Power of Attorney
Old age is a reality, and with it can come ill health, both physical and mental. Circumstances can arise when the elderly are not able to take care of their own finances. So, it would be important that someone who has their back or whom they trust can take over those affairs for them.
So, what’s the process? Who should take care of their finances, and do you ensure that a person that’s put in that position doesn’t abuse it? For some it may be a touchy subject to discuss with their parent about what should happen in the event of their death or what happens if they are no longer able to deal with finances.
There is no best time to have to have the conversation, however if there are a couple of troubling signs that your parents might be losing track of their financial affairs it will become necessary. Examples of these might be that they start having difficulty with simple, mundane tasks, like paying their monthly bills, or become oblivious about their cash and there is unopened mail in the house. Or if they are continually complaining about not having enough money, even though you know they’ve got a good pension that’s providing them with a solid source of income. Those are some signs that should give rise concern.
Who is the best person for the job?
In terms of the family, where there is more than one sibling/child, what does the family do to designate a person to look after their parents’ finances? What qualities must that individual have in order to be best suited to the task?
The first thing is that it’s very important to have a clear picture of what exactly you are dealing with, and you need to determine how much help your parents really need.
Then you need to identify what specific areas they need help in. One cannot really speculate or say that there is one specific attribute that will qualify you as the best person for the role, however each family knows who the logical person, that has the ability to work with the parents is, and give them the right advice. Or, at least, one would hope so!
There is no best time to have to have the conversation, however if there are a couple of troubling signs that your parents might be losing track of their financial affairs it will become necessary. Examples of these might be that they start having difficulty with simple, mundane tasks, like paying their monthly bills, or become oblivious about their cash and there is unopened mail in the house. Or if they are continually complaining about not having enough money, even though you know they’ve got a good pension that’s providing them with a solid source of income. Those are some signs that should give rise concern.
Who is the best person for the job?
In terms of the family, where there is more than one sibling/child, what does the family do to designate a person to look after their parents’ finances? What qualities must that individual have in order to be best suited to the task?
The first thing is that it’s very important to have a clear picture of what exactly you are dealing with, and you need to determine how much help your parents really need.
Then you need to identify what specific areas they need help in. One cannot really speculate or say that there is one specific attribute that will qualify you as the best person for the role, however each family knows who the logical person, that has the ability to work with the parents is, and give them the right advice. Or, at least, one would hope so!
Power of Attorney
What is a power of attorney, and what are the fiduciary duties of the individual who has it granted to them? The things that a power of attorney provides you with is the power to make decisions on behalf of your parents. A power of attorney is a valuable tool in various situations. For example, an elderly parent who struggles to handle their affairs due to age may grant power of attorney to an adult child to assist them. However, it is important to note that a power of attorney is typically a temporary solution and that it terminates automatically when the principal:
1. passes away; or
2. becomes insolvent and their estate is sequestrated; or
3. becomes mentally incapacitated, rendering them unable to make decisions for reasons such as Alzheimer’s, stroke, mental illness, dementia, coma following an accident, age-related cognitive decline, and more.
The agent’s authority is limited to what the principal can do. If the principal (the parent) loses legal capacity, the power of attorney immediately becomes void, and the agent can no longer act on the principal’s behalf.
Scenario 3,above, often surprises people because it seems counterintuitive for a power of attorney to lapse precisely when it is needed most. In South Africa, a power of attorney remains valid only as long as the principal can understand the concept and consequences of granting someone this authority. When the principal can no longer make decisions or appreciate the legal nature and consequences of their actions, they lack legal capacity.
Additionally, a person suffering from a mental impairment, like dementia, cannot grant a power of attorney since they lack the legal capacity to do so. In South African law, there is no recognition of the concept of an
What is a power of attorney, and what are the fiduciary duties of the individual who has it granted to them? The things that a power of attorney provides you with is the power to make decisions on behalf of your parents. A power of attorney is a valuable tool in various situations. For example, an elderly parent who struggles to handle their affairs due to age may grant power of attorney to an adult child to assist them. However, it is important to note that a power of attorney is typically a temporary solution and that it terminates automatically when the principal:
1. passes away; or
2. becomes insolvent and their estate is sequestrated; or
3. becomes mentally incapacitated, rendering them unable to make decisions for reasons such as Alzheimer’s, stroke, mental illness, dementia, coma following an accident, age-related cognitive decline, and more.
The agent’s authority is limited to what the principal can do. If the principal (the parent) loses legal capacity, the power of attorney immediately becomes void, and the agent can no longer act on the principal’s behalf.
Scenario 3,above, often surprises people because it seems counterintuitive for a power of attorney to lapse precisely when it is needed most. In South Africa, a power of attorney remains valid only as long as the principal can understand the concept and consequences of granting someone this authority. When the principal can no longer make decisions or appreciate the legal nature and consequences of their actions, they lack legal capacity.
