The below piece was published in Moneyweb in April 2023 and I wish to again highlight this as it is extremely close to my heart with a family member and numerous clients currently in this position or heading towards this position. A recent case highlighted the complexities that exist and if not managed carefully could result in an extremely costly exercise through the appointment of a Curator Bonis, way in excess of what is quoted as a cost in this article.

Elderly people with diminished mental capacity are particularly vulnerable when it comes to money management, especially when it comes to falling for scams or being taken advantage of by the unscrupulous. For those who are physically impaired, attending to their affairs in person – such as visiting the bank or standing in long queues – can become more and more challenging over time.

If you have a family member or loved one who is suffering from diminished mental or physical capacity, there are mechanisms available to help you help them. Here’s what to know.

General power of attorney

If you have a loved one with a physical impairment, putting a general power of attorney in place can make their life a lot easier when it comes to attending to affairs in person. A power of attorney is essentially a legal document where a person (also known as the ‘principal’) gives authority to another person (the ‘agent’) to act on their behalf when it comes to personal matters such as banking, investments, banking transactions, legal matters, or business affairs. Keep in mind that the power of attorney document can be customised to suit the specific needs of the principal. For instance, the principal can confer authority on the agent to manage their bank account only thereby limiting their agency.

While there is no set format for a power of attorney, there are some requirements for its legal validity – the most important being that the principal must be mentally sound and must fully comprehend the powers that they are conferring on the agent. In other words, a principal is only allowed to grant powers to the agent that they are capable or authorised to perform themself. As such, if the principal becomes mentally incapacitated, the power of attorney falls away on the basis that the principal can no longer appreciate the consequences of granting another person agency over their affairs.

In terms of our law, no one is permitted to manage the affairs of another person without being legally permitted to do so – and these particular circumstances can create challenges for the family of someone who is mentally impaired.

Suitable for: Those who are physically incapacitated or who are physically unable to attend to their affairs in person.

Main advantage: There are no upfront or ongoing costs involved, and the principal can revoke the power of attorney at any stage.

Main shortcoming: Power of attorney falls away if the principal becomes mentally incapacitated.

Curator Bonis

If you have a loved one who is mentally and/or physically incapable of managing their affairs, our common law makes it possible to approach the High Court for the appointment of a Curator Bonis, although keep in mind that the court will require evidence of the mental or physical infirmity and must be satisfied that the person is incapable of managing their own affairs.

A loved one or family member of the incapacitated person with locus standi (i.e. the right or legal capacity) will need to bring a Rule 57 application for the appointment of a curator in which they will need to present, amongst other things, medical and clinical reports as evidence to support the application. However, it must be noted that High Court applications are costly and an application for the appointment of a Curator Bonis can cost up to R100 000 which is payable by the estate of the incapacitated individual.

The entire process is a cumbersome one which is further stifled by the fact that all steps taken by the Curator Bonis must first be approved by the Master. Further, the Curator Bonis has limited powers of investment which can adversely affect the growth of assets in the estate.

The nature of the job together with generally poor remuneration means it is often difficult to find appropriate candidates to assume the role of Curator Bonis.

Suitable for: Those who are physically and/or mentally incapable of managing their affairs.

Main advantage: The Curator Bonis must report to the Master on all affairs which means that the interests of the patient are protected.

Main shortcoming: Over and above the high cost of the application, the decision-making process can be slow and frustrating.

Administrator

Where an individual suffers from mental illness or incapacity, an application can be brought in terms of Section 63(3) of the Mental Health Act 1973. This type of application is more cost-effective than a Curator Bonis application in that it is made to the Master of the High Court who has the authority to appoint an administrator to manage the property of the mentally incapacitated person, with costs being around R15 000. Where the value of the mentally incapacitated person’s estate exceeds

R200 000 and their income is above R24 000 per year, the Master will request that an investigation be conducted before the administrator is appointed – a process designed to protect the interests of the person the family is claiming to be mentally incapacitated.

As mental illness is a pre-requisite for this type of application, the person’s medical condition must be confirmed by a mental health practitioner before the Master can appoint an administrator to assist in the management of the person’s affairs. While appointing an administrator can be useful and cost-effective, it is important to bear in mind that only those who meet the narrow definition of mental illness or intellectual disability as set out by the Mental Health Act qualify for this type of assistance. As such, this mechanism is not available to those who cannot manage their affairs due to a physical handicap, terminal illness or old age (without dementia).

Suitable for: Those who are mentally incapacitated and who meet the criteria set out in the Act.

Main advantage: A relatively cost-effective procedure.

Main shortcoming: This is only applicable to those with mental incapacity and is not available where your loved one is incapacitated due to other reasons.

Special trust

An alternative to appointing a Curator Bonis or administrator is to set up a special trust Type A, which is a trust created solely for the benefit of a person with a mental or physical disability that prevents them from managing their own financial affairs. To be effective, the special trust must be set up before the person becomes incapacitated which requires some forward-forward planning. This means that a person who is diagnosed with early stages of dementia, but who still has mental capacity, can plan for the future by setting up a special trust into which their assets are then transferred either by donation or interest-free loan.

Importantly, the trust founder can choose the trustees they would like to administer the trust assets – which is a much more favourable position to having a court-appointed Curator Bonis or administrator looking after one’s affairs.

To qualify as a special person in terms of a special trust Type A, the beneficiary must have a disability that limits their ability to function or perform daily activities, must have suffered from the disability for 12 months or more, and the condition must be irreversible. By registering as a special trust Type A with Sars, the trust will enjoy the same tax rates applicable to natural persons ranging from 18% to 45%. In addition, the annual CGT exclusion of R40 000 is available to this trust, as well as the primary residence exclusion of R2 million of the capital gain on disposal for CGT purposes. Generally speaking, this type of trust will cease to exist from the beginning of the year of assessment in which the beneficiary dies.

Suitable for: Those who are mentally and/or physically disabled provided that their disability falls within the definition set out in the Income Tax Act.

Main advantage: The assets are administered by trustees chosen by the patient and are protected in the trust.

Main shortcoming: Advance planning is required, and there are costs involved in managing the trust.

For ease of reference, the table below sets out the main attributes of the above four legal mechanisms: