Personal-Finance

When your parents can no longer make financial decisions

2018-10-24 17:15

October is Mental Health Awareness Month, and one of the mental health risks many of us face as we get older is dementia.

Dementia is caused by a variety of brain illnesses that affect memory, thinking, behaviour and the ability to perform everyday activities – including managing one’s financial affairs.

A financial planner once told me a story about a woman who contacted her because she was concerned about the mental state of her husband, who was spending his days after retirement at a local pub. He refused to discuss his finances with his wife and, on investigation, it turned out that he had made the local pub owner the beneficiary of his living annuity to cover his drinks bill. As living annuities are not protected by the Pension Funds Act, this was entirely legal and would have left his wife financially destitute when he died.

Elderly people with diminished mental capacity are also vulnerable to scams. I received an email from a reader who was desperately worried about his 75-year-old father who kept falling for 419 scams. Despite constantly losing money, he still believed they were real. His son wanted to know what he could do to stop him.

The challenge is that the law is not that user-friendly when it comes to assisting someone with diminished capacity.

Jenny Gordon, head of retail legal support at Alexander Forbes, says that, as we grow older, the likelihood of suffering from one or other form of dementia is a probability and not merely a possibility.

To legally transact on behalf of another person, such as your parent, you need to have a power of attorney (POA). This gives you the right to act on their behalf. However, in South African law, unlike in the UK, the law stipulates that the person must have the necessary soundness of mind and legal capacity to perform the same deeds that you are authorised to do in the POA.

“In terms of law, an agent cannot perform any act which the person has no legal capacity or mental soundness to perform. Therefore, if the person who gives the POA when he or she is of sound mind later suffers from a mental illness or severe or profound intellectual disability, the authority granted in the POA ends. An agent cannot perform a legal act which the person cannot do himself/herself,” explains Gordon.

For example, my mother has given me the general power of attorney to deal with her affairs if she is physically incapacitated. However, as soon as she lacks mental capacity, the power of attorney is null and void, and to continue to act on it amounts to fraud.

Gordon says the Law Commission has been investigating the possibility of enacting legislation to introduce an “enduring POA”, which would continue to be valid when a person becomes incapacitated; or only come into operation when the person becomes incapacitated.

From a financial institution’s point of view, this becomes very challenging as they often manage the retirement savings of people who become mentally incapacitated.

If the client is unable to give instructions on any investments held, or even a change to the annual draw down rate of a living annuity, the agent under the POA no longer has authority to do so, either
Jenny Gordon, head of retail legal support at Alexander Forbes

So what can you do if a parent becomes mentally incapacitated?

Gordon says that, in the past, the only option was to apply to a court to have a “curator bonis” appointed to manage the financial matters of the person.

“This is an expensive procedure as it requires applications to a high court, and includes the costs of attorneys and advocates and medical reports. This might be well above many older clients’ financial ability, especially when the lion’s share of many elderly clients’ income consists of a monthly pension. However, this avenue is available for appropriate people.”

A more cost-effective alternative under the Mental Health Care Act of 2002 allows an administrator to be appointed for the care and administration of the property of a mentally ill person or a person with severe or profound intellectual disability, without a court procedure.

“An application is made to the Master of the High Court in the district where the patient resides, who is then granted the power to appoint an administrator in terms of the procedures set out in the Mental Health Care Act. An administrator and a curator are treated similarly by the Master of the High Court,” says Gordon, adding that the applicant initiates the procedure using form 39/CB11, which is available on the Master’s website or from the Master’s offices.

Information required includes the grounds on which the applicant believes the person is incapable of managing his or her affairs, and a medical report showing that the person is not of sound mind and is unable to manage his or her own affairs. The Master will order an investigation to be conducted by an advocate or attorney.

“However, the Master ensures that the cost of the investigator is contained. The Master might authorise an interim administrator pending the final appointment. The administrator will receive conditions from the Master on how to manage the estate. The cost of appointing an administrator is lower than the appointment of a curator bonis,” says Gordon.

She adds that, while it is hoped that the Law Commission urgently investigates legislating an enduring POA, in the interim, the relatively inexpensive administration order procedure that exists is a useful process to consider.

Some recent court cases have shown that there are no benefits to neglecting your financial responsibilities as a parent and ignoring requests to pay maintenance. If you fall behind with your maintenance obligations, you need to act quickly as failing to pay your fair share is illegal.

“According to the law, parents have a legal obligation to provide a minor with food, housing, clothing, medical care and education, or with means that are necessary for providing the person with these essentials. This is a legal duty and is called ‘the duty to maintain’. Sadly, divorce is expensive, and it means there are then costs for two homes in addition to maintaining the children. If you are the partner paying maintenance, and your financial circumstances change, the onus is on you to approach the maintenance court immediately because the money you owe doesn’t go away if you default on payments. Your outstanding payments will continue to grow and you will eventually have to settle in full,” explains Alexander Forbes Financial Planning Consultants senior wealth manager Kerry Sutherland.

And if you run, it’s likely that, with the combined efforts of the court and police, you’ll be found.

“Since January 2018, if the defaulting parent cannot be traced, the court can grant an order directing cellphone service providers to give the court the last known information of the person in question,” adds Sutherland.

Getting maintenance from your wayward spouse

There are several ways in which the money can be taken from your non-paying spouse in order to fulfil their maintenance obligations – with or without their consent. These are the actions and solutions to consider:

YOU CAN BLACKLIST THEM

If your ex-partner is more interested in racking up debt to pay for a lavish lifestyle, you can swiftly put a stop to that through getting them blacklisted. Being blacklisted could mean struggling to get access to credit. “This could be anything from trying to buy a new car to renting a house or signing a contract with a cellphone provider or insurance company. The new legislation is taking defaulters much more seriously,” she said.

GARNISHEE ORDERS CAN BE ATTACHED

If you are owed money from your ex-spouse, you can get a court order to have their debtors pay you, or compel their employer to pay the salary into your account. The employer is liable to inform the maintenance court if the employee resigns or is retrenched.

Try to negotiate with your partner before taking this action. “Garnishee orders and blacklisting are highly stressful and emotionally draining to all involved, including the children. Do your maintenance calculations correctly so that you know what you will need in order to maintain your children and not end up in court,” says Sutherland.

YOU CAN ACCESS THEIR PENSION

There are many benefits to having a pension. One plus is that your money is protected from creditors, but this safeguard falls away if your spouse doesn’t pay maintenance. You’d have to go to court to get a court order, though, which would be issued to claim arrear payments from the pension fund. This is often used as a last resort, as emolument attachment orders on your partner’s employer are the preferred method of getting maintenance out and up to date.

YOU CAN GET AN UPFRONT LUMP SUM

Divorce agreements can differ vastly but, if you are concerned about not receiving continual monthly payments, you can opt to negotiate for a lump sum instead. Of course, not everyone has enough money to pay this upfront large amount, so you can’t hold it against your partner if they can’t afford it.

“If you are married in accrual but out of community of property, you divide all assets accrued during the course of the marriage (less inheritance) 50-50 at the time of divorce.” This means that if a large lump sum payment is required, the maintenance-paying spouse might need to sell an asset to pay the other partner. If you are going to opt for the single lump sum payment, you need to do accurate calculations with a financial planner to forecast your needs, and also invest the money correctly,” advises Sutherland.


Maya Fisher-French
Personal finance journalist
City Press
p:0117139001
w:www.mayaonmoney.co.za  e: maya@askmaya.co.za
      
 
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November 18 2018