Scotland > Splitting Joint Bank A/C on First Death

Teabagger

Take this scenario..

- Couple opened a joint bank a/c in Scotland 50+ years ago
- First death occurs, deceased leaving 95% to the survivor and 5% to their children
- Their jointly owned family home transfers under the survivorship rules (i.e. it does not form part of the deceased's estate)
- The deceased's estate will be comprised of an ISA portfolio and a TBC share of their somewhat excessive joint bank a/c which when aggregated, will certainly exceed the current £325k NRB
- The Survivor will therefore own 100% of the family home, plus their own assets, augmented by this new inheritance
- And on second death, the survivor's estate could easily be exposed to a six-figure IHT liability unless further action is taken...

As I understand it, the ownership of money held in a joint bank a/c under Scottish rules is defined in proportion to the amounts contributed by the parties.

In theory, funds could belong 100% to one, or the other, joint holder.... No reason to assume that it should be 50:50

Where contributions have been provided by both parties over 50+ years, how on Earth is one supposed to deal with this in practice?

Is it possible for the personal representatives to simply agree a split that works for all prospective beneficiaries (of the deceased's Will)?

Does the rationale have to be recorded/justified?

In the above scenario, no IHT will be payable on first death (as the survivor receives substantially everything) and the outcome would be the same regardless of any agreed split on the joint a/c be that 50:50, 90:10, 10:90 etc.

However, it would still appear to be necessary to agree the split of the joint a/c to determine what '5%' of the total estate is worth.

Given that it is practically impossible to accurately determine the proportionate split of funds held in an account that has been operated over 50 years, is it reasonable for the personal representatives to simply propose a split on the basis that it would be universally accepted by all beneficiaries of the will?

The potential outcome that I have in mind is a Deed of Family Arrangement and that all beneficiaries might agree that the more than 5% should be transferred to the other beneficiaries and that this should be part-funded with a big slug of surplus cash from the joint a/c, reducing the need to liquidate the deceased's ISA to cover the balance.

The survivor would then inherit less cash but have the possibility of applying for a larger ISA APS ("Additional Permitted Subscription")...

In this scenario, there would still be no current IHT liability (as long as the other beneficiaries don't receive more than the available NRB) and the survivor could prospectively benefit from a bigger ISA.

Any views?

From IHT404 Notes. 

"Scottish law....Survivorship destinations in joint bank and building society accounts do not by themselves pass ownership of the funds to the survivor on the death of the first joint owner.

The ownership remains with the provider unless there has been some further act of transfer, for example, a deed of gift. In the absence of any other act on the death of the provider, the whole account will pass under the terms of their will or, if they did not make a will, by the rules of intestacy."

 

buddy9

As I understand it, the ownership of money held in a joint bank a/c under Scottish rules is defined in proportion to the amounts contributed by the parties.

In theory, funds could belong 100% to one, or the other, joint holder.... No reason to assume that it should be 50:50

Where contributions have been provided by both parties over 50+ years, how on Earth is one supposed to deal with this in practice

The starting point is probably a presumption for equality of contribution unless your circumstances suggest otherwise.

Teabagger

[Apologies; I've just read your reply.... ]

And that's the point - the circumstances are that over 50 years, the husband will have contributed >90%, but in later years, although his pension income might have been approx 5x his wife's, both had variable amounts of ISA income and dividend income paid in.

The question remains: in this first death scenario, where there will be no IHT liability, would anyone actually care or even notice if the Executor determined that a 'high' percentage (let's say 80-90%) of the joint account balance was attributed to the deceased's estate, given that any additional value attributed to the deceased's estate would invariably get transferred to the survivor via the deceased's will?

The nuance here is that by maximising the deceased's estate through the 'arbitrary' allocation of the joint account, it could permit a larger transfer to the minor beneficiaries (still within the available NRB with no IHT due) and maximise the survivors possible ISA Additional Permitted Subscription...

Savvy_Sue

buddy9 said:

The starting point is probably a presumption for equality of contribution unless your circumstances suggest otherwise.

it sounds to me as if this answers your question. 

Teabagger said:

And that's the point - the circumstances are that over 50 years, the husband will have contributed >90%, but in later years, although his pension income might have been approx 5x his wife's, both had variable amounts of ISA income and dividend income paid in.

