Who gets the money in a joint account on the death of one of the account holders? Does the joint account go to the surviving account holder? Does it pass to the beneficiaries under the Will or to the next-of-kin? Recently, the Supreme Court in Lynch -v- Burke and AIB plc introduced new criteria for deciding this question.
THE FACTS
Lynch -v- Burke involved the common situation where one person, in this case an aunt, provided the money to open a joint account with another person, her niece. When the aunt died the question arose - who gets the money? Both aunt and niece signed the contract to open the account with the bank, indeed, the niece travelled from Scotland to open the account. Although the aunt retained the sole power to make withdrawals from the account it was clear that her intention was that on her death her niece should inherit the balance in the account.
THE LAW
Where a joint account is opened by a parent and child or husband and wife, it is presumed, due to the close relationship between the account holders, that a gift is intended. However, this presumption does not apply to other relationships, such as that of aunt and niece. This led to the presumption in this case that the niece held the joint account following the aunt's death on trust for the aunt's estate and thus for the beneficiaries under the aunt's will. Could this trust be set aside by evidence that the aunt intended to benefit her niece?
Until Lynch -v- Burke, this area was governed by the 60 year old case of Owens -v- Greene. Under this old caselaw, to prove that the aunt intended to benefit her niece and thus to rebut the trust in favour of the aunt's estate it would have been necessary to establish that the aunt had given up control of the capital in the account during her life. Also the Courts were concerned that a benefit in these circumstances might be tantamount to a will : for such a benefit to be enforceable it would have had to comply with the legal requirements for execution of wills.
THE NEW CRITERIA
The Supreme Court in Lynch -v- Burke found in favour of the niece and held that she was entitled to the balance in the account. The Court was persuaded by two factors:
THE LEGAL EFFECT OF OPENING A JOINT BANK ACCOUNT
For the first time in addressing the question of the entitlement to a joint bank account, the Court focused on the nature of a joint account and the relationship between the bank and the account holders. The contract between a bank and its customers which is entered into on opening a bank account gives rise to the legal relationship of debtor (bank) and creditor (customer). Where two people contract with a bank to open a joint account, both are jointly entitled to a contractual right to sue the bank for a debt, regardless who provides the funds. This joint right in law to sue the bank passes to the survivor of the account.
The question - who is beneficially entitled to the money in the joint account? - is not necessarily determined by who has the legal right to the account. In Lynch -v- Burke both aunt and niece as joint account holders had a legal right to the account. The claim that the joint account formed part of the aunt's estate depended on whether the niece held the account on trust for the aunt's estate.
In the first instance, the law presumed that the niece held the joint account on trust for the aunt's estate as the aunt supplied the funds for the account. However the Court held that this trust was displaced by uncontested evidence that the aunt wished to benefit the niece. The presumption of a trust in favour of the aunt's estate was intended to prevent the fraudulent misappropriation of funds and not as a means of defeating the clear intention of the aunt to benefit her niece. The niece, as survivor to the joint account, had a legal right to the account and there was no equity in defeating the aunt's intention that the niece enjoy the legal right beneficially.
Alternatively, the Court held that the opening of the joint account could be regarded as a gift to the niece subject to a contingency, that of the death of the aunt. This analysis is difficult to reconcile with a situation such as that in Lynch -v- Burke where the person providing the money retains control of the account and does not make an immediate gift. In any event, the Court held that the arrangement on opening the joint account was not testamentary and so it was not invalid for failure to comply with the law relating to Wills.
CONTROL OF THE MONEY
The most significant impact of Lynch -v- Burke is the removal of the previous requirement under Owens -v- Greene that the account holder who provides the money must give up control of the capital in the joint account. A person may now use the money in a joint account freely without prejudicing the rights of the survivor to the account.
THE INTENTION
What level of proof of a person's intention to benefit the survivor to a joint account will be required? In Lynch -v- Burke the evidence of the aunt's intention to benefit her niece was overwhelming and evidence of similar weight may be necessary in all cases. The court noted that the bank mandate was "payable to [aunt] only or survivor" and it might be advisable for similar wording to be used in all such mandates as evidence of intention to benefit the survivor.
It is clear that where a person transfers money into a joint account solely for administrative convenience the other account holder will not be entitled to the account. This may occur where a parent transfers money to a joint account with his child solely because of the parent's failing health or inability to get to the bank.
TAXATION
The operation of a joint account where one person provides the funds gives rise to inheritance, gift and probate tax issues. In Lynch -v- Burke the niece would have been liable to inheritance tax on the balance in the account on the aunt's death. If the niece had enjoyed a right to withdraw from the account during her aunt's lifetime then a charge or indeed, several charges, to gift tax may have arisen.
The real scope for tax planning in relation to joint accounts lies with one of the newest "death taxes", namely probate tax, which is payable on a person's estate on death. This tax is not payable on a joint account which passes directly to the survivor as, at law, the joint account does not form part of the deceased account holder's estate. The Revenue Commissioners are examining this area in light of the possibilities for tax avoidance. Changes to the probate tax regime may be made if substantial revenue is being lost.
WHO GETS THE MONEY?
