Legal options for managing finances of ageing parents

As people age, physical frailty or mental decline can leave them unable to manage their financial affairs. Elderly individuals with diminished capacity are particularly vulnerable to financial exploitation and investment scams. Diminished capacity may stem from conditions such as dementia or Alzheimer’s disease, brain injury, stroke, certain cancers, or general decline associated with ageing.

 In some cases, the challenge is physical rather than mental. A parent may be fully capable of making decisions but unable to perform tasks such as queuing at the bank or signing investment documentation in person. A general power of attorney can be useful in such situations, allowing another person, typically a spouse, adult child, or trusted family member, to transact on the person’s behalf. However, it’s vital to understand that a power of attorney remains valid only while the principal (the person granting the mandate) is mentally competent. Once mental capacity is lost, the power of attorney falls away, leaving families in a legal conundrum.

In South Africa, no one may manage another person’s affairs without legal authority. If you fear a parent is losing the ability to manage their finances, there are three main legal avenues available, each with its own requirements, costs, and implications.

1. Appointing a Curator Bonis

Under common law, an application can be brought to the High Court to have a person declared incapable of managing their affairs due to mental illness or physical infirmity. If granted, the Court appoints a Curator Bonis to manage the person’s estate. However, this is a costly and cumbersome process; legal fees alone can range from R50,000 to R100,000, excluding medical reports (usually from a neurologist or psychiatrist).

All decisions by the curator require Master of the High Court approval, and their powers of investment are limited, which can hamper estate growth. Further, remuneration for curators is low, making it difficult to attract skilled candidates, with an added risk of assets being managed by someone ill-suited to the role. Importantly, a curator’s job is to supplement the person’s diminished capacity, not to take unilateral control, but in practice, this distinction is often blurred.

 2. Appointing an administrator

If incapacity is due to a mental illness or intellectual disability, an application can be made to the Master of the High Court under section 63(3) of the Mental Health Care Act 2002. This process does not require a High Court application, making it more cost-effective than appointing a curator. Note that if the person’s capital assets exceed R200,000 and their annual income is above R24,000, the Master may order an investigation (capped at R15,000 in cost) before appointing an administrator.

Mental illness must be confirmed by a mental health practitioner, and the administrator then assists in managing the person’s property. This route is useful where the legal definition of mental illness or intellectual disability is met, but it does not assist in cases where incapacity is due solely to physical disability, terminal illness, or general frailty without cognitive impairment.

3. Establishing a Special Trust Type A

A proactive alternative is to create a Special Trust Type A for the benefit of a person with a mental or physical disability that prevents them from managing their financial affairs. Importantly, the trust must be established before the person becomes incapacitated, which means planning, such as setting one up after an early dementia diagnosis while capacity is still intact. Assets can be transferred to the trust via donation or loan, bearing in mind that interest-free or low-interest loans to trusts may trigger donations tax in terms of Section 7C of the Income Tax Act.

The founder can select trustees whom they trust to manage the assets. To qualify, the beneficiary must have a disability that limits daily functioning, must have suffered from the condition for more than 12 months, and have a condition deemed irreversible. Special Trust Type A enjoys the same income tax rates as individuals (18% to 45%) and benefits from the R40,000 annual capital gains tax exclusion and the R2 million primary residence exclusion. Note that the trust ceases at the start of the tax year in which the beneficiary dies.

 Selecting the best approach depends on the cause and extent of incapacity, the value and complexity of the person’s assets, and the family’s ability to plan. Where there is time to prepare, a Special Trust Type A can offer far greater control and flexibility. If mental illness has already taken hold, an administrator may be the most cost-effective route. In more complex cases involving substantial assets or disputes, a curator bonis may be unavoidable despite the expense.

Managing the affairs of an ageing parent who can no longer act for themselves is emotionally and administratively challenging. Obtaining the right legal authority is essential—not only to protect their finances but also to safeguard them from exploitation and to ensure their dignity is respected. Always seek independent legal and financial advice before proceeding, and remember: the earlier you plan, the more choices you will have.

* Odendaal is a Certified Financial Planner at Crue Invest.

PERSONAL FINANCE