The ownership of joint accounts on death

Joint accounts are a practical and cheap way of paying an elderly relative’s bills, when that person is struggling to manage their affairs.  They have the advantage of being much quicker and cheaper to set up than registering a lasting power of attorney or obtaining a deputyship order.  A further advantage is that they do not always cease on death, hence ongoing bills can be paid without substantial delay.

Against these obvious advantages, there are some serious problems that frequently arise.  These include confusion as to who owns the money in the account, how that money will be taxed for inheritance tax purposes and inconsistencies on how banks treat joint accounts on death.

Ownership of the money in the account might belong 100% to one account holder or alternatively the other, or something in between.

Accounts which are fully joint accounts pass entirely to the survivor.  Accounts where there is a clear intention that the money should be held in certain percentages will remain in those separate shares – as tenants in common.

In most accounts, the correct presumption is that the accounts were only set up in that way for administrative purposes and belonged entirely to the person who paid the money in.  This is called the presumption of a resulting trust. This complexity and uncertainty have unsurprisingly led to numerous court cases between family members and also HMRC, who will want to tax the money on the paying party’s death.

The presumption of the money belonging to whoever put it in (resulting trust), is hard to overcome. The case of re Northall (deceased) [2010] EWHC1448 (Ch) is a recent case which confirms this as a standard approach.  Other cases, will, however, turn on evidence as to what the investing party intended.

What then is sufficient to rebut the presumption of a resulting trust?  The presumption of advancement (e.g. – a parent naturally wanting their money to go to their child) is weak and shortly to be abolished by the Equality Act in 2010. In the case of Northall, even the wording of the signed mandate that the money should pass on death was not sufficient.  The court are often reluctant to rely on small print and, especially where the investor is elderly.

The case of Drakeford v Cotton and Staines [2012] EWHC1414 (Ch) is one where the court did allow the money to pass to the other joint holder.  The latter case was decided on direct evidence as to what was intended.

A further frequent problem is that if the accounts have been set up by elderly relatives then, there can be a challenge as to whether that person had capacity, or was perhaps unduly influenced to set up the account.

It is, therefore, advisable to be clear as to what is intended. This can be through a Will, or better still a lasting power of attorney or deputyship.

Taking advice avoids the future expense, uncertainty, disputes and possibly tax. Taking advice avoids future expense, uncertainty, disputes and possibly tax. How the money should be taxed is detailed in my next blog, please click here for more information.