Many times, people are faced with circumstances where a person is unable to sign or conclude an agreement him/herself. They may be out of the country for a while or facing health challenges that render them incapable of signing documents/agreements.
Overview of Power of Attorney
✔️What is a Power of Attorney?
✔️Parties involved in a Power of Attorney
✔️Some reasons and circumstances for a Power of Attorney
Types of Powers of Attorney
Requirements for a Power of Attorney to be valid
Termination of a Power of Attorney
The looming danger of mental incapacity
To make sure that important documents are signed on time during these circumstances, our South African law makes provision for that person to grant another trusted person Power of Attorney to act on his/her behalf.
What is a Power of Attorney?
Essentially, a power of attorney (PoA) is a legal document that allows a person to give legal authority to someone else to make decisions and take actions on his or her behalf.
A PoA is also referred to as a letter of attorney.
A power of attorney is not a contract, but rather the declaration of a person’s wish that another person shall have the power to act and decide on his or her behalf.
Parties involved in a Power of Attorney
The giver of the power of attorney (The principal)
There are different terms, such as the principal, the grantor, or the donor of power, available to describe the person who empowers somebody else to perform actions in his or her name.
The principal not only empowers another person to act, but also assures third parties that the acts performed, and decisions made by the person who received the legal authority, will the principal’s will.
In order to have a valid power of attorney, the principal must have the necessary contractual capacity, implying that he or she must have the capacity to perform the acts that are legally transferred to the other person. Put in other words, an agent cannot have more power than the principal or perform a legal act which the principal is unable to do himself or herself.
A person who cannot comprehend the essence and consequences of granting a power of attorney is not allowed to enter into a legally binding power of attorney.
The principal must be mentally competent at the time of signing the PoA in order to fully understand the nature and extent of the powers being transferred.
You must be 18 years or older to grant a power of attorney.
The principal is allowed to revoke a power of attorney at any time.
The person who is given the Power of Attorney (The agent)
The person who receives the legal permission to act and decide on the principal’s behalf is called, the agent or the grantee, or the attorney-in-fact.
Anyone over the age of 18 can be granted power of attorney by the principal, as long as the agent is competent and trustworthy to make financial and legal decisions and sign legal documents on the principal’s behalf.
When entering into a contract or agreement on behalf of the principal, an agent, who is legally and properly authorised, is legally protected from any liability arising from that contract or agreement.
However, if an agent is not properly authorised and gives the impression to a third party during a juristic act that he or she has authority, the third party can hold the agent personally liable for breach of ‘warranty of authority.’ In such a case, the principal acquires no rights and incurs no duties with regard to the specific juristic act.
A person who continues to act on an invalid power of attorney can be considered a fraudster, exposing himself or herself to legal disputes and claims.
An agent can be a trusted friend, competent relative, attorney, or a financial advisor, to name but a few.
Some reasons and circumstances for a Power of Attorney
- Emigration – South Africans often leave the country before all of their financial business and other issues are concluded. To ease and facilitate the processes, a PoA is signed to allow someone, still residing in South Africa, to take care of the outstanding matters. After all, it is much easier to sign a document in South Africa than to send it to a foreign country, sign it and send it back.
- You are out of the country for an extended period and need someone to manage your legal and financial matters, such as dealing in property.
- You want a person with the expertise to assist you in situations such as:
- managing your money and bank accounts,
- buying, selling, mortgaging, and managing properties,
- handling tax queries and filing tax returns,
- entering into contracts
- settling claims, andplanning your estate.
- You need an agent to perform a specific task or tasks on your behalf, for example:
- collecting your pension,
- paying your bills from your bank account, or
- renewing a vehicle licence.
- You are temporarily incapacitated due to illness, injuries, or hospitalisation and are unable to perform daily tasks.
- Commonly, elderly people are compelled to grant power of attorney because of increasing frailty, too weak to physically sign documents.
A power of attorney does not necessarily imply that a person is unable to make decisions, it just means that certain circumstances or specific reasons compel him or her to make use of an agent to get things done.
There are various reasons or circumstances for a person to decide to execute a power of attorney. For example:
A principal is not allowed to give power of attorney to a person to draft a will or initiate divorce proceedings on his or her behalf.
Types of Powers of Attorney
There are two categories of powers of attorney:
General Power of Attorney
A general power of attorney allows an agent to make numerous decisions and perform a variety of acts on behalf of the principal, including legal and financial activities. Unless the principal indicated a specific time frame for the validity of the PoA in the document, it normally terminates on the death, mental disability, or insolvency of the principal.
Special Power of Attorney
This type of power of attorney limits an agent’s power to specific activities that the principal has identified. For instance, an instruction to an attorney to sign certain documents on his or her behalf. Typically, once the specified act is successfully performed, the PoA is no longer in force.
Requirements for a Power of Attorney to be valid
- Needless to say, a power of attorney is by nature and form a written document, signed by both the principal and agent.
The power of attorney must clearly describe and identify the principal and agent as well as the extent of the powers granted to the agent.
