A joint account is a bank or building society account which is held in the name of two or more people. This type of account can be used for lots of reasons, e.g. a couple may use a joint account to pay their mortgage instalments, or an elderly parent may have a joint account with their adult child.
What problems can occur with joint accounts?
Although, joint accounts can be very useful, they can also cause problems and prompt disputes about who owns the funds held in the account. This might be because of:
- What usually happens to a joint account when one joint account holder dies
- A joint account containing funds which are contributed by the account holders in unequal shares
- The joint account only containing funds of one joint account holder
- Anyone who is named on the account being able withdraw money from the account (though, sometimes joint consent is required)
- The relationship between the joint account holders breaking down e.g. when a couple separates
- How joint accounts can be treated when calculating Inheritance Tax
What happens if a joint account holder dies?
This blog focusses on what happens to a joint bank or building society account when one account holder dies. When that occurs, the funds in the joint account will usually automatically pass to the surviving account holder by what is known as ‘survivorship’. This means that none of the money in the joint account will pass to the deceased account holder’s estate.
An elderly parent has 2 children, A and B. The parent provides A with joint access to their bank account for A to help them with online banking. The account contains the parent’s life savings of £500,000 and A makes no payments into the account.
The parent dies and their will provides that their estate is split equally between A and B. The net estate is worth £40,000, with A and B each receiving £20,000. B later discovers that A also received £500,000 from the joint back account by survivorship.
Would it be fair in this example for A to receive the joint account, or should the joint account funds form part of the parent’s estate? B is unlikely to be happy with joint account funds bypassing their parent’s estate, because:
- their parent provided all of the funds held in the joint account;
- A has also received £20,000 from the parent’s estate; and
- The parent’s reason for adding A to the joint account was only to help them with online banking.
What can estates do about joint accounts?
In some cases, it is possible to challenge survivorship rule, because it is not clear what part of the joint account funds each account holder is entitled to, or there was no joint intention that, on the death of one account holder, the survivor would automatically receive the value of the entire account.
A real life example of such a challenge is the case of Drakeford v Cotton  EWHC 1414 (Ch), where the High Court had to consider who would receive the funds held in two joint accounts. In that case, Mrs Cotton added the name of one of her daughters, Mrs Stain, to two building society accounts. The accounts contained around £51,000, but the deposits were only made by Mrs Cotton. Mrs Stain paid no funds into the accounts.
Mrs Cotton died in 2008 and, under the survivorship rule, the usual position would be that Mrs Stain would receive the funds in the joint accounts. However, there was a dispute about who owned the funds and whether Mrs Stain should receive these, or whether the funds would be shared equally between Mrs Cotton’s three children under her will.
Mrs Cotton’s other daughter, Mrs Drakeford, suggested that the accounts were held in joint names for convenience and Mrs Stain was simply a signatory, with no beneficial interest in the accounts. Although, the parties agreed that the accounts were used for convenience to pay bills, Mrs Stain claimed that Mrs Cotton had later gifted the funds held in them to her during her lifetime.
The High Court decided that the accounts were originally held for Mrs Cotton’s sole benefit, but there was evidence that, from 2008 onwards, Mrs Cotton had changed her intention, so that the funds were (from then on) to be held by Mrs Stain and Mrs Cotton on a joint basis. This meant that they should pass to Mrs Stain after Mrs Cotton’s death and the joint account funds did not form part of Mrs Cotton’s estate.
What can I do to avoid problems with joint bank/building society accounts?
The easiest way to avoid any joint bank/building account problems arising is to keep funds held separately, but that may not always be possible. However, it is important to:
- Consider whether having a joint account is absolutely necessary, or whether there is another option e.g. making a Lasting Power of Attorney – to allow a relative to manage your finances if you become unable to do so;
- Document the account holders’ intentions with regard to how the funds in a joint account are owned and are to be used;
- Understand how HMRC may treat the joint account for Inheritance Tax purposes, in the event of your death;
- Consider whether any restrictions should be placed on the account e.g. requiring both account holders to agree to any withdrawals; and
- Mention any joint accounts to your solicitor when making your will and what you want to happen to the joint account in the event of your death.