The Inherent Dangers of Joint Bank Accounts

All too often an elderly parent is persuaded by a kind hearted son or daughter to avoid the “unnecessary” cost of a Lasting Power of Attorney (which enables the future handling of the parent’s financial affairs) and instead is convinced to opt for the cheap and convenient placement of their monies into a Joint bank account with the child.

Major problems can arise on the death of the parent in determining the extent of the deceased’s interest in the account (or the child’s intended “lack of interest”) and the uncertainty as to the correct inheritance tax (IHT) treatment of the whole situation.

In Re Northall (deceased) [2010], the deceased, Mrs Northall had purchased her council house with the aid of one of her six sons. The property was later sold. However, the deceased did not have a bank account and so, one of her other sons, Christopher, opened a Joint account with his mother and deposited the sale proceeds of £54,836.00. In the following 3 weeks before her death, Christopher withdrew £28,625 and the day after his mother’s death, transferred the remaining balance into a joint account held with his wife.

Christopher claimed the account had been put into Joint names so he could make withdrawals on behalf of his frail mother. But he further alleged that his mother had instructed him to withdraw money for his own benefit and that any residue within the account upon her death would belong solely to him.

A number of legal principles apply:

  1. Joint accounts are ordinarily subject to the standard rule of survivorship – that is to say, upon the death of the first, the entire account passes to the co-owner absolutely. This is common for married couples and of great convenience to all. It is not so beneficial to parent and child, particularly if the remaining children see the only asset of their parent pass by default to the one child whose name appears upon the account.
  2. Joint accounts that are deemed to pass by survivorship “pass” outside of a will. It would therefore be irrelevant if the deceased did have a will gifting everything between all the children equally (A major reason why a professionally drafted will by GAD LLP Solicitors will address and review the actual reality of how you legally own and hold assets in order to ensure that you can gift them within a will in accordance with your wishes)
  3. When one person alone puts money into joint names, there is a presumption of Resulting Trust in favour of the provider of the funds. This presumption can be rebutted if Christopher could show the circumstances give rise to another technical issue of Advancement (not applicable in this case and to be discusswed in a separate Blog) or he establishes evidence that his mother intended to transfer the beneficial interest in the fund – The burden of proof would rest with Christopher in this latter position.

 Held:

Upon the evidence, there was nothing to support Christopher’s allegation that his mother intended the payments withdrawn to be a gift. Indeed, she had intended the monies to remain hers to spend as she so wished. Similarly, there was no evidence to support the son’s allegation that the remaining balance of the account was to pass to him upon death. The son was ordered to return the balance of the account, together with all withdrawals (save those where evidence was available to show the withdrawal was with his mother’s express instruction). It is unclear who bore the costs of this litigation.

 Conclusion:

Incidents such as these are all too common. Often however, the family disruption of one sibling suing another, or the existence of more modest balances within the account (i.e. not £55,000) often, for practical reasons, results in families not pursuing legitimate legal avenues of redress.

The sensible approach is to ensure your financial affairs are protected by a Lasting Power of Attorney, rather than placing a child’s name upon your account. If however you do choose to add their name, you should document the terms upon which they hold the funds and your intention as to its eventual “direction” upon death. Such formality appears to be taking the proverbial sledgehammer to the nut, but regretfully experience of many Private Client Lawyers dealing with probate is that individuals are rarely robbed by balaclava dressed strangers, but rather, close family members bearing gifts of flowers and “promises” to sort your financial affairs out for you.

Joint Accounts may not therefore necessarily prove to be the answer to all of your problems – they may just be the start!