This article was published in two parts in The Malta Independent (27-28 September 2016).
Not many people ask themselves what might happen if one day they were to become mentally incapable and thus lack the capacity to enter into any form of contract. Who would take care of them and how would they continue to administer their property? How will doctors and medical fees be paid? Residential care also, maybe.
The benefits of drawing up a will in order to provide for persons after one’s death and the winding up of one’s affairs are widely recognised. However, with the risk of supervening mental incapacity, with the advent of longevity (and the possibility of illness or accident), in the midst of hectic schedules, the opportunity to plan ahead of time for future happenings is one that should not be overlooked. There may come a time in a person’s life when one will no longer be able to manage one’s own affairs, and would thus need another person to do so for them. The Alzheimer’s Association of the United States estimated in 2015 that one in nine people over the age of 65 suffers from Alzheimer’s (being the most common cause of dementia) with the figure going up to one in three for the over-85 age bracket.
Whereas ‘powers of attorney’ – or mandates (‘prokura’ in Maltese) have been around for centuries (ever since the time of the Romans) and are therefore concepts that we are well familiar with, the so-called ‘Enduring Power of Attorney’- or ‘Lasting Power of Attorney’, as it is also known in England – on the other hand, has only recently been introduced through Article 1864A of the Civil Code.
This states that a person of full age (being the mandator) may now give a mandate to another person (being the mandatary) in anticipation of incapacitation. The law speaks of an appointed mandatary in the singular, suggesting that joint or several attorneys cannot be appointed under Maltese law, which is unfortunate because having more than one attorney generally provides less opportunity for abuse and exploitation than having a single attorney appointed (not least because it also permits a combination of attorneys to be appointed, such as a family member and someone independent of the family, or possibly having a different attorney appointed for different aspects of the LP A – such as the property aspect, and the care and welfare aspect).
Significance of the EPA/LPA
Prior to the introduction of EPAs, a mandate or ‘prokura’ which is a contract whereby a person gives to another the power to do something for him – would typically terminate once the person granting it loses mental capacity. This rendered them totally useless in the context of the incapacity of an elderly person, for instance – just when they are most needed.
As a consequence, in response to the above questions, before the introduction of the new Article 1864A, the appointment of an attorney post incapacitation – or the continued use by an attorney of a POA post incapacitation – could not take place, and a lengthy process stood in the way, requiring the family members of the incapable person to apply to court to demand the incapacitation of the person concerned and the appointment of a curator.
This process was often a cause of anxiety for the family members because of the stigma that a declaration of incapacity tended to bring with it -besides, the process can be cumbersome, costly and also takes away from the grantor the possibility of involving himself in the selection of who administers his assets.
Post-Article 1864A, this whole process can now be avoided through the simple preparation of a pre-planned Enduring Power of Attorney, the main benefit of which is that unlike the normal POA, the EPA does not terminate on the incapacity of the grantor. The whole concept of the Enduring Power of Attorney revolves around the fact that a person of full age (and capacity, at the time the EPA is drawn up) is given the facility to appoint someone whom he considers to be trustworthy to act on his behalf, take care of the administrator, and administer his assets, in the event of the grantor becoming unable to do so himself- itcan be used as a form of ‘insurance’ against one’s incapacity; as a form of precaution.
Therefore, by means of an EPA, a person, in anticipation of losing his mental capacity, is given the opportunity to ‘ tailor make’ conditions or restrictions via a person of his choice to ensure that future decisions which may need to be taken, in relation to, for example, the administration of his property and/or finances, will be taken care of according to his wishes.
Scope of the EPA/LPA: property administration and care of the grantor
Historically, in common law countries, the Lasting POA replaced the Enduring POA that was narrower in scope. While the former EPA was simple to administer, it failed, however, to provide for some decisions that may have to be made in circumstances where the person concerned does not have the mental capacity to be able to make them himself. In particular, with the EPA, the attorney’s powers were largely restricted to money and property decisions, and were not related to decisions on medical matters such as the continuation or otherwise of life-sustaining treatment, or welfare matters such as a move to a different kind of accommodation. Insofar as the relevant Maltese provision empowers the mandatary to “take care of the mandator or to administer his property” it would seem that the Maltese instrument is more akin to the broader LPA than the narrower EPA.
lt would seem, therefore, that the Maltese EPA can be used both in respect of property administration matters, such as the administration of a bank account, the payment of bills, the buying or selling of investments or the purchase or sale of a property, as well as matters relating to the care of the donor, such as the type of health care and medical treatment, residential care, as well as day-to-day matters such as the grantor’s diet and daily routine. Ultimately, whether the Maltese EPA will also cover life-sustaining treatment will depend on how broadly or narrowly the courts will interpret the “care of the mandator.”
Trusts and LPAs
Needless to say, trusts play a very important role in situations of incapacity and remain a very viable option for persons wishing to cater for their possible incapacity by earmarking certain funds or assets and setting them on trust with a trusted trustee whether professional (and hence experienced and regulated by the MFSA) or private – for his or her benefit during their lifetime and, thereafter, for the benefit of the selected beneficiaries. Trusts can also be set up relatively quickly and in a simple manner (including verbally), although in practice the process is somewhat lengthier.
