Dangers and legal implications of adding a named individual to your bank account

It is not uncommon for an elderly or incapacitated person to add a third party as a named individual to their bank account to assist them with the management of their finances. More usually, the appointment is an adult child, close friend, or carer.When approaching the Bank and signing the Bank’s mandate creating a joint account, what the account holder may not realise is not only are they giving that third party control of the funds in the account during their lifetime, but if the funds are held as joint tenants, upon death any money in the account passes automatically to the survivor whether this was the intention or not.

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Joint property 

Historically, it has been the case in law that joint property passes to the survivor, but the Courts have in the past looked at the party’s intentions when the adding of the third-party name was made. Where that third party has never contributed to the account and was added purely for administrative purposes, the Courts were more inclined to determine that the funds were held on resulting trust for the original account holder with no intention for a gift to arise.

However, following Whitlock v Moree (2017) a different approach can be made. The deceased a 90-year old businessman at the time of his death had a substantial sum in his bank account. The year before he added M to his account signing the Bank’s standard form which read:

‘joint tenancy. Unless otherwise agreed in writing, all money which is now or may later be credited to the account … is our joint property with the right of survivorship. That means that if anyone of us dies, all of the money in the account automatically becomes the property of the other account holder’.

Both parties signed the form although there was a note in the section stating the purpose of the account was to “pay utilities” When the case was heard by the Privy Council a majority of three Judges decided that the wording of the Bank mandate governed the agreement of the parties. As a result, M was entitled to the money in the account.

HMRC

Even where there is no evidence of what the joint Bank account holders may have intended and no Bank mandate form available, if only one party contributed funds to the account, when applying inheritance tax provisions to a joint account, normally each account holder is regarded as beneficially entitled to a proportion of the account which is attributable to their contribution. If the deceased provided the whole of the money, the whole of the account at death should be included in their inheritance tax forms and assessments (IHTM15012).

Considerations 

• Choose your third party carefully and ensure that you have implicit trust in them.
• Ensure any Bank mandate signed does not conflict with the intention in the management of the account and ultimately to whom the funds belong and should pass to upon death.
• Consider a Lasting Power of Attorney appointment retaining the account in your sole name as an alternative option.

More information

To speak to a member of the team please fill in the contact form on this page or email us at mail@pinneytalfourd.co.uk or contact us on 01708 229444 (Upminster Office), 01277 211755 (Brentwood Office) or 01708 511000 (Hornchurch Office)

This article was written by Kerry Hull, Senior Associate in the Contested Wills & Probate team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of July 2020.