Many people assume that having a joint bank account with their spouse, partner, family member or close friend means that there is no need for a Lasting Power of Attorney for Property and Financial Affairs if mental capacity is lost in the future.
However, this is a common misconception and having a joint account instead of a Lasting Power of Attorney can cause problems.
Whilst it is often assumed that the joint account holder could automatically access your funds if you lose capacity, this is not always the case. In fact, when a bank becomes aware that an account holder has lost mental capacity, the bank will restrict access to the account to protect the account holder that has lost mental capacity.
This blog explains how joint bank accounts work, what happens when an account holder loses mental capacity and why a Lasting Power of Attorney for Property and Financial Affairs is still an essential legal safeguard.
What is a Joint Bank Account?
A joint bank account is a bank account that is held by two or more people. The funds in the account are treated as joint funds, and therefore the account holders will usually have equal rights to access the funds. This means that, usually, one account holder alone can withdraw funds, without needing the consent of the other account holders.
Joint bank accounts are often used by couples/spouses so that their finances and bills can be shared. However, they can also be used by business partners or other family members.
For example, sometimes an elderly parent may open a joint account with their adult child, to attempt to make it easier for their child to assist them with their finances i.e. to pay their bills or to withdraw money for them. Often, the money in that bank account is not actually intended to be treated as joint funds, and instead the account has been made into a joint account for practical reasons.
Having funds held in a joint account like this can be a problem, particularly if one of the account holders dies, divorces or becomes bankrupt as the question arises as to whose money it is?
What Happens to a Joint Bank Account if an Account Holder Loses Mental Capacity?
Banks have an obligation to safeguard vulnerable account holders, and therefore, when a bank is notified or suspects that an account holder has lost mental capacity, the bank will usually restrict access to the account or freeze the account entirely until a Lasting Power of Attorney for Property and Financial Affairs is produced. This will mean that any other joint account holders cannot continue to access the funds freely, even though they might have had equal access to the account previously.
Usually, the result is that the account will be severed into a sole account with the Lasting Power of Attorney for Property and Financial Affairs registered against the account belonging to the individual who has lost mental capacity. Again, if the funds in that account were not intended to be joint funds, then this can cause complications.
If a joint account holder loses mental capacity without having made a Lasting Power of Attorney for Property and Financial Affairs, then an application would need to be made to the Court of Protection to appoint a Deputy to manage the person’s affairs going forward.
This application would usually be made by a family member or close friend who intends to act as the Deputy. Unfortunately, applications to the Court of Protection are very costly and time consuming, often taking up to a year for the Deputyship Order to be granted. This can cause issues if access to funds is needed during this time as there won’t be anyone with the correct legal authority to access them to pay bills etc.
Why a Joint Bank Account is Not a Substitute for a Lasting Power of Attorney for Property and Financial Affairs
It is important to remember that funds held in a joint account are seen as joint funds of the account holders. It is therefore possible that the joint account holder could access these funds for their own benefit, even though they may not have contributed to the funds held in the account themselves. As the ownership of the funds would not be obvious to an outsider looking in, this could put the vulnerable account holder at risk of financial abuse which may not be immediately identifiable.
Further, when an account holder dies, the funds in the joint account will pass automatically under The Rules of Survivorship to the surviving account holder, instead of passing in accordance with the deceased’s Will. This could be problematic if the joint account was held with one of your children, but your intention was that the funds were not to pass to them on death and instead that all your children would receive equal share.
As a result, there is a risk that claims could be made against your estate after your death which can be damaging to relationships, costly and time consuming.
Why do I Need a Lasting Power of Attorney for Property and Financial Affairs?
Lasting Powers of Attorney for Property and Financial Affairs are important legal documents that give people who you trust (your Attorneys) the requisite legal authority to manage and make decisions about your property and financial affairs if you lose mental capacity in the future.
