Very often, circumstances occur in life where a person is required to give someone else authority to transact on their behalf, such as where someone is physically incapacitated through illness or disease, travelling abroad for long periods of time, or where you’ve hired someone to manage properties on your behalf. In such instances, a power of attorney can be a useful document to have in place, although it is advisable to first understand the implications of signing such a document before doing so. In this article, we explore the different types of powers of attorney, when they can be used, and the financial implications of putting one in place.
Broadly speaking, a power of attorney is a written declaration by one person (the principal) to bestow powers on another person (the agent) to perform juristic acts (i.e. actions that are intended and capable of having a legal effect) on his behalf. A power of attorney is not a contract but, rather, is made possible in terms of the South Africa law of agency – the basis of which is that an agent is not permitted to perform any juristic act that the principal himself is incapable of performing. In our country, anyone over the age of 18 who has contractual capacity is capable of granting a power of attorney. This means that the person granting the power of attorney must be legally capable of performing the acts that he is granting his agent the power to perform. In signing over a power of attorney to the agent, the principal is in effect assuring a third party that the agent has the legal authority to act on his behalf.
As the name implies, a general power of attorney mandates an agent to perform and carry out a range of legal acts on behalf of the principle, such as opening bank accounts, selling property, entering into contracts, and managing business interests. On the other hand, a special power of attorney provides more limited or specific powers to the agent, such as where the principal signs a Special Power of Attorney to Tax Practitioner (TPPOA) which allows a tax practitioner to represent his tax affairs at SARS. In South Africa, there is no prescribed form or document for a power of attorney, and it is therefore essential that you seek guidance from an expert to ensure that the written mandate is aligned with the powers you wish to bestow on your agent. Whether a general or special power of attorney, the document must clearly describe and identify the principal and agent and must clearly set out the extent of the powers bestowed on the agent. Keep in mind that when it comes to granting someone power of attorney for banking purposes, most South African banks do not accept a general power of attorney but prefer that the principal signs a specific power of attorney drafted by the bank.
Where a principal provides a power of attorney authorising his agent to purchase immoveable property on his behalf, the original power of attorney must be registered at the Deeds Office together with the transfer documents. Where the purchaser has given someone authority to purchase fixed property on this behalf, the power of attorney must be lodged together with the bond registration documents.
The need to grant someone power of attorney over your affairs can give rise due to a number of reasons. For instance, elderly people, especially those who are physically incapacitated and who find it difficult to attend to their affairs in person, may grant their adult children authority to act on their behalf. Moreover, people who travel regularly for work and who find themselves abroad for long periods of time may find it easier to sign over a power of attorney to a local attorney or financial advisor who can attend to their affairs while they are out of the country. The process of emigration is a long and complex one, and emigrants who have already left the country but whose affairs have not been finalised locally may find that a local power of attorney can help expedite the process. That said, keep in mind that where a power of attorney was signed outside of South Africa, it is generally required that a notary public authenticates the power of attorney in order for it to be valid locally.
Where a special power of attorney has been granted, this mandate normally terminates automatically after the agent has performed the specific juristic act that he has been authorised to carry out. However, while the principal to a power of attorney can revoke the mandate at any time, it is important to note that there are a number of other circumstances in which a power of attorney automatically falls away. In the event of the principal’s insolvency or death, the power of attorney will automatically fall away. This is because, in the event of death, the principal can no longer act, and the executor will take over the estate administration. Similarly, if the principal is declared insolvent, the insolvent estate is no longer managed by the principal but by the appointed trustee. Most importantly, a power of attorney automatically falls away in circumstances where the principal loses mental capacity on the basis that an agent is only authorised to do that which the principal is capable of doing. If the principal lacks contractual capacity on the basis that he no longer has the mental capacity to appreciate the consequences of his actions, then the mandate automatically falls away.
For those that find themselves caring for parents who have been diagnosed with dementia or Alzheimer’s disease, this anomaly can be an incredibly frustrating one as they generally face a situation where they are unable to take control of their parents’ financial affairs at a time when it is most needed. Although there are other legal options available to them – such as the appointment of a curator bonis or administrator, or setting up a special trust – these options can be costly and clumsy – especially where the estate is not particularly sizeable and all that is required is assistance with day-to-day financial management.
Remember, where a power of attorney is terminated for whatever reason, the agent’s legal capacity to act on the principal’s behalf falls away. So, where the agent has legal capacity in terms of a valid power of attorney, he remains legally protected from any liability which arises as a result of any juristic acts that he has performed in terms of his mandate. However, in circumstances where the agent is not properly authorised – such as where the principal loses mental capacity – the agent can be held liable by any third parties with whom he has contracted for breach of authority, and the principal is absolved of any legal liability.
If you intend granting someone power of attorney over your affairs or a specific aspect of your affairs, it is strongly recommended that you seek professional advice as there are inherent risks involved in granting someone power over your affairs. Further, it is important that all the legal requirements for signing a valid power of attorney are met, which includes ensuring that you have full contractual capacity at the time of signing. Your witnesses (ideally two) should be over the age of 14 and capable of giving evidence in court, unless the power of attorney is signed by a Commissioner of Oaths, Magistrate, Justice of the Peace, or Notary Public, in which case witnesses are not a requirement. Keep in mind that the principal cannot be under sequestration or curatorship, and the witnesses to the document must not stand to benefit from the power of attorney.
Granting someone powers to manage your financial affairs is not a decision that should be taken lightly, and it is important to ensure that you have full confidence and trust in your appointed agent.
Have a wonderful day.