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Joint Bank Accounts – Death Taxes & Mental Capacity

02 February 2017

We consider what happens to joint accounts after someone loses mental capacity or dies

What happens to my joint bank account if I lose mental capacity?

If you lose mental capacity so that you are no longer able to manage your property and financial affairs, your bank/building society can decide whether or not to temporarily restrict the operation of your joint account to essential transactions only until a person (called a ‘deputy’) is appointed by the Court of Protection to look after your affairs or until a power of attorney is registered.

Applying to the Court of Protection to appoint a deputy is costly (sometimes costing several thousands even if the application proceeds smoothly) and can take a number of months and involve ongoing expenses and the outlay of a security bond. It is therefore advisable to make a lasting power of attorney (LPA) during lifetime in which you choose a person or persons (called ‘attorneys’) to look after your property and financial affairs on your behalf. Making an LPA will ensure that if you lose mental capacity, a person that you trust will be able to continue operating your accounts on your behalf so that any expenses, such as care home fees and household expenses, continue to be paid.

In the LPA you can decide whether your attorneys will be able to act on your behalf whilst you are still able to make your own decisions or whether they are only able to act if you lose mental capacity. It is often convenient if your attorneys can act for you even if you have not lost mental capacity so that, for example, they can manage your finances if you are away travelling or suffering from physical disabilities.

The main advantage of LPAs, however, is that if you lose mental capacity and your LPA has already been registered with the Office of the Public Guardian, your attorneys can ‘step into your shoes’ immediately and access your joint account on your behalf. Unless the account holder with mental capacity objects, banks and building societies should allow your attorneys and the account holder who still has mental capacity to operate the joint account independently.

What if a joint account holder objects to the other's attorney?

If the account holder with mental capacity does not agree with the attorneys being able to operate the bank account independently, the account can continue on a 'both-to-sign' basis meaning that the attorneys and other account holder must act together when dealing with the bank account.

How much of my joint bank account is included in my estate for inheritance tax purposes when I die?

In the absence of any agreement between the joint account holders, this depends upon how much you and your joint account holder have contributed to the account.

Generally, if spouses or civil partners have a joint account into which they both contribute, then each spouse or civil partner is treated as owning half of the balance of the joint account. The account holders may contribute to the account by, for example, directing that their salary or pension payments are paid into the account or by setting up a regular standing order to the joint account from another account. In this situation, when one of the spouses or civil partners dies, their half share of the account would be included in their estate for inheritance tax purposes.

However, if one holder of a joint account has provided all the funds in the account, then the position on the death of that joint account holder is very different. For example, imagine a situation where a person “A” is elderly and although he still has mental capacity to make decisions about his finances he no longer finds it easy to visit his local bank branch and therefore decides to add his son “B” as a joint account holder so that he can help him to manage his account. All the money in the account is A’s money, mainly being his state pension and regular pension annuity payments, and A does not intend to gift any of the money in the bank account to B during his lifetime. B does not contribute to the money in the account at all. In this scenario, when A dies, all the money in the account held by A and B will be included in A’s estate for inheritance tax purposes because A contributed all the money to the account.

What if I do not want my share of a joint bank account to be based upon how much each party has contributed to the account?

It is possible for the holders of a joint account to decide themselves in what shares they own the funds in an account by making an agreement. Although this can be an oral agreement, to ensure that it is followed after the death of one or more of the joint account holders, it should ideally be in writing by way of a Declaration of Trust. In such an agreement, it is possible, for example, for the joint account holders to decide that one holder is entitled to 25% of the account and the other to 75% of the account. It would then be these shares that would be included in the joint account holders’ respective inheritance tax forms on their deaths.

Who inherits my share of my joint bank account?

If anyone is dealing with your bank accounts on your behalf during your lifetime as your deputy or attorney, their authority ends when you die. Who inherits your account following your death depends upon how you owned the account.

There are two ways to own joint property: (1) as joint tenants and (2) as tenants in common.

If property is held as joint tenants then following the death of one of the joint owners, the property is inherited by the surviving joint owner automatically. The property does not pass in accordance with the deceased joint owner’s will.

On the other hand, if joint property is held as tenants in common, then each joint owner is treated as owning a specific share (e.g. 25%, 50%, 75% etc) of the joint property and the deceased joint owner’s share is inherited in accordance with their will or, if there is no will, in accordance with statutory rules known as intestacy rules.

Usually, joint bank accounts are owned by the joint account holders as joint tenants. This means that when one of the account holders dies, the whole account passes automatically to the surviving joint owner. This is often what is intended, particularly when the joint account holders are spouses or civil partners. However, what about the situation where the joint account holders are father and son, as discussed above? The father may have a number of children and he may want his children to share his estate equally rather than the son inherit his whole bank account.

If a parent owns a joint bank account with their child, there is a presumption in law that they intend to gift the account to their child so that the child inherits the joint bank account automatically when the parent dies. This may not, however, be what the parent wants, particularly if they have other children. There are plans to abolish this presumption for future transactions but until these come into force (and as yet there is no specified date) the only way to rebut this presumption is by clear evidence showing that this was not the parent’s intention.

Ideally, the parent and child should make a Declaration of Trust in writing that the account is held by both of them for the parent’s benefit and will pass in accordance with the parent’s will on their death. This would also protect the parent’s money if, tragically, the child died before them. If no such declaration had been made, the child’s estate may claim that some or all of the money belongs to the child rather than to the parent.

Alternatively, the parent could consider making an LPA to appoint their child as their attorney. The child would then be able to assist their parent with the operation of the bank account without the need for the account to be changed into a joint account. This would avoid any potential confusion in relation to who would be entitled to inherit any money in the account when the parent died.


If you or your clients would like to discuss this article please contact the Private Client team on 0113 244 6100.

You can also keep up to date by following Wrigleys Private Client team on Twitter here

The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors






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