14 April - Blog Article #03


Written by Trevor Keyes

Often we, as caring human beings, are very focused and concerned for a loved ones mental health and wellbeing that we tend to overlook any future legal implications that could arise. An example is a spouse, parent or family member may become mentally incapacitated due to age-related diminishing capacity illnesses or otherwise and this triggers off certain legal decisions and instructions that need to be given which are not considered.  

The usual practice for an elderly family member (“principle”) is to furnish someone (“Agent”) with a Power of Attorney to control their estate. The Power of Attorney is valid as long as the principal has the mental capacity to instruct their agent. The principal has the right to cancel the  power of attorney at any time, however what often is unknown is that the power of Attorney is automatically terminated when the principal –

  1. Dies (an executor is then appointed); or
  2. Becomes insolvent and his/her estate is sequestrated (a trustee is then appointed); or
  3. Becomes mentally incapacitated in the sense of being no longer able to make his/her own decisions for whatever reason – perhaps a stroke, coma following an accident, mental illness, dementia, Alzheimer’s, general age-related diminishing capacity etc.

It’s the last scenario that often catches most people, because it seems so illogical for the Power of Attorney to lapse just when it’s needed most.

In terms of South African law of agency, a Power of Attorney becomes invalid the moment the Principle loses mental capacity to control their own estate. The reason being that an agent cannot have more power than the principal.

Many people have a misconception that a Power of Attorney will remain in force, even after the Principle is incapacitated or has passed away. This is not the law in South Africa but is law in other countries such as the United Kingdom, Canada, Australia and New Zealand. In these countries it is possible, in anticipation of incapacity, to grant Power of Attorney to an agent, which Power of Attorney will remain in force, despite incapacity of the Principle. These Powers of Attorney are designated by different names in different countries, such as: A Continuing Power of Attorney, a Lasting Power of Attorney or an Enduring Power of Attorney.

In terms of South African law, the only avenue open, when confronted with the need to deal with a person’s finances who lacks capacity is to make application for the appointment of a Curator (administrator).

A curator can be appointed through one of two possible procedures, namely through an application to the High Court (Rule 57 of the Rules of The High Court) alternatively the master of The High Court in terms of the Mental Health Care Act 17 of 2002 if the person is “mentally ill person or person with severe or profound intellectual disability”.

An application may be brought by any person who has an interest in the relevant individual’s affairs which is usually a close family member. This person would have to, with the assistance of an attorney, prepare an affidavit setting out the circumstances of the individual’s impairment, as well as setting out details of their assets, liabilities,  income and expenditure, etc. The application must be supported by two medical reports, one usually by a general medical practitioner, and the other by a neurologist or psychiatrist.

The first step in the process is then to approach the court for the appointment of what is known as a Curator ad Litem (who is usually an advocate of the High Court). The second step in the process is that the Curator ad Litem investigates the matter and, if satisfied, confirms that the individual is in fact unable to manage their own affairs and that it is in the best interest of that individual. The Curator ad Litem will interview the person, medical practitioners and others with knowledge of the individual’s circumstances and file a report, together with a report by the Master of the High Court’s, confirming the need and suitability of the proposed Curator Bonis (who is usually and Attorney).

The Mental Health Care Act, No 17 of 2002, introduced an alternative simpler procedure to cater primarily for smaller estates. An application is made with essentially the same criteria as an application to the High Court to the Master of the High Court, who will then appoint the person so nominated as the curator.

In this procedure a curator is appointed where the person’s income does not exceed R24,000 per annum and the capital of the estate does not exceed R200,000. If the persons income or capital exceeds the said amount then the Master will launch an investigation into the application prior to the consideration of the appointment of a curator.

For many years, there has been discussion with regards to an amendment in the law to overcome the cumbersome aforementioned procedures. Presently the application to the High Court is taking up to 12 months, in normal circumstance, to complete. We presently wait, with anticipation, for an Act to be past such as the Assisted Decision Making: Adults with Impaired Decision-Making Act.

In the meantime, should a person not yet be incapacitated as yet, the creation of a Special Trust maybe, in certain circumstances, be a suitable alternative. This alternative is not a remedy for someone already suffering from advanced incapacity, as it really only provides a remedy in anticipation of incapacity.

The Income Tax Act introduced the definition of a Special Trust in 2001. The definition was substituted by s2(1)(za) of the Taxation Laws Amendment Act, No 22 of 2000, effective on the years of assessment commencing on or after 01 March 2012.

Such a trust would have to be created in the usual manner of an agreement between a founder and trustee or trustees, whereby assets are transferred to the trustee to administer the trust for the benefit, in this case, of a person who has a disability. A crucial aspect of such a trust is that it must, during the life of the disabled person, be solely for the benefit of the said individual and only on his or her death may secondary beneficiaries benefit from either the income or capital of such a trust. At that point, the Trust will, however, cease to be a Special Trust.

The trust and trustee remain subject to the terms of the Trust Deed and the Trust Property Control Act. This ensures transparency and accountability but without the inflexibilities of a curatorship. A further advantage is that special trusts, if approved, are taxed on a more favourable basis as compared to other trusts. Effectively these Special Trusts, if compliant with the requirements, are taxed in much the same way as an individual, meaning that the tax rate applied to a Special Trust’s income is not the higher flat-rate that is applied to a normal trust, but the sliding scale otherwise applied to a natural person. Similarly, capital gains will be subject to a natural person’s inclusion rate and the trust will also benefit from the primary residence and yearly abatement of gains.

This article is not intended to be an all inclusive statement of the law. Each matter will have to be approached on a case-by-case basis as there is no one solution that fits all. There are certain tax issues etc that also need to be considered.

The information published on this website is provided for general purposes only and does not nor can be constituted as legal advice. We thus do not accept responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages.

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