However, one cannot deny the fact that while a trust involves the actual divesting of ownership by the settlor or creator of the trust and the consequential transfer of ownership to the trustee- and therefore they involve a more solemn act – an enduring or lasting POA involves no such transfer of ownership and kicks into effect only upon the incapacity of the grantor.
An enduring POA is, therefore, admittedly an easier option for the limited purpose for which it can be used (considering that trusts can be used more broadly and for many other purposes than an EPA can). With adequate planning, often trusts and LPAs are used together in order to cater for different aspects, with the LPA being used to regulate the ‘care’ aspects and the trust used to regulate the proprietary dimension.
Essentially an Enduring Power of Attorney – or a ‘mandate given by a person in anticipation of his incapacity’ as the law refers to it- is a mandate given by a person of full age – and who must, necessarily, have the required legal capacity, in anticipation of his incapacity, to a mandatary, for the latter to take care of the mandator or to administer his property. Typically, overseas, EPAs are used to allow the attorney/mandatary to pay the grantor’s bills, to sell his property or investments and to operate his bank accounts.
However EPAs are also commonly used to allow the attorney/mandatary to make decisions about the grantor’s medical treatment.
A person who qualifies and wishes to set up an EPA must have a notary public draw it up, in the presence of two witnesses, on pain of nullity. However, since the main purpose of the EPA is the ‘anticipation of incapacity’, there is an additional requirement, being the procurement of a medical declaration clearly indicating that the Enduring Power of Attorney is in fact actually required, and is considered to be in the best interests of the person for whom it is being drawn up.
Following this, the Enduring Power of Attorney must also be registered with the Director of the Public Registry for it to have legal effect, in the same way as notes of transfers of ownership of immovable property, notes of acts of emphyteusis, notes of public or secret wills, notes of marriage contracts, separations of property between spouses, or partitions of immovables, notes of applications for a European Certificate of Succession and of the issuance thereof, are registered with the Director.
Overseas, LP As need not be registered immediately (although it is usually recommended to do so in case there are any errors, in order for these to be able to be rectified before it is too late), but by cross referring to the registration of the above acts, it would seem that the EPA must be registered within 15 working days from the date of the act.
The determination of the start and end period of an Enduring Power of Attorney both depend on the element of ‘capacity’. The capacity required for execution as well as that required for revocation are the same. Therefore, if the mandator regains mental capacity, the Enduring Power of Attorney may be revoked on the presentation of a sworn medical certificate confirming that incapacity has ceased, as well as a public deed confirming termination drawn up in accordance with the necessary requirements.
Who to pick as attorney
Clearly, just as the choice of a trustee is a very delicate matter, a grantor should only appoint a person that he can trust as his attorney – the following categories of persons could be considered: Trusted family members or long standing friends, professional advisors such as lawyers, notaries or accountants. Practical considerations such as geographical proximity as well as the available time, skill and expertise of the attorney should also be considered in relation to what the attorney may be expected to do.
Safeguards against possible abuses
Ultimately – attorney is considered to be a fiduciary at law and therefore all the safeguards that apply to mandataries generally would also apply to a mandatary under an EPA. Maltese law specificafly applies to the mandatary of an EPA the
provisions dealing with the obligations of a mandatary of a normal POA (thereby implying that the other provisions applicable to mandate do not, however, apply). In particular, in case of non-performance the mandatary is answerable for damages and interest.
Furthermore, the mandatary is answerable not only for fraud, but also for negligence in carrying out the mandate, although liability in respect of negligence is enforced less rigorously against a mandatary acting gratutiously than against one
receiving a remuneration.
In terms of Maltese law, performance of an EPA is conditional upon the occurrence of the incapacity and only after the necessary approval of the court of voluntary jurisdiction is obtained on application of the mandatary. This means that for as long as the grantor retains his mental capacity, although he may have granted an EPA, this remains without effect and cannot be used – it only kicks in once the grantor loses mental capacity and the court of voluntary jurisdiction approves its use.
lt is not clear from the law whether the mandatary must apply to the court of voluntary jurisdiction before exercising each act in terms of the EPA (which would make it somewhat impractical and more akin to a curator’s role, although, on the other hand, it would provide more security), however the law does give the Court the power to impose “those [sic. Such] conditions that it may deem necessary.”
The law does not place any qualifications on the mandatary but it would seem that minors (who can, otherwise, be appointed as mandatariesunder normal POAs) may not be appointed to act seeing that the provision permitting this was not made applicable also to EPAs.
Entering into an Enduring or Lasting Power of Attorney is a relatively easy alternative to certain other forms of financial management. Familiarising oneself with the concept of EPA/ LPAs is beneficial to all as many persons mistakenly think that if they were to lose their mental capacity a family member would automatically be able to continue making legal, medical and other decisions on their behalf – or alternatively they fear that in such circumstances all is lost and that unless they get into complex and possibly costly trust structures, there is no hope. However in reality this is not the case. Through an Enduring or Lasting Power of Attorney one is now able to ensure continuity of management of one’s affairs, hence reducing the risk of future financial and other hardship.
Dr Cremona is indebted towards Ms Bettina Gatt for her assistance in preparing this piece.