Impaired decision-making capacity amongst older people and the use of powers of Attorney

by | Jun 11, 2015 | Advisory Services

Current use of General Powers of Attorney

As people get older and frailer, a practical solution is often for a family member, attorney, accountant or financial advisor to obtain a general power of attorney from that person (the principal), so that the trusted person (the agent) can transact business on that person’s behalf.

This business normally includes banking, insurance, tax and investments but could also include the purchase and sale of shares and property. The older person is saved from the trouble of having to go to the bank, insurance company or attorney’s office. The agent must act in good faith and in the best interest of the principal.

Where the agent has the principal’s bank card and password or login name and password, the agent can access the principal’s money at an auto bank or by internet banking. There is no way of policing what an agent does, except for other family members to keep an eye on him or her. An application can be brought to court if the agent refuses to account for things done on behalf of the principal.

When an older person loses his mental capacity and can no longer make rational decisions about business matters, the general power of attorney can no longer be acted upon. If a general power of attorney lapses because of the mental incapacity of the principal and the agent continues to act for the principal, the agent could be sued by the principal’s family members or third parties because the agent no longer had the legal authority to continue acting.

Therefore under common law, a power of attorney terminates once the principal becomes mentally incapacitated. A power of attorney may therefore be of little value to someone who fears that their mental capacity is weakening or may be weakened who wants someone to act on their behalf if and when that situation arises.

Frequently family and caregivers of incapacitated persons are under the 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.

No person is by nature endowed to conclude juristic acts on behalf of another – he or she must have the necessary authority. The most common source of authority is authorisation by the principal Authorisation is not in itself a contract but rather a unilateral juristic act – an expression of will by the principal that the agent shall have the power to conclude juristic acts on his or her behalf.

Through authorisation, the principal not only empowers the agent to act, but also indicates to third parties his or her will to be bound by acts performed by the agent.

Authorisation can also come about by operation of law. This is the case, for instance, where the Court appoints a curator to the person or property of another.The curator does not derive his or her authority from the will of the incapacitated person, but from an appointment. The difference between an agent acting under a power of attorney and a person acting as curator through an appointment by the Court is that the agent is authorised to act in the name of the principal, whereas the curator acts in his or her own name for the benefit of another – usually an incompetent person.

The requirements for a valid power of attorney may be summarised as follows:

♦ The principal must, when granting the power, have contractual capacity or be properly assisted (eg in the case of a minor).

♦ Execution of the power must be physically possible (a power which cannot be executed is meaningless and thus void).

♦ Execution of the power must be juridically possible (i e only lawful acts can be made the object of a valid power of attorney).

♦ Any prescribed formalities must be complied with.

♦ Any suspensive condition, to which execution of the power has been made subject, must be fulfilled. A power of attorney may therefore be granted with the intention that it will become legally effective only when a future condition is fulfilled.

♦ The agent must be legally competent to act as agent.

The requisite capacity of the principal:

As authorisation (ie. creating or granting a power of attorney) is a juristic act, a person who has no capacity to conclude juristic acts cannot authorise another to conclude juristic acts on his or her behalf.

The test is whether the person is “capable of understanding the nature and consequences of the particular act”. It follows that a person who is unable to understand the nature and consequences of granting a power of attorney cannot validly execute such a power.

Whether the person granting the power of attorney was mentally capable of doing so at the time, is a question of fact, to be determined by the circumstances of the particular case. Generally persons are presumed mentally capable until the contrary is proved, so that the onus of proving that a transaction is vitiated for want of mental capacity normally rests on the party alleging it. When executed by someone lacking capacity, a power of attorney is completely void (not just voidable) – ie. no contract ever came into existence, and all transactions entered into under it are treated as nullities.

A solution to the above, while the older person is still mentally capable, could be to set up a family trust if there is a fairly large estate, which is however more complicated, costly and permanent than making a practical arrangement for normal banking, insurance, investment and tax matters to be taken care of by means of a power of attorney.

Applications for appointment of an administrator or curator

The Mental Health Care Act 17 of 2002 provides for the Master of the High Court, after receiving such an application, to conduct an investigation into the mental capacity of any person and to appoint an administrator to administer the property of the person with serious mental incapacity.

However the Master’s power s of administrators are limited to persons with assets of less than R200 000 and an annual income of not more than R24 000.  Any above that, application has to be made to the High Court, which can then authorise the Master to appoint an administrator for a person with more assets or income.

It is also still possible to bring an application to High Court in terms of the High Court Rules 57(13)  for a curator bonis to be appointed to look after the business interests of someone who is incapable of managing his own affairs by reason of a mental or physical disability.

The family members approach a lawyer and they inform the lawyer that the patient is unable to look after his own financial affairs. The lawyer then refers the patient to a psychiatrist. The psychiatrist does a complete clinical evaluation and then draws up a statement. In the statement the psychiatrist will state that the patient suffers from an illness that affects his judgement and insight, this illness is progressive, and the patient cannot look after his own financial affairs. The lawyer obtains a similar letter from a general practitioner. The two statements by the medical practitioners and a statement by a family member are then taken to court and the court appoints a curator. The curator can be a lawyer or sometimes a family member. Financial transactions that the curator undertakes are monitored to ensure that the patient’s best interests are maintained

It takes some months to have a curator appointed and involves medical and high legal costs. The curator also has a duty to file regular reports and accounts with the Master of the High Court.

Enduring  powers of attorney in other jurisdictions

In other countries such as the UK, Canada, USA, New Zealand and Australia, it is possible while the older person is still mentally capable, for that person to grant another person an enduring power of attorney which will remain valid and effective in the event that the older person lose some of their mental capacity. The agent can continue to make decisions without any disruption or expense. The enduring power of attorney often has to be registered in the equivalent of the local deeds registry or Master’s office.

Research and Reports by the Law Reform Commission to address the possibility of a draft bill for “ Adults with impaired decision-making capacity”

It was acknowledged that the present state of affairs is complicated by the fact that the South Africa has no specific statutory provision dealing with adults with impaired decision-making capacity. There is further no formal assisted decision-making device that clearly provides for mild, fluctuating or temporary impairment. There is also no provision for some default arrangement to deal with situations where adults with incapacity have no family or carers to act on their behalf or where the existing formal measures have not been utilised.

Recommendations were made in a report which included a draft bill:

Chapter 1 contains fundamental provisions dealing with decision-making on behalf of adults with incapacity

Chapter 2 creates a first tier of substitute decision-making in providing for a general authority to act on behalf of an adult with incapacity  with regard to personal welfare matters

Chapter 3 enables once-off decisions in respect of property ( ie. Financial affairs) or personal welfare to be made on behalf of an adult with incapacity.

Chapter 4 & 5 deals with the longer term management of the property and care for the personal welfare of adults with incapacity respectively. The procedures created should be seen as an alternative to the current common law system of curator bonis and curator personae.

Chapter 6 introduces and regulates the concept of the enduring power of attorney. This concept is developed on the basis of the common law principles pertaining to agency.

Chapter 7 deals with the supervisory power and duties of the Master and the Court

Chapter 8 deals with the creation of an offence in respect of neglect and abuse of persons with incapacity by persons making decisions on behalf of such persons in terms of the proposed legislation.

There has been a lack of action by the government in making the suggested draft bill new law, as the above said draft appeared 6 years ago. In the light of the increasing number of older persons in the population, there is an urgent need for the government to introduce this legislation to cater for this social need.