The Issues with Joint Bank Accounts for Convenience

Often, elderly people may struggle to manage their money independently on a day-to-day basis.  This could be because they are unable to get out of the house easily to attend the bank or do their own shopping.  This is usually when family members step in and offer support.

One option which is sometimes considered by elderly clients is to change their bank account into a joint account and add one of their family member’s names onto the account.  Banks will usually offer this suggestion as it would mean that the selected family member is able to request a bank card to access the account funds easily on behalf of the elderly person.

Unfortunately, although this option may be simple to set up, it can cause a multitude of issues if the account is still operational when the elderly person passes away.

Inheritance Tax

When a person passes away, their estate is assessed for the payment of Inheritance Tax.  All of the deceased person’s assets are valued at the date of their death and declared to HMRC. 

When an elderly person adds their family member’s name onto a bank account, this is essentially a transfer of the account into their joint names.  However, as the elderly person still has access to all of the funds in the account, the transfer does not deplete the value of their estate.  This is due to the fact that this transfer would be deemed as a ‘gift with reservation of benefit’ and so the entire value of the account as at the date of the deceased person’s death would be declared as part of their estate for Inheritance Tax purposes.

The Right of Survivorship

Another issue which arises is how the joint account will be inherited on death.  As the account will be held as joint property, this means that the ‘Rule of Survivorship’ will take effect.  This rule provides that on the death of one of the owners of a jointly held asset, the surviving owner becomes the sole owner.  The effect of this is that the funds held in the account will not pass in accordance with the terms of the deceased person’s will and will instead pass to the surviving owner of the bank account.

Consider the situation where an elderly person has two children and has a particularly large bank account that they require assistance managing.  If this person were to add one of their children onto the account as a joint owner, the entire contents of the account will pass to this child on the elderly person’s death, meaning that they would receive a larger inheritance than their sibling who was not named on the account.  If this bank account was the only asset which was owned by the elderly person, then there is a risk that their other child could receive nothing from their estate.

Alternative Options

Rather than dealing with the downsides of joint bank accounts, there are other options available.

Instead of converting the bank account into a joint account, instead, a family member could be added to the account as a signatory.  By proceeding with this option, the account remains in the sole name of the elderly person but the signatory will be able to view and manage the account on their behalf.  A signatory can be added, removed or changed at any time by the elderly person by simply making an appointment at the bank.  However, if the elderly client loses mental capacity, the signatory will no longer be able to deal with their account on their behalf. 

Another option to consider is putting in place a Lasting Power of Attorney (LPA).  This is a document whereby an elderly person who still retains mental capacity can appoint a person (or persons) as attorneys to assist with their financial decisions. 

An attorney appointed under an LPA for property and financial decisions can be given authority to deal with a person’s finances from the date that the LPA is registered with the Court.  This means that an attorney acting under a registered LPA can use the document to assist with everyday banking and financial transactions on behalf of the elderly person, and can even request a bank card to the elderly person’s account, if this was appropriate.  Whilst the elderly person retains mental capacity, they are still in control of making their own decisions and the attorney(s) can only act at the elderly person’s direction.  Therefore, no decision making power is surrendered by the elderly person entering into the LPA.

Another benefit of the document is that the attorney’s power to act under the LPA would continue should the elderly person ever lose mental capacity and be unable to make their own financial decisions.  In this instance, the attorney will make decisions in the best interests of the elderly person.

Either of these options would avoid the various issues which can occur with joint bank accounts and so should be considered by an elderly person before altering an account into joint names with a family member.