What happens to a power of attorney when the principal’s mental capacity starts to diminish and he/she loses the capacity to act?
This is not only important for your clients – many of us have family members entering the twilight zone that need to be aware of such pitfalls before it is too late.
A reader in Durban recently shared an article by Lize de la Harpe, Legal Adviser at Glacier by Sanlam, on the shortfalls in South African legislation on this important issue.
We publish below a few salient points from the article, and a link to download the full article.
No person is by nature able to act on behalf of another – he or she must have the necessary authority to do so. This authorisation is commonly given in the form of a power of attorney.
A power of attorney is a formal document by which a person (“the principal”) empowers/authorises another (“the agent”) to conclude juristic acts on his or her behalf. A juristic act is an act whereby legal relationships are created and which has legal consequences, for example entering into an agreement.
In order for the power of attorney to be valid, the principal must have the necessary contractual capacity. In South Africa the law of agency is based upon the principle that an agent cannot do that which his principal has no capacity to do himself. In other words, one cannot authorise someone else to perform acts that you yourself do not have the capacity to perform.
Therefore, a person who cannot understand the nature and consequences of granting a power of attorney cannot validly execute such a power of attorney.
Many older persons want to make provision for someone else to manage their property and affairs. Often the intention is to cater for when they are no longer capable of doing so for themselves. They then give such authority to a family member, attorney or financial adviser in the form of a power of attorney, thinking that the power of attorney will remain effective until they pass away.
The problem arises when the principal’s mental capacity starts to diminish and he/she loses the capacity to act. South African common law determines that a power of attorney terminates once the principal becomes mentally incapacitated.