UK: Joint Bank Accounts – The Survivor Takes It All?

Last Updated: 2 March 2016
Article by Ian Bradshaw

Joint bank accounts are common and can provide for a useful way in which to manage finances. Accounts held between spouses or civil partners allow for bills and other household expenses to be paid more easily and those held between parents and children allow for the children to assist with the affairs of their parents as they get older.

The convenience of joint accounts can rapidly turn into a financial nightmare, however, on the death of one of the account holders. It can be difficult for the personal representatives of the deceased account holder to know the extent of a deceased's interest in a joint bank account after their death. Questions may arise over what proportion of the account balance should form part of the deceased's estate and what proportion should go to the surviving joint account holder.

This update applies to all those who currently hold, or are thinking about opening, a joint bank account.

The general principle

The general starting point in cases of jointly held bank accounts is that on the death of one of the account holders, the account balance passes in its entirety, by the 'principle of survivorship', to the surviving account holder. The principle of survivorship will override any terms that may be to the contrary in the deceased's Will. This means that the surviving account holder can present the deceased's death certificate to their bank and the bank will likely transfer the account balance into the survivor's sole name, usually even before probate has been granted. In the case of couples, this is often not an issue as it is usually what the deceased would have intended anyway. However, where a child has been added to the joint account, the funds in that account may pass to the surviving child irrespective of the terms of the deceased's Will and thus cause a dispute if, for example, there are other children in the family. This is particularly so if the child has been added to the account after a Will has been made.

Further problems may arise where the contributions made to the account were unequal, with the deceased providing the majority of the funds and a dispute can subsequently arise as to who should receive the account proceeds. In these situations, the court can look at the intentions of the parties when the account was created and at their subsequent behaviour.

The court's involvement

When deciding disputes over the respective interests of holders of joint bank accounts, the court will start with the presumption that funds contributed by the deceased account holder will form part of his or her estate. The court reaches this starting point by presuming what is known as a 'resulting trust' over the funds in favour of the person who provided the account monies. Whilst this presumption is rebuttable, it will prevail even over the bank's terms and conditions in relation to the account and can only be rebutted with direct evidence of the deceased's intention to gift the money to the surviving account holder.

Importantly, however, the situation is different when accounts are held between spouses and civil partners, or parents and children. In these particular cases, rather than presume that the funds revert back to the estate of the deceased holder, the court will in fact presume the opposite – that the deceased's intention was for the account balance to pass in its entirety to the surviving spouse, civil partner or child. This is known as the 'presumption of advancement'. Again, this presumption can be rebutted by direct evidence of intention to the contrary and further, the presumption is to be abolished at a future, but unknown at the time of writing, date to be decided by the Lord Chancellor.

How do the courts find evidence of the deceased's intention?

It is usual for there to be no written evidence of the deceased's intention. Instead, parties are likely to rely on informal understandings or oral agreements. The case of Drakeford v Cotton and Stain [2012] EWHC 1414(Ch) shows that the courts can sift through the evidence and find the intention of the deceased but that without clear written evidence documenting the deceased's intention, this will usually involve an expensive legal battle. In this case, a joint bank account was opened between the deceased and her daughter, Mrs Stain, using funds only provided by the deceased. Initially, the deceased had no intention of gifting the account proceeds to Mrs Stain and so the presumption would have been at this stage that the funds would fall back into her estate on a resulting trust. However, subsequent to opening the account, the deceased fell out with one of her other daughters, Mrs Drakeford, and had since made it clear to her son and Mrs Stain that she did not want Mrs Drakeford inheriting any of her money and that Mrs Stain should inherit the joint account proceeds. In addition, there was evidence that the deceased had tried to make a new Will disinheriting her estranged daughter but had died before being able to sign it. After a thorough examination of all the surrounding evidence, the court was able to conclude that the balance of the joint account should pass to Mrs Stain on the principle of survivorship, even though the deceased had provided all of the account monies.

What about Inheritance Tax ("IHT")?

The rules concerning IHT in relation to joint bank accounts are relatively complex and executors will need to tread carefully. Although every situation has the potential to be assessed on a case-by-case basis by HMRC, the general principles are as follows.

HMRC will usually regard each joint account holder as liable for IHT in the proportions in which they contributed funds to the account. For example, if the deceased contributed all the funds to the account, the deceased's estate will be liable for IHT on the whole balance of the account. Additionally, if the deceased provided the funds and then remained free to draw on the balance of the whole account or continued to enjoy all of the interest from the account, the deceased's estate will be liable for IHT on the full account balance as for tax purposes the account will not be treated as truly joint.

Further potential IHT implications arise in relation to account withdrawals, which may be deemed as being deducted from each party's contributions to the account. If either holder withdraws more than the amount which they contributed to the account, this may be classed as a gift by the other account holder for IHT purposes.

Unless the deceased's Will provides otherwise, the beneficiary of the account balance will only be principally liable for IHT on the proceeds, where the account balance passes to him by survivorship and a true joint account can be shown.

What should I do now?

It would be prudent to keep a written record of your intentions in relation to how you wish for the monies in any accounts of which you are a joint holder to pass after your death. Whilst, as in Drakeford v Cotton and Stain above, the court may eventually find evidence of your intention from the surrounding circumstances, this will only be after expensive court proceedings. This could be documented in a 'letter of wishes' to be stored with your Will.

You should also make sure that your Will reflects your intentions in relation to any joint accounts especially if you want any IHT on the your share of jointly held monies to be paid from the residue of your estate.

Finally, you should ensure that any activity on the account is clearly documented so that IHT can be assessed more clearly in the event of the death of one of the account holders.

This article was written by Ian Bradshaw, Partner, Private Client department with assistance from Alasdair McKenzie, trainee solicitor.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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