Additionally, a person suffering from a mental impairment, like dementia, cannot grant a power of attorney since they lack the legal capacity to do so. In South African law, there is no recognition of the concept of an
“enduring power of attorney,” which would allow actions to continue after the person granting it loses capacity without court involvement.
Despite their good intentions, family members acting under an invalid power of attorney are acting unlawfully and may be held personally liable for any damages incurred because they lack legal authority to act.
What other options do you have?
• Establishing a trust to manage the financial aspects of an estate while the person still has legal capacity is an option. That will allow for the trustees of the trust to manage the assets. However, this choice comes with costs, tax implications, and other considerations.
• The High Court can appoint a curator when an individual cannot man-age their affairs. A curator bonis handles financial matters, while a curator ad personam handles personal affairs like medical consent and living arrangements. Unfortunately, curatorship applications are costly exercises and not a particularly pleasant experience for the principal or the other parties involved.
• A simpler and less expensive option is the appointment of an administrator by a Master of the High Court under the Mental Health Care Act No. 18 of 2002. An administrator can only handle a person’s property, not personal affairs. This alternative is only available in cases of actual 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).
Respect and dignity
How does an adult child take control of their parent or parents’ affairs, while at the same time giving them that sense of respect, dignity and even a feeling of control?
The first step is to collaborate with them. Do not dictate to them what you think or what your opinion is. Always keep the conversation casual and put their needs first. The moment you approach them
Despite their good intentions, family members acting under an invalid power of attorney are acting unlawfully and may be held personally liable for any damages incurred because they lack legal authority to act.
What other options do you have?
• Establishing a trust to manage the financial aspects of an estate while the person still has legal capacity is an option. That will allow for the trustees of the trust to manage the assets. However, this choice comes with costs, tax implications, and other considerations.
• The High Court can appoint a curator when an individual cannot man-age their affairs. A curator bonis handles financial matters, while a curator ad personam handles personal affairs like medical consent and living arrangements. Unfortunately, curatorship applications are costly exercises and not a particularly pleasant experience for the principal or the other parties involved.
• A simpler and less expensive option is the appointment of an administrator by a Master of the High Court under the Mental Health Care Act No. 18 of 2002. An administrator can only handle a person’s property, not personal affairs. This alternative is only available in cases of actual 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).
Respect and dignity
How does an adult child take control of their parent or parents’ affairs, while at the same time giving them that sense of respect, dignity and even a feeling of control?
The first step is to collaborate with them. Do not dictate to them what you think or what your opinion is. Always keep the conversation casual and put their needs first. The moment you approach them
with humility it changes the narrative and creates a platform where a good conversation can be held. So, focus on what their needs are.
Financial planning
In terms of a financial planner or a financial advisor, how important is that individual in this type of scenario?
A financial planner will add a lot of value in this scenario, because they have the ability to do a difficult job, and a lot of these financial concepts are very difficult to understand for a layman. So, a good financial planner will have the ability to communicate this in layman’s terms, and then also be objective in the approach, to give them advice without necessarily being emotionally involved in the whole process. There is a lot of value in consulting a financial planner who will help them with tax planning, and a lot of complex issues that come together with retirement or old age.
A matter of trust
How do you ensure that the person that’s been entrusted with this very important responsibility, the holder of the power of attorney, is someone who may be trusted and that they don’t abuse their position and run off to Jamaica with the money?
There is no good answer to this. Yes there is some legal recourse that can be taken where a family member takes advantage of this situation but ultimately it will be a moral issue more than anything else.
The best person to intervene would be fellow family members who can see what’s happening, because more often than not, elderly parents will not have the ability to identify that their funds are be-ing misused. Luckily this is rare and most children will act in the best interests of their parents.
Caring for aging parents is not simple, however if they did a good job, it will be easy.
Financial planning
In terms of a financial planner or a financial advisor, how important is that individual in this type of scenario?
A financial planner will add a lot of value in this scenario, because they have the ability to do a difficult job, and a lot of these financial concepts are very difficult to understand for a layman. So, a good financial planner will have the ability to communicate this in layman’s terms, and then also be objective in the approach, to give them advice without necessarily being emotionally involved in the whole process. There is a lot of value in consulting a financial planner who will help them with tax planning, and a lot of complex issues that come together with retirement or old age.
A matter of trust
How do you ensure that the person that’s been entrusted with this very important responsibility, the holder of the power of attorney, is someone who may be trusted and that they don’t abuse their position and run off to Jamaica with the money?
There is no good answer to this. Yes there is some legal recourse that can be taken where a family member takes advantage of this situation but ultimately it will be a moral issue more than anything else.
The best person to intervene would be fellow family members who can see what’s happening, because more often than not, elderly parents will not have the ability to identify that their funds are be-ing misused. Luckily this is rare and most children will act in the best interests of their parents.
Caring for aging parents is not simple, however if they did a good job, it will be easy.