Lasting Powers of Attorney for Property and Financial Affairs can be used whilst you have mental capacity, with your consent, by your Attorneys if occasions arise where you need more practical help i.e. if you come to find it difficult to leave the house and need money withdrawn from the bank.
Lasting Power of Attorney for Property and Financial Affairs are not only for accessing funds in your bank account, and can be used to buy and sell property, place and manage investments, pay bills and utilities and manage pensions.
You can also provide your Attorneys with guidance as to your instructions and preferences in respect of the various decisions they might make for you.
What is a Lasting Power of Attorney for Health and Welfare?
When preparing a Lasting Powers of Attorney for Property and Financial Affairs you may also wish to consider preparing a Lasting Power of Attorney for Health and Welfare. This is a legal document that gives other people you trust (your Attorneys) the legal authority to make decisions about your health and welfare on your behalf, but only if you lack the mental capacity to make these decisions yourself.
The decisions that your Attorneys will be able to make under this Lasting Power of Attorney for Health and Welfare range from day-to-day decisions such as where you should live, what you should wear, who you should see and what you should eat, to the more serious decisions about medical treatment and giving or refusing consent to life sustaining treatment.
Joint Bank Account vs Lasting Power of Attorney for Property and Financial Affairs - Key Differences
Joint Bank Account
- Provides all joint account holders with access to funds held in the joint account, but not other assets such pensions and other investments.
- Funds held in a joint account are considered joint funds, meaning that they could be withdrawn by any account holder for their own use.
- Any funds held in the joint account at the death of a joint account holder pass automatically to the surviving account holder and not by Will.
- Access to funds could be restricted or lost if mental capacity is lost to safeguard the vulnerable account holder.
Lasting Power of Attorney for Property and Financial Affairs
- Provide your Attorneys with the legal authority act on your behalf and make decisions in relation to your property and financial affairs.
- Provide your Attorneys with legal authority access and manage funds in your best interests, even if mental capacity has been lost. The Attorneys cannot use the funds for their own benefit.
- Any funds held in your sole name will pass under the terms of your Will on death.
- If you lose mental capacity, your Attorneys will still have authority to access and manage funds held in your sole name.
In Summary: Why You Should Still Consider a Lasting Power of Attorney for Property and Financial Affairs
Joint bank accounts have their uses where funds are to be held jointly with the intention that the funds are to be joint funds, but they are not a replacement for a Lasting Power of Attorney for Property and Financial Affairs.
Attempting to rely on a joint account instead of a Lasting Power of Attorney for Property and Financial Affairs will likely lead to complications, restricted access to funds, delay and an unintended distribution of funds on death.
Lasting Powers of Attorney can ensure that trusted individuals can legally manage and make decisions about your property and finances, and your health and welfare affairs even if you lose mental capacity therefore providing peace of mind and avoiding unnecessary court involvement.
How Timms Can Help
If you would like advice about making a Lasting Power of Attorney, please do get in touch.
Find out more about Wills and Probate services here.
Frequently Asked Questions
Do I still need a Lasting Power of Attorney if I have a joint bank account?
Yes. A joint bank account does not replace a Lasting Power of Attorney, as access may still be restricted if one account holder loses mental capacity.
Can a joint account holder access my money if I lose capacity?
Not always. Banks may freeze or restrict access to protect the account holder once they are notified of the loss of mental capacity.
What happens to a joint bank account if someone becomes mentally incapable
The bank may limit or stop access to the account, and a Lasting Power of Attorney or Court of Protection Deputy may be required.
Do joint bank accounts automatically pass to the surviving account holder?
Yes. On death, joint accounts usually pass by survivorship, not through a Will or intestacy rules.
Why is a Lasting Power of Attorney better than a joint bank account?
An LPA gives legal authority to manage financial, property, and personal affairs, not just access to a bank account.
What happens if there is no Lasting Power of Attorney in place?
An application to the Court of Protection may be needed, which can be time-consuming and expensive.
