The hidden danger of parent and child joint accounts
It’s common for elderly parents to open a joint account with their adult child to help them manage day-to-day finances.
But when it comes to the death of the parent, it can lead to inheritance disputes if there are other children in the picture.
This is because the joint account will automatically transfer to the surviving account holder on death. Further, it isn’t included as part of the deceased’s estate, Osbornes Law explained.
As such, it means any other children of the deceased parent are left with a lesser inheritance, which can lead to family feuds and legal action, unless the money is shared.
Katie de Swarte, solicitor specialising in will disputes at Osbornes Law, said: “We see a lot of cases where a parent has added one of their grown-up children as an account holder to help them with their banking, write cheques and pay bills.
“They did this without realising that the often-significant sums of money in their current account will pass to that child in the event of their death, rather than being divided equally between their children as outlined in their will or under the rules of intestacy.
“While some siblings will willingly share the money with their brothers and sisters in the interests of fairness, there are those who feel they are entitled to it due to the extra caring responsibilities they had for the parent, or claim they were also using the account for their own purposes.”
Challenging the rule of survivorship
For anyone wishing to challenge the rule of survivorship which sees the bank automatically transfer the account to the surviving joint holder, they will need to show evidence this was not the deceased’s intention when they added the joint account holder.
In an ideal scenario, the parent would have written their intention that the child was being added simply for ‘practical reasons’.
But Osbornes said this is rare and where a dispute arises, past transactions will need to be scrutinised to see how the account was used by the parent and child, for example, to see who placed the original funds in the account.
De Swarte added: “Many people don’t realise that you can challenge the survivorship rule. In some cases, it may even be necessary to freeze the account while a dispute is ongoing to prevent the surviving account holder from withdrawing the cash. It is therefore important to notify the bank if there are concerns as to the way in which the account was held, when the first holder dies.
“You will need to provide evidence that the account wasn’t being used by the surviving account holder personally, other than to help their parent out. That means looking at the transactions, which are likely to show only the parent regularly crediting and debiting the account or that all the transactions were for the parent’s benefit. This becomes harder if the account is not often used or credited, particularly as it is only possible to go back through seven years’ worth of statements if historical statements have not been retained.”
If the challenge is successful, the closing balance of the account will fall to the deceased’s estate.
But Osbornes warned that even if the account can be proven not to be a ‘true joint account’, it must also be proved that the deceased’s intention was that the joint holder would not benefit from the funds in the account.
She added: “If it becomes clear that the joint holder child did in fact credit funds to the account that were solely for their benefit and not the parents, dependant on why they credited these funds and the overall circumstances, it is likely that they would be entitled to their own money and the balance, subject to the intention, would go to the parents’ estate.”
For those considering making a son or daughter a joint account holder, Osbornes recommends that they’re made a signatory to the account to enable them to undertake transactions, rather than a full joint account holder.
“If you do, ensure there is a paper trail setting out your intentions for the account so that there is no confusion in the future. Ideally, a Declaration of Trust would be signed to confirm the true ownership”, de Swarte added.
Related: See YourMoney.com’s Do you need a power of attorney if you have a joint bank account? for more information.