agent for the “principal” (the person granting the power of attorney) in either a specific transaction or in a limited, specified range of matters.  For example if you have ever sold, bought or mortgaged property you will have signed a special power of attorney authorising a conveyancer to act for you and to sign documents for you in the registration process.
  2. You have probably also come across the concept of a “general power of attorney”, in which you are authorised to act generally as the principal’s agent.  This will be very widely worded so as to be all-encompassing and is probably the best option for most “aging parent” and similar scenarios.

The automatic termination danger

As you would expect, a principal can cancel his/her own power of attorney at any time, but what is not so widely known is that it will automatically terminate if and when the principal

  1. Dies; or
  2. Becomes insolvent and his/her estate is sequestrated; or
  3. Becomes mentally incapacitated in the sense of being no longer able to make his/her own decisions (for whatever reason – perhaps a stroke, coma following an accident, mental illness, Alzheimer’s, general age-related diminishing capacity etc).

It’s this last category – the “diminished capacity” scenario – that catches most care-givers unawares.  After all isn’t the whole idea that you should be able to act for your parents when they are no longer able to act themselves?

The problem is that our law says that an agent can only do what a principal can do.  So if a principal loses “contractual capacity” to do something, the power of attorney immediately fails.

As a care-giver you risk personal liability for anything you do, even in the best of good faith, after the principal has lost capacity.

The curatorship and other options

Our law certainly provides a solution – you can ask the High Court to appoint a “curator” to manage the principal’s affairs.  Unfortunately curatorship is costly, full of bureaucratic procedures and delays, paternalistic and, being public, demeaning to the principal.  Not much better is the appointment, in cases of actual mental illness or severe/profound intellectual disability, of an “administrator” in terms of the Mental Health Care Act.

Setting up a family trust to address the purely financial aspects could also be worth considering.  Just be aware of the costs, tax and other implications – particularly in light of government’s ongoing suspicion of trusts.

Finally, the South African Law Reform Commission in 2004 recommended changes to our law to allow for alternatives like –

  1. An “enduring power of attorney” (or “EPA”) which would remain valid despite the subsequent incapacity of the principal; and
  2. A “conditional power of attorney” which would come into operation only on the incapacity of the principal.

Unfortunately nothing has come of that yet, and although some legal commentators suggest that our courts might perhaps uphold a properly-worded EPA, others disagree and clearly there are risks involved.

It boils down to this – take full legal advice on your particular circumstances.

For more advice and practical solutions you are welcome to contact our Wills, Estates and Trusts (link) department.

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