Stay abreast of COVID-19 information and developments here
Provided by the South African National Department of Health
POWER OF ATTORNEY:
IT'S NOT WHAT YOU THINK
Fiduciary and Tax Specialist
May 23, 2022
The time may come when – due to old age, an illness, stroke or dementia – a loved one no longer has the mental capacity to manage their own finances and estate. Many people believe either a general or special power of attorney will entitle an agent, such as a close family member, to act on an incapacitated individual’s behalf. What they don’t realise, however, is that under South African law, if someone is no longer capable of making their own decisions, the power of attorney will fall away.
This commonly held misconception of the enduring nature of a power of attorney may be partly attributable to the fact that in certain jurisdictions, such as the UK, Canada, Australia and New Zealand, it is possible to grant power to an agent that will remain in force despite incapacity.
Under our law, however, the agent can never have more powers than the principal, so if the latter is no longer of sound mind, the agent’s power of attorney will become void. This clearly leaves those looking after a loved one who has lost mental capacity in a predicament, for example, if funds need to be accessed to provide for the individual’s personal care.
Under the South African legal system, where an existing power of attorney has lapsed as a result of physical or mental incapacity, a potential solution is to apply for the incapacitated person to be placed under either curatorship or administration.
An appointed curator can deal with the finances of a person lacking in capacity. An application must be made in terms of Rule 57 of the High Court Rules for the appointment of a curator. This can be a costly process.
There are essentially two kinds of curator that can be appointed on behalf of someone who is mentally incapacitated. The first is a curator bonis. This person – typically an attorney of the High Court or someone that the High Court deems fit to fulfil this function – will administer the property of the incapacitated person under curatorship. The second is a curator personae – someone who attends to and looks after the daily needs of the incapacitated person themselves.
The process of applying for curatorship is a complicated one. Once the curator has been appointed, this person has a high duty of care, and curatorship accounts must be submitted annually to the Master of the High Court. These accounts must clearly set out the income and expenditure for the period, together with supporting documentation.
An alternative option would be to apply to the Master of the High Court in terms of the Mental Health Care Act, which provides for the appointment of an administrator (not a curator) to administer the property of the person who is mentally incapacitated.
The main difference between a curator and an administrator is that curatorship can be applied to any situation where an individual is incapable of managing their own affairs, whereas administration applies specifically to persons who have been diagnosed as mentally ill or as suffering from a severe or profound intellectual disability.
The option of administration under the Mental Health Care Act is generally only available to persons with assets valued at less than R200 000, or with an annual income of less than R24 000. The Master does, however, extend this type of application to estates exceeding these prescribed values, but on a case-by-case basis.
As part of overall estate planning, the use of a discretionary trust may in certain instances sidestep the complexity of appointing a curator or administrator. This may be particularly useful in instances where there are elderly parents and a family history of, for example, strokes or dementia.
In such cases it may be worthwhile for these individuals to consider donating assets – while they are still of sound mental capacity – to a discretionary trust of which they are also beneficiaries. Although such donations will typically be subject to donations tax, the latter will in effect constitute payment of estate duty in advance. This has certain estate planning benefits – see our article on this here.
The elderly parent can remain a trustee of the trust, but the deed can stipulate that this person will cease to be a trustee should he or she become mentally or physically incapacitated. A replacement trustee can then be nominated.
Once the assets are in the trust, the trustees can provide for the elderly parent who donated his or her assets while still of sound mind. The mental capacity of the donor will then have no negative effect on how the assets are managed and applied as this will remain under the control of the other trustees to be utilised for the benefit of, for example, the incapacitated beneficiary.
Everyone should keep their wills updated, especially when circumstances change. Individuals who become compromised in terms of handling their own affairs may thereafter be unable to sign a new, valid will. Spouses can balance their estates from time to time, or set up an independent, separate fund or bank account for the other spouse – ensuring that one spouse will have access to funds if the other becomes mentally incapacitated and a power of attorney lapses.
Trust deeds should be updated to make provision for succeeding trustees should an existing trustee no longer be able to act on his or her own. Provision should also be made in the trust deed that the number of trustees won’t fall below the minimum requirement should one trustee have to vacate his or her position. The trust deed should in addition stipulate that the founder won’t have to agree to amendments should he or she become unable to act legally.
If you’d like to discuss or implement any of these proposed solutions, or if you need a trust deed reviewed, please don’t hesitate to contact one of the Sanlam Private Wealth fiduciary and tax specialists at email@example.com.
The formation and registration of trusts, and the provision of independent trusteeships – both local and oﬀshore.
The creation of BEE, charitable, special and Shariah trusts compliant with regulatory and legislative requirements.
The administration of deceased estates in South Africa and abroad.
Advice on complex structures, asset restructuring and bequests in foreign jurisdictions.
Advice on emigration and immigration, foreign earnings and the application of any double taxation agreements.
Updating trust deeds to ensure they’re in line with the latest changes in the trust environment.
Updating and/or drafting of wills dealing with South African and/or foreign assets.
Advice on the establishment and management of charitable organisations, their tax status and tax deductible donations.
Advice on the potential tax consequences and reporting obligations if you hold a US passport or green card, or if you have children living in the US.
Guidance on the financial implications of life-changing events, such as getting married, divorce or the birth of a child.
South AfricaSouth Africa Home Sanlam Investments Sanlam Private Wealth Glacier by Sanlam Sanlam BlueStar
Rest of AfricaSanlam Namibia Sanlam Mozambique Sanlam Tanzania Sanlam Uganda Sanlam Swaziland Sanlam Kenya Sanlam Zambia Sanlam Private Wealth Mauritius
GlobalGlobal Investment Solutions
Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.