In a recent article, we spoke about several vital concerns when assisting your parents with their financial planning. Towards the end of the article, we touched on POA, or Power of Attorney, as an option to help your parents when they are becoming too frail or physically impaired to manage their affairs.
Power of attorney is a common route that many take, as it gives us the legal right to represent someone when they cannot be there in person. This is helpful when fines need to be paid, legal documents signed and collected, or in-person banking is required. POA is also helpful if you have children who have emigrated but still have accounts and assets over here.
At SFP, we have found that many of our clients are unaware of the different POA options and the limitations when mental impairment is involved. Again, Meera Naidoo, one of our legal gurus at SanlamConnect Legal Support, has this advice for us.
When it comes to POA, there are two options: general power of attorney and special power of attorney.
Special power of attorney provides the authority to perform a specific, identified act on behalf of your parents. Once the act is successfully concluded, the special power of attorney is exhausted and has no further force or effect.
A general power of attorney authorises you to perform any and all legal acts on behalf of your parents.
However, POA will only remain valid when the person granting the authority is mentally competent. POA means the grantor must still take all the decisions while the grantee is merely an instrument to give effect to those decisions (to stand in the queue and sign the documents when the principal is too frail to do so, for example).
As soon as the person granting the power of attorney no longer has mental competence – for example, has dementia or Alzheimer’s, the power of attorney is no longer valid and may not be used, thus ensuring their vulnerability is not taken advantage of.
How, then, can we help our parents in the event of mental incapacity?
In the case of mental incapacity, two options are to either make an application to the High Court to place your parents under curatorship or apply for an Administration Order in terms of the Mental Health Act. If you do apply for curatorship, you will require compelling medical evidence and the service of an attorney and advocate, which can result in a complex and costly process.
The Administration Order has proven to be a cheaper route; however, the administrator’s powers are more limited than the curator’s, and it is necessary to report to the Master on an ongoing basis.
A third option involves using a trust, which should be set up before your parents find themselves in such a situation. The trustees, which could include yourself and siblings or other trusted members, would then be able to make financial decisions (without the need of a court order), for the benefit of your parents.
The value, use and succession planning of the assets will need to be considered along with the tax implications of transferring such assets.
Ultimately, as we also said in our previous article, it’s important to consult with a trusted financial adviser before taking any of these actions to understand the full scope of choices made.