The question remains: in this first death scenario, where there will be no IHT liability, would anyone actually care or even notice if the Executor determined that a 'high' percentage (let's say 80-90%) of the joint account balance was attributed to the deceased's estate, given that any additional value attributed to the deceased's estate would invariably get transferred to the survivor via the deceased's will?

The nuance here is that by maximising the deceased's estate through the 'arbitrary' allocation of the joint account, it could permit a larger transfer to the minor beneficiaries (still within the available NRB with no IHT due) and maximise the survivors possible ISA Additional Permitted Subscription...

As long as you can justify what you are proposing - that the deceased contributed far more to the joint account than the survivor - it sounds as if Scots law is on your side. 

However, if in doubt, get proper advice: you can ask for it on a limited topic, you can ask HMRC, you can consult a solicitor or an accountant who understands the Scottish system. 

Keep_pedalling

If IHT is an issue with the survivor’s estate, would it not be better to minimise legacies to anyone other than the spouse, who can then make gifts to her children. If she is in reasonable health then the gifts will at least have a chance to drop out of the estate after 7 years.

Teabagger

Savvy_Sue said “As long as you can justify what you are proposing - that the deceased contributed far more to the joint account than the survivor - it sounds as if Scots law is on your side. “

My point is that we simply don’t know the relative *contributions* with any precision and it would be practically impossible to recreate this empirically (over 50 years).

However, it would certainly be fair to say that the survivor has *contributed* more than half of what was deposited into the account, based on his lifetime earnings,  pension income etc.

However, it is also true to say that the  survivor could have potentially spent every penny that he had paid into the account over the years and the current balance could be entirely in respect of the (lesser) amounts that the deceased paid in but never spent…

We’re left with my original question: under what circumstances would the decision of an Executor in connection with the splitting of a joint bank account between survivor and deceased ever be challenged under Scots law?

Keep_pedalling

Teabagger said:

Savvy_Sue said “As long as you can justify what you are proposing - that the deceased contributed far more to the joint account than the survivor - it sounds as if Scots law is on your side. “

My point is that we simply don’t know the relative *contributions* with any precision and it would be practically impossible to recreate this empirically (over 50 years).

However, it would certainly be fair to say that the survivor has *contributed* more than half of what was deposited into the account, based on his lifetime earnings,  pension income etc.

However, it is also true to say that the  survivor could have potentially spent every penny that he had paid into the account over the years and the current balance could be entirely in respect of the (lesser) amounts that the deceased paid in but never spent…

We’re left with my original question: under what circumstances would the decision of an Executor in connection with the splitting of a joint bank account between survivor and deceased ever be challenged under Scots law?

I suspect the only time it would happen is if it makes a difference to the amount of IHT paid, which is probabling going to occur when the account is not held by married couples or civil partners.

Citizens advice advise treating joint accounts of married couples as 50/50 unless one account holder provide the entire amount.

https://www.citizensadvice.org.uk/scotland/family/death-and-wills/after-death-dealing-with-an-estate/

Savvy_Sue

Teabagger said: 

My point is that we simply don’t know the relative *contributions* with any precision and it would be practically impossible to recreate this empirically (over 50 years).

However, it would certainly be fair to say that the survivor has *contributed* more than half of what was deposited into the account, based on his lifetime earnings,  pension income etc.

However, it is also true to say that the  survivor could have potentially spent every penny that he had paid into the account over the years and the current balance could be entirely in respect of the (lesser) amounts that the deceased paid in but never spent…

Not being funny, but once it's in the joint account, surely who spent it is irrelevant. It's neither his nor hers, it belongs to each of them without distinction.

Personally I think you're over thinking it, but the only way to be certain is to take proper advice, ie the kind you pay for, if the CAB link from Kp doesn't achieve what you hope for.

Teabagger

Thanks @Keep-pedalling for the helpful Scottish link. I think you are on the money when you say that this is more likely to be under scrutiny when joint account holders were not married.

@Savvy_sue - I believe that there is more to this issue under Scots law - as per the IHT404 notes at the foot of my first post; so I will pick it up with the family solicitor/accountant.