- No document, procedure, or form is formally described for a power of attorney to be valid. Although, it is advisable to have a PoA drawn up professionally to describe the powers accurately.
However, banks generally do not accept powers of attorney other than the ones drafted by the banks. In addition, the bank-drafted powers of attorney will always restrict an agent to perform limited acts on the accounts of a principal.
The South African Revenue Services (SARS) has three kinds of forms with regard to powers of attorney:
- The Special Power of Attorney to Tax Practitioner (TPPOA): A form used by a tax practitioner to whom authority has been given by an individual or entity (company, etc.) to represent the individual or entity regarding tax affairs at SARS.
- Authority on Special Power of Attorney by Tax Practitioner (ASPOA): This form is used by any subordinate reporting to a tax practitioner where authority has been given to administer the tax affairs as indicated by the tax practitioner.
- Special Power of Attorney (SPPOA): The form used by a representative taxpayer to whom authority has been delegated by an individual/taxpayer to represent him or her with regard to tax affairs at SARS.
- Although not specified in South African law, it is common practice to have the PoA witnessed by two witnesses who are 14 years and older and who are competent and capable of giving evidence in court. Otherwise, it can be witnessed by a commissioner of oaths, a notary, or a magistrate. Witnesses enhance the validity of the document.
The witnesses are not allowed to gain any benefits from the power of attorney.
- A principal must be 18 years or older and mentally sound, fully comprehending the powers given up by him or her.
- A principal must not be under sequestration or curatorship.
- A grantor is only allowed to grant powers to his or her agent as to which he or she is capable or authorised to perform himself/herself. Put differently, the principal must be mentally able to make important decisions and understand their consequences.
- Further, concerning the principal’s mental capacity, it must remain during the full period of the validity of the PoA. As soon as a principal becomes mentally unable to deal with his or her own affairs and a positive diagnosis has accordingly been made by a medical professional, the power of attorney will terminate.
- A physically disabled person is not disqualified to grant a power of attorney.
- Concerning property transactions, the originally signed power of attorney, accompanied by the relevant documents, must be registered in the Deeds Office, under the Deeds Registries Act (Act 47 of 1937).
- Powers of attorney executed outside South Africa for use in South Africa must be executed in the presence of a notary public. Depending in which country it is executed, it must also be sufficiently authenticated.
Termination of a Power of Attorney
A principal can cancel his or her own power of attorney at any time.
Furthermore, a power of attorney will automatically terminate when the principal:
- Becomes insolvent and his or her estate is sequestrated.
- Becomes mentally impaired, no longer able to manage his or her affairs, and make his or her own decisions.
The looming danger of mental incapacity
As mentioned, a power of attorney terminates when the principal becomes mentally incapacitated. A situation that can be caused by a variety of incidents such as a stroke, mental illness (dementia, Alzheimer’s disease), or a coma following an accident. In addition, older people are specifically prone to dementia and other mental disabling conditions.
To lose a power of attorney when it is needed most seems so illogical and unfair. Unfortunately, in terms of South African law, a power of attorney becomes invalid the moment the principal loses his or her mental capacity. The reason is that an agent is allowed to do only what the principal is able to do.
Ignoring the law in this regard is not an option because if someone acts on an invalid power of attorney, it can be considered fraud.
Regrettably, contrary to countries such as New Zealand, Canada, Australia, and Britain, the South African law does not provide for an Enduring Power of Attorney that stays valid despite the mental incapacity of the principal.
There have been investigations and recommendations over the years to improve the law to enable the principal, while still mentally able, to grant a power of attorney that explicitly indicates that the power of attorney is to stay valid regardless a decrease of mental capacity which the principal may experience in the future.
So, what are the options when a power of attorney becomes invalid because of the principal’s mental incapacity?
Appointment of a curator
The Master of the High Court appoints a curator after he has approved an application for curatorship.
Applying for curatorship is quite a costly and lengthy process, involving the signing of affidavits by relatives of the mentally disabled principal, submitting medical evidence to confirm that the principal is in fact mentally disabled, and appointing a legal representative.
The curator is obliged to perform a number of acts, such as handling the person’s financial affairs, submitting annual reports to the master, and giving consent for medical treatment.
Appointment of an administrator
The appointment of an administrator is executed by the Master of the High Court in terms of the Mental Health Care Act. Although a legal process, it is cheaper and less strenuous.
Typically, the master will allow an administrator to temporary administration rights. When an investigation by the master determines that the disabled person indeed needs an administrator, the rights to the administrator will be confirmed.
An administrator is not allowed to deal with a person’s personal affairs, only with the person’s property.
Regarding the appointment of a curator or administrator, it is important to bear in mind that power transferred is complete, implying that the appointee is empowered by law to conduct the affairs of the impaired person indefinitely and as deem fit.
A special trust
Creating a special trust may be a more appropriate solution to address the financial aspects. The special trust can be set up while the person in question is still mentally sound. Taking advice from a financial advisor or trust specialist is essential because trusts can be complex and can cause unforeseen tax consequences.
Disclaimer: This article is written for informational purposes only. It should not be interpreted as legal or financial advice.
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