A joint bank account makes a lot of sense, despite what Google says - Andrew Paterson
One of the most widely misunderstood issues revolves around the merits, or lack of them, in relation to joint bank accounts. There are two key factors in play here, one of which is, figuratively speaking, the online klaxon that goes off when the topic is searched.
The warning bells sound about someone else having access to your money, the lack of financial privacy and the potential impact on your credit rating if your joint holder has mismanaged their affairs in the past. The other, a much-researched area, is the shift in attitude for younger women around financial independence. As ever, nothing is quite as simple or black and white as online answers make out and, as someone once put it, getting information from the internet is like taking a drink from a fire hydrant. Despite all the online negatives, a joint bank account actually makes sense in many circumstances.
An added complication for a professional adviser is trying to appeal to a client to look well into the future and focus on the issues that separate bank accounts can bring at an end-of-life stage. At that time, one of great emotional upheaval when your life partner has passed away, there are also seemingly endless practical considerations to deal with. Of all the advice blogs and updates we publish, the most read invariably revolve around dealing with spouses’ or partners’ affairs after death. Bank accounts feature heavily on the “most common concerns” list.
A joint bank account for those in a long-term relationship can alleviate many concerns of a financial and practical nature at a difficult and stressful time. A joint account is simply one less thing to think about and removes a significant element of stress. One of the key concerns the surviving partner often has, when separate bank accounts are in place, is access to funds for day-to-day living as all direct debits and standing orders from an account in the deceased’s sole name are stopped. And of course, continuing to use a deceased partner’s separate bank account is illegal. If you have had the foresight to set up a Power of Attorney to help with financial affairs during later life, that too ceases to be in force at the time of death.
There are, though, a couple of important exceptions as the survivor can access funds in a deceased person’s account to pay for the funeral or to settle any inheritance tax liability.
In Scotland, if the joint account holders are married or in a civil partnership and both parties contributed to it, the balance is deemed to be held equally by both, but the survivor should be aware that half the balance belongs to the deceased’s estate. If only one party contributed to the account, the entire balance would belong to that person and proof of who paid into the account would need to be established.
There are minor complications for joint accounts in Scotland held by those who are neither married nor in a civil partnership. At the time of death, the estate’s executor(s) must establish how much of the account belonged to the deceased. This is for inheritance tax purposes and it cannot simply be assumed that the account is split equally. The surviving account holder can still withdraw funds, but must ensure they do not use the deceased’s share of the account unless he/she is entitled to inherit it.
The merits of joining financial forces is a discussion that will no doubt take place every time two people get together and those who fiercely guard their monetary independence should consider carefully the complications they will face, or leave behind, if they ignore the benefits of a joint account.
Andrew Paterson is a Partner with Murray Beith Murray.
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