Managing financial matters for incapacitated individuals is crucial, as they may become vulnerable to exploitation without proper safeguards. Identifying suitable methods to protect and provide for their needs is essential, depending on the nature and extent of their incapacity.
Depending on the kind of incapacity faced by the person, there may be different applicable options, each offering its benefits and limitations which are to be carefully considered.
Below we look at the 4 main options available.
1. Power of Attorney
This is a legal document granting an authorized person the ability to act on behalf of the grantor in specified matters listed in the power of attorney. The scope of authority can be broad or limited.
Key Considerations:
- Only valid if the grantor is mentally capable of granting or revoking the power.
- The power ceases immediately if the grantor becomes mentally incapacitated (e.g., dementia) or passes away. South Africa unfortunately does not recognize Lasting Power of Attorney.
2. Curator
A High Court application is required to appoint a curator bonis for individuals unable to manage their affairs due to mental or physical incapacity.
In this case, there must already be medical evidence that the said person is mentally or physically incapable to the extent that they can no longer manage their financial affairs.
Key Considerations:
- Requires a High Court order to take effect.
- A curator bonis manages financial affairs, while a curator persona handles incapacitated persons’ personal welfare. The same individual may fulfil both roles.
3. Administrator
A cost-effective alternative by the Mental Health Care Act, of 2002, for cases where mental illness or severe intellectual disability is the cause of the incapacity. Applications are made to the Master of the High Court for the appointment of an administrator to manage the incapacitated person’s estate.
Although more affordable compared to the curatorship option via the high court, it is restricted in application in that it requires a mental illness diagnosis.
Key Considerations:
- Typically, applicable for estates under R200,000 in assets and annual income below R24,000.
- Master of the High Court may in certain instances allow this application where these thresholds are exceeded.
4. Special Trust Type A
This option may be established for the sole purpose of managing assets for an incapacitated person. Such a trust is treated as a natural person for tax purposes and receives similar tax treatment as the person would themselves. Funds in the trust are managed by the trustees.
Key Considerations:
- Must be created before the individual loses full capacity if funded by their assets as once capacity is lost, they lose the ability to transfer the assets into the special trust.
- Differs from a Special Trust Type B, which applies to minors and is created via a Will.
Choosing the Right Option
- Power of Attorney: Ideal when the individual retains mental capacity.
- Curatorship/Administrator: Suitable for those who have lost capacity, with the latter being a cost-effective option for smaller estates.
- Special Trust: Provides long-term asset management but requires proactive setup.
Each option offers distinct safeguards, ensuring protection tailored to the individual’s circumstances. Legal or financial advice is recommended to determine the most appropriate solution.
Speak to a Financial Planning professional. To find a professional go to: https://fpimymoney123.co.za/find-a-financial-planner/
Author:
Nico Banda, LLB, LLM (Wits University)
Fiduciary Specialist at Gradidge Mahura Investments