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Legal incapacity

It is a popular misconception that the simple and effective answer to an ailing loved one’s ability to deal with their finances is the drafting of a power of attorney. However, you may be surprised, even shocked, to learn that the power of attorney loses all of it’s power under certain circumstances that you would have imagined it was specifically designed for. What do you do when the Power of Attorney runs out of power?

Making decisions is an important part of our lives. Almost every day we make decisions relating to matters such as where we live, our health care, education, employment, social contacts and financial affairs, including the concluding of legal contracts.

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. Where these requirements are absent the law attaches no consequences whatever to the expressions of will by the person who purported to engage in the legal transaction. Some people cannot make legally effective decisions because of diminished mental capacity. Diminished capacity may result from a number of causes such as mental illness, intellectual disability, brain injury or disease, a stroke, dementia or incapacity related to ageing in general. The general principle is that if a person is not able to fully understand or interpret all the consequences of his actions due to a mental illness or intellectual disability,it is said that such person lacks capacity to

perform a specific act and the act is consequently void. It makes no difference whether the person has not yet been declared mentally ill and a curator appointed to him or her, or that the other party to the transaction was unaware of the person’s mental condition. The general rule though is that adults are presumed mentally and legally competent to manage their own affairs until the contrary is proved. The onus of proving that a transaction is invalid for lack of mental capacity normally rests on the party alleging it.

Many people, when they get older and frailer, give a general power of attorney to a trusted person, usually a family member, or their attorney, accountant or financial advisor (their agent) to transact business on their behalf. This usually includes the power to administer bank accounts and investments and to buy and sell assets, shares and immovable property. It can also include the incurrence of expenditure relating to the day-to-day living of the person who grants the general power of attorney (the principal) and his or her family. In this way the person is

saved the trouble of having to go to the bank, or having to go to the attorney’s or investment company’s office, or having to do their own shopping etc. An agent has to act in good faith and in the best interests of the principal and is accountable to the principal for his or her actions.

Although the power of attorney is a handy instrument for assisting the elderly and the frail in the administration of their estate, it can only validly be used in those instances where the principal is still mentally competent of making his or her own decisions and has contractual capacity. 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. The moment a person becomes mentally incapacitated and is no longer capable of managing his or her own affairs, the power of attorney lapses.

The problem of a power of attorney ceasing on incapacity has been resolved in various jurisdictions elsewhere in the world by the introduction of the “enduring” power of attorney, which will remain valid and effective should the person who granted the power lose his or her mental capacity at any stage after the power has been given. This means that decisions can continue to be made without major disruption or expense. Unfortunately the enduring power of attorney does not form part of South African law despite the fact that the South African Law Commission recommended in 1988 that it should be introduced. Frequently family and caregivers of mentally incapacitated persons are under the incorrect impression that the power of attorney signed by a person in their care will be effective until that person dies and they continue to act on behalf of such person, even after that person has become mentally incapacitated.

When a person becomes incapable of managing his or her own affairs, especially the administration of his or her estate, it follows that someone should be legally appointed to assist the person who has become incapable. At present there are two legal procedures in terms of which someone can be appointed to administer the affairs of a person who is found to be incapable of managing his or her own

affairs. These procedures are (1) the common law procedure for the appointment of a curator that requires an application to the High Court or (2) the appointment of an administrator as set out in the Mental Health Care Act.

In terms of common law, a High Court may declare a person incapable of managing his or her own affairs appoint a curator to the person and/or his or her property. The curator appointed to administer the estate of a person declared incapable of managing his or her own affairs is known as a curator bonis, while the curator appointed to take decisions as to the care, custody and welfare of the person, or to consent to medical treatment on behalf of such person is called a curator personae. The application to appoint a curator may be brought by any interested party and must set out the facts and circumstances relied on to show that the patient is of unsound mind and incapable of managing his or her affairs, and must include two recent reports by medical doctors. The court will then appoint a curator ad litem (who is usually an advocate) to investigate the matter and to report to the court and the Master of the High Court, the government office which administers and oversees the administration of deceased and curatorship estates. As the appointment of a curator bonis involves a High Court application, this procedure is relatively expensive, with the average costs ranging between R40 000 and R60 000. These costs are usually borne by the estate of the person in respect of whom the curator bonis is appointed.

The other procedure, in terms of the Mental Health Care Act, permits the Master of the High Court to appoint an administrator to manage the property of a person who has been positively diagnosed as mentally ill or a person with severe or profound intellectual disability. As no High Court application is required for the appointment of an administrator, the procedure is far less costly than the common law (High Court) appointment of a curator bonis. The applicant can lodge the application directly with the Master’s office in whose area of jurisdiction the person in respect of whom an administrator is to be appointed, resides. The applicant does

not need to work through an attorney, although in practice applicants often call upon attorneys for assistance with the lodging of the application with the Master. Because there is no application to the High Court, this procedure is far less costly than having a Curator Bonis appointed. However, one of the requirements for an Administrator to be appointed is that the patient’s assets do not exceed R200,000 in value. If the individual’s assets exceed this amount and their income is above R24 000 per year, the Master of the Court will insist on a further investigation before an Administrator is appointed. This process may cost up to R15,000. Any person over the age of 18 may make an application, and the patient must be diagnosed by at least two independent medical or mental health practitioners.

The duties of a curator bonis or administrator are to take care of and administer the property of the person for whom he or she is appointed and to carry on any business or undertaking of that person

The curator bonis or administrator must keep detailed records of his or her administration of the estate and must lodge administration accounts, together with proper vouchers and receipts for all entries in the account, with the Master of the High Court, annually. The fees of a curator bonis and administrator are prescribed in the Administration of Estates Act. It is 6% on the annual income of the estate and 2% on the value of the capital assets of the estate at termination of the Curatorship. A curator bonis or administrator may be called upon by the High Court or the Master to furnish security for the proper administration of the estate for which he or she has been appointed. In such instances the curator or administrator is required to lodge a bond of security by an approved financial institution for the full value of the property which he or she is required to administer, with the Master of the High Court, before letters of authority are issued to the said curator or administrator.

On February 1, 2008, American singer Britney Spears was placed under a conservatorship by Judge Reva Goetz, with her father, James “Jamie” Spears,and attorney Andrew M. Wallet, as conservators. The conservatorship lasted until November 12, 2021.The management of the conservatorship by Jamie, Wallet, and Spears’s former business manager Lou M. Taylor, among other parties, generated controversy almost immediately. While Spears was held on an involuntary psychiatric hold in early 2008 for alleged mental health concerns, there was initially a temporary conservatorship intended to last only days. It was extended to months and eventually made permanent, against the objections of Spears.