A power of attorney is basically a contract in terms of which a person grants someone else the authority to act on his behalf in relation to his affairs. In granting the power of attorney he tells the world at large that this specific person has stepped into his shoes and is authorized to act in the same way that he or she himself/herself would act.
A power of attorney is used when a person is unable to be physically present to act himself. So, for example where he is in a remote location that results in him being uncontactable, or where he is physically disabled or impaired and so is not mobile and needs to be personally physically present to transact. Consider someone who is very old and frail, having to stand in endless queues, to personally collect his pension, or apply for a tax number. The person is simply physically not up to it.
Clearly, in our technologically advanced society, the need for a power of attorney has been dramatically decreased. With the advent of email (and yes, the fax!) the fact that a person has emigrated, or is not mobile, does not prevent him from giving his own written instructions. The person granting the power of attorney still makes the decisions in relation to his affairs, he just does take the physical action. In fact, third party does this for him.
It therefore follows that if the person who grants the power of attorney should become mentally incompetent, or die, the power of attorney ceases to be valid.
The power of attorney operates when a person is physically not capable of being present, not when the person is mentally not present.
Take the example of the person who is too frail to stand in the queue. If his mental faculties fail him, if he for example has Alzheimer’s disease, falls into a coma or should die, the power of attorney immediately ceases to be valid. If the person who has been granted the power of attorney continues to act on it, they do so fraudulently. They know that the grantor is no longer mentally competent and this would constitute a criminal offence.
No Financial Solution Provider, Investment House or Insurance Company may act on the instruction of someone who holds a POA, when the FSP knows or becomes establishes and / or becomes aware that the grantor lacks mental competence.
An example would be where a claim is submitted for a policyholder who has suffered a stroke which a neurosurgeon specified has impacted on the policyholders’ mental capacity.
Even if that person has moments of lucidity, until such time as the neurosurgeon stipulates that he has mental capacity, the Financial Solution Provider who contracted with that person, cannot act on an instruction from him, or anyone who holds his power of attorney.
So what must happen?
A curator must be appointed.
This is High Court Application, and is not lightly entertained.
When it comes to payment of a claim, for example for Alzheimer’s, our current practice is to advance, in good faith, a portion of the claim into the trust account of the attorney who is making the application for curatorship to the High Court.
Currently Insurers limit the “advance” to about R80 000. This payment is aimed at ensuring that there are funds available for the costs of the application as well as to cover other immediate expenses.
Once the curator is appointed, the valid claim will be settled in full.
Another option is to make application in terms of section 60 of the Mental Health Care Act, to have an administrator appointed. This is a cheaper option, but can only be used in the circumstances envisaged under the Act.
Implications for the financial adviser
When a client wishes to rely upon a power of attorney Financial Solution Providers will interrogate the reasons why, to ensure that the policyholder:
- Has (or still has) the requisite mental capacity
- Is actually unable to transact on his own account
If you are aware that the policy holder or investor lacks mental capacity you may not act on a power of attorney (e.g. to obtain policy information)