The risks of joint bank accounts
Safeguarding risk
Once a bank account is held jointly, each account holder usually has equal access to the money. This means that, legally, an adult child, say a son or daughter, could have withdrawn all of the funds without the bank intervening. Even if the understanding between parent and child was that the money “belonged” to the parent, the bank’s position is clear: joint account holders authorise each other to operate the account.
While most families act entirely appropriately, this arrangement exposes the account holder to unnecessary risk and removes an important safeguard.
Exposure to financial difficulties
Money held in a joint account may be taken into account if the son or daughter were to face financial difficulties of their own. This could include bankruptcy or insolvency, divorce or separation proceedings and even claims from creditors.
In those circumstances, funds that the parent regarded as her own could potentially be treated as available to their child, despite having only been added to the account for convenience.
Unintended consequences on death
Perhaps the most significant issue could arise in the event of the death of the other account holder. Joint accounts usually pass automatically to the surviving account holder by the right of survivorship. This happens outside of the Will.
For example, a mother’s Will could divide her estate equally between her daughter and her son. However, because the mother has a joint account with her son, all the money in the joint account would pass directly to the son, rather than under the terms of the Will. This results in the son inheriting, possibly substantially, more than the daughter – an outcome that was unlikely to reflect the mother’s true intentions.
This type of situation can easily lead to family disputes, disappointment and, in some cases, legal claims.
Joint accounts versus Lasting Powers of Attorney
Using a joint account as an alternative to putting a Lasting Power of Attorney in place may feel quicker and easier, but it is rarely the safest option.
A properly drafted LPA for Property and Financial Affairs allows an appointed attorney to help manage finances while keeping ownership of the assets clear. It also preserves control and oversight, protects the funds from the attorney’s personal financial issues and ensures that assets pass in accordance with the Will.
Importantly, an LPA can be tailored, restricted and revoked, offering far greater protection than a joint bank account arrangement.
A cautionary tale
Well-intentioned decisions can have unintended consequences. Adding a family member to a bank account for convenience can store up problems that only come to light when it is too late to fix them.
Taking advice at an early stage and putting the right structures in place – including LPAs and up-to-date wills – can help avoid these pitfalls and ensure that your wishes are carried out.
If you would like advice on estate planning, Lasting Powers of Attorney or administering an estate where joint accounts are involved, Downs' private client team would be happy to help.
Contact Joanna Pashley