Since Lynch -v- Burke, the person who provides the money for a joint account can take steps to make sure that his wishes are carried out with regard to who gets the money on his death. To give effect to his wishes he must ensure that the other party to the account signs on opening the account and that he makes his intention clear.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
THE FACTS
Lynch -v- Burke involved the common situation where one person, in this case an aunt, provided the money to open a joint account with another person, her niece. When the aunt died the question arose - who gets the money? Both aunt and niece signed the contract to open the account with the bank, indeed, the niece travelled from Scotland to open the account. Although the aunt retained the sole power to make withdrawals from the account it was clear that her intention was that on her death her niece should inherit the balance in the account.
THE LAW
Where a joint account is opened by a parent and child or husband and wife, it is presumed, due to the close relationship between the account holders, that a gift is intended. However, this presumption does not apply to other relationships, such as that of aunt and niece. This led to the presumption in this case that the niece held the joint account following the aunt's death on trust for the aunt's estate and thus for the beneficiaries under the aunt's will. Could this trust be set aside by evidence that the aunt intended to benefit her niece?
Until Lynch -v- Burke, this area was governed by the 60 year old case of Owens -v- Greene. Under this old caselaw, to prove that the aunt intended to benefit her niece and thus to rebut the trust in favour of the aunt's estate it would have been necessary to establish that the aunt had given up control of the capital in the account during her life. Also the Courts were concerned that a benefit in these circumstances might be tantamount to a will : for such a benefit to be enforceable it would have had to comply with the legal requirements for execution of wills.
THE NEW CRITERIA
The Supreme Court in Lynch -v- Burke found in favour of the niece and held that she was entitled to the balance in the account. The Court was persuaded by two factors:
- The niece was a party to the contract with the bank and thus had a contractual right to sue the bank for a debt regardless who provided the money for the joint account. (It is now standard banking practice for both holders of a joint account to sign on opening the account.)
- The niece proved that the aunt intended to benefit the niece. Despite the fact that the aunt kept control of the account duing her life this intention to benefit the niece displaced the trust in favour of the aunt's estate.
THE LEGAL EFFECT OF OPENING A JOINT BANK ACCOUNT
For the first time in addressing the question of the entitlement to a joint bank account, the Court focused on the nature of a joint account and the relationship between the bank and the account holders. The contract between a bank and its customers which is entered into on opening a bank account gives rise to the legal relationship of debtor (bank) and creditor (customer). Where two people contract with a bank to open a joint account, both are jointly entitled to a contractual right to sue the bank for a debt, regardless who provides the funds. This joint right in law to sue the bank passes to the survivor of the account.
The question - who is beneficially entitled to the money in the joint account? - is not necessarily determined by who has the legal right to the account. In Lynch -v- Burke both aunt and niece as joint account holders had a legal right to the account. The claim that the joint account formed part of the aunt's estate depended on whether the niece held the account on trust for the aunt's estate.
In the first instance, the law presumed that the niece held the joint account on trust for the aunt's estate as the aunt supplied the funds for the account. However the Court held that this trust was displaced by uncontested evidence that the aunt wished to benefit the niece. The presumption of a trust in favour of the aunt's estate was intended to prevent the fraudulent misappropriation of funds and not as a means of defeating the clear intention of the aunt to benefit her niece. The niece, as survivor to the joint account, had a legal right to the account and there was no equity in defeating the aunt's intention that the niece enjoy the legal right beneficially.
Alternatively, the Court held that the opening of the joint account could be regarded as a gift to the niece subject to a contingency, that of the death of the aunt. This analysis is difficult to reconcile with a situation such as that in Lynch -v- Burke where the person providing the money retains control of the account and does not make an immediate gift. In any event, the Court held that the arrangement on opening the joint account was not testamentary and so it was not invalid for failure to comply with the law relating to Wills.
CONTROL OF THE MONEY
The most significant impact of Lynch -v- Burke is the removal of the previous requirement under Owens -v- Greene that the account holder who provides the money must give up control of the capital in the joint account. A person may now use the money in a joint account freely without prejudicing the rights of the survivor to the account.
THE INTENTION
What level of proof of a person's intention to benefit the survivor to a joint account will be required? In Lynch -v- Burke the evidence of the aunt's intention to benefit her niece was overwhelming and evidence of similar weight may be necessary in all cases. The court noted that the bank mandate was "payable to [aunt] only or survivor" and it might be advisable for similar wording to be used in all such mandates as evidence of intention to benefit the survivor.
It is clear that where a person transfers money into a joint account solely for administrative convenience the other account holder will not be entitled to the account. This may occur where a parent transfers money to a joint account with his child solely because of the parent's failing health or inability to get to the bank.
TAXATION
The operation of a joint account where one person provides the funds gives rise to inheritance, gift and probate tax issues. In Lynch -v- Burke the niece would have been liable to inheritance tax on the balance in the account on the aunt's death. If the niece had enjoyed a right to withdraw from the account during her aunt's lifetime then a charge or indeed, several charges, to gift tax may have arisen.
The real scope for tax planning in relation to joint accounts lies with one of the newest "death taxes", namely probate tax, which is payable on a person's estate on death. This tax is not payable on a joint account which passes directly to the survivor as, at law, the joint account does not form part of the deceased account holder's estate. The Revenue Commissioners are examining this area in light of the possibilities for tax avoidance. Changes to the probate tax regime may be made if substantial revenue is being lost.
WHO GETS THE MONEY?
Since Lynch -v- Burke, the person who provides the money for a joint account can take steps to make sure that his wishes are carried out with regard to who gets the money on his death. To give effect to his wishes he must ensure that the other party to the account signs on opening the account and that he makes his intention clear.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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