Joint bank accounts often give rise to problems on death, either because of uncertainty as to the extent of the deceased’s interest or because of uncertainty as to the correct inheritance tax (IHT) treatment.

In Re Northall (deceased) [2010] EWHC 1448 (Ch), Mrs Northall had bought her council house with the aid of one of her six sons. The property was sold in December 2006 and she received a cheque for £54,836 but did not have a bank account. On 29 December 2006 one of her other sons, Christopher, opened a joint account in her name and his own. Between 5 January 2007 and Mrs Northall’s death on 23 January 2007 payments totalling £28,625 were paid out by Christopher. On 24 January 2007 he caused the whole of the remaining balance in the estate to be transferred to his own joint account with his wife.

Christopher claimed that the account had been put into joint names so that he could make withdrawals on behalf of Mrs Northall who was becoming very frail. He said that it was her intention that she would use the proceeds of the sale as she wished but if there was any residue when she died it was to go to him. He said that his mother had instructed him to make withdrawals. The judge described this as an admission that Mrs Northall was the beneficial owner of the funds in the joint account. His defence was, therefore, that the initial transfers were on her instructions and that he was entitled to the balance by virtue of survivorship.

The following legal principles applied:There was no evidence that the money had been intended as a gift to Christopher. Mrs Northall had intended it to remain hers to spend as she wished.

  • When one person puts money into joint names there is a presumption of a resulting trust to the provider. The presumption can be rebutted: if the circumstances give rise to the presumption of advancement which was not the case here (as to the presumption of advancement generally, see below); or by evidence that the provider intended to transfer the beneficial interest;
  • The burden of proof of such an intention is on the person alleging it.

There was insufficient evidence to establish that she intended any remaining balance to pass to Christopher. Admittedly the account-opening form provided for survivorship, but the judge found that this was insufficient, particularly since there was nothing to show that it was ever drawn to her attention. He therefore ordered that Christopher should account for the amount remaining in the account at the date of Mrs Northall’s death and for the lifetime withdrawals, apart from those where there was evidence to show that they were made on Mrs Northall’s instructions.

What is interesting about the decision is that it shows how important evidence is as to the intentions of the parties when the account is opened. In Aroso v Coutts [2002] 1 All ER (Comm) 241, the deceased had transferred substantial amounts into an account in the joint names of himself and a nephew. The evidence showed that the terms of the bank mandate were very clear and had been drawn to the deceased’s attention by the bank. The effect was that the presumption of the resulting trust was displaced and the balance in the account passed by survivorship to the joint account holder.

The IHT position of joint accounts has been considered in cases such as Sillars v IRC [2004] STC (SCD) 180. The Revenue has successfully argued that in cases where the provider of funds is free to draw on the whole of the account, the whole of the account, not just a share, is to be included in the deceased’s estate at death. There are two reasons for this:

(1) Section 5(2) of the Inheritance Tax Act 1984 provides that a person who has power or authority enabling him to appoint or dispose of property as he thinks fit is to be treated as beneficially entitled to the property; and

(2) There is a gift with reservation since the provider has made a gift of the whole account but continued to enjoy a benefit from the account.

Presumption of advancementThe UK was criticised by the EU for its discriminatory treatment of gifts by husbands and wives. Gifts by a woman to a husband are presumed to be held on a resulting trust, whereas gifts by a man to his wife are presumed to transfer full beneficial entitlement. Section 199 of the Equality Act 2010 therefore abolishes the presumption of advancement. The relevant provision is not yet active but it is thought that it will be brought into force in the autumn.

More on Hastings-BassIn Jiggens v Low [2010] EWHC the High Court set aside a deed of appointment as a result of applying the principle in Re Hastings-Bass [1974] EWCA Civ 13, on the basis that the trustees had failed to take into account potential tax consequences that they should have when entering into the deed. The case followed Futter v Futter [2010] EWHC 449 (Ch) in deciding that the deed was void rather than merely voidable. Futter itself is under appeal, so it will be interesting to see what the Court of Appeal makes of it.

In Gorjat v Gorjat [2010] EWHC 1537 (Ch), adult children (French citizens) unsuccessfully challenged their father’s transfer of Swiss bank accounts into joint names with his second wife shortly before his death on the basis of lack of capacity and undue influence. The initial question for the court was jurisdiction, and also of the validity of an assignment of intangible property rather than one of succession.

As such it was governed by the law which, under the Rome Convention on the Law Applicable to Contractual Relations 1980, as enacted by the Contracts (Applicable Law) Act 1990, would apply to a contract between the assignor and the assignee. In the absence of an express choice, a contract, and therefore a gift, is governed by the law of the country with which it is most closely connected, which is presumed to be the place of the habitual residence of the person who is to effect the performance ‘which is characteristic to the contract’ (article 4). England was the deceased’s country of habitual residence in the sense explained by Munby J in Marinos v Marinos [2007] EWHC 2047 (Fam). Therefore English law applied.

Professor Lesley King, College of Law