Power of attorney: it's
not what you think

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 unlike in countries such as the UK, Canada, Australia or New Zealand, South African law doesn’t allow for what’s called an ‘enduring’ power of attorney. Here, this power automatically falls away the moment someone loses legal capacity.

This legal gap can cause real distress. You might need access to funds for care or to manage an estate – only to find you have no legal authority to do so.

So, what are the options?

If someone is no longer mentally capable and a power of attorney falls away, you’ll need to explore one of the legal alternatives available under South African law: curatorship, administration, or – ideally planned in advance – a discretionary trust.

Curatorship: court-appointed care

To have someone appointed as a curator, an application must be made to the High Court in terms of Rule 57. There are two types of curators:

• Curator bonis – appointed to manage the financial affairs of the person affected.
• Curator personae – responsible for their personal well-being and daily needs.

This is a court-driven process that can be complex and costly. Once appointed, a curator must act with a high duty of care and submit annual financial reports to the Master of the High Court, detailing income and expenses with supporting documents.

Administration: an alternative route

For individuals who have been formally diagnosed with a mental illness or severe intellectual disability, a less complex option is to apply to the Master for the appointment of an administrator, under the Mental Health Care Act.

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.

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. However, the Master may accept applications that exceed these limits on a case-by-case basis.

Planning ahead: a discretionary trust

The best-case scenario is to plan ahead before incapacity becomes an issue.

Setting up a discretionary trust as part of overall estate planning – particularly where there’s a family history of conditions such as dementia or stroke – can help safeguard assets and provide for future care.

Here’s how it can work:

• While still mentally capable, an individual can donate assets to a discretionary trust of which they are also a beneficiary. This may attract donations tax but will in effect constitute payment of estate duty in advance.
• The trust deed stipulates that if the individual becomes incapacitated, they will step down as trustee. A replacement trustee can then be nominated.
• Other trustees will continue to manage the trust and can provide for the person as a beneficiary – with no legal disruption.

It’s a solution that adds continuity and flexibility, as well as peace of mind.

Updating your will

An up-to-date will is essential. Once someone loses mental capacity, they can no longer make or amend a valid will. Spouses should also consider aligning their estates or ensuring each has independent access to funds should one become incapacitated.

Likewise, trust deeds should clearly outline:

• Successor trustees
• A minimum number of acting trustees
• Provisions for changes even if the founder is no longer legally able to approve amendments.

Wealth is deeply personal, and planning for the future is one of the most powerful acts of care.

If you’d like to explore any of the options mentioned here, or if you need a trust deed reviewed, please contact one of the Sanlam Private Wealth fiduciary and tax specialists at fiduciary@privatewealth.sanlam.co.za.