Severance of Joint Bank Accounts

When drafting a Notice of Severance for joint bank accounts I use my precedent notice of severance for real property and adapt it. So I refer to section 36 (2) of the Law of Property Act 1925 and list the bank accounts that the clients want to sever. Is this the right approach please?

Once severed does this mean that on first death Probate will now need to be obtained? I’m presuming not. The banks will just see that the accounts were in joint names and amend to sole name of survivor presumably, without Probate? Would it then be for the survivor to ensure that half the date of death value is transferred to the executors or trustees of any ongoing trust? Just wondering how it will all work in practice.

Many thanks

Yes, the severance would only take place behind the scenes so on the first death, the survivor would become trustee for themselves and the estate of the deceased.

On a practical note, I would only consider this for a static account as any payments in/out have the capacity to make life very complicated very quickly.

Andrew Goodman
Osborne Clarke LLP

I understood from my law lecture notes [many years ago] that banking practice would override the law.

In practice, I found repeatedly that banks considered “either to sign” joint accounts relied on a continuing authority. So if the bank became aware that either party had lost capacity, then neither could sign/authorise transactions until a valid EPA/LPA/CoP Order had been registered. [Less of a practical problem for many now that banks have fewer branches with staff knowing their customers]

Not sure what Deborah is trying to achieve - perhaps asking the client to tell the bank to “freeze” the account may be simpler?

With regard to Andrew’s comment about transactions post-severance, this was a point I once raised with an “adviser” in a large London practice. I was given a long lecture on the presumption of advancement between spouses.

Where the account holders are, say, parent and child this could make life very complicated very quickly (as Andrew says) and, if there are many transactions the cost of sorting it all out retrospectively to allocate the ins and outs to the correct party may well exceed any expected tax savings (if that is the “justification” for the severance). Even if between spouses, it can get very complicated if one of them has a UK domicile and the other hasn’t.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

I had assumed that Deborah wished to exclude the right of survivorship as between the parties to the account so that each could leave by Will the share of the funds in at at death they were entitled to (which she did not specify). The bank’s mandate need not be concerned with this but the parties might surely not be happy for “either to sign” afterwards even if they are now. If they are content for a revision to “both to sign” the bank will presumably oblige. If the bank gets wind of a dispute it will freeze the account.

Whether the bank needs to recognise the death of a joint holder will depend on the mandate. If one can sign then not, absent suspicion. If the parties’ mutual trust is unaffected, and for so long as that continues, they can leave their respective shares by Will (precision as to quantum of share is desirable if only to confirm equality but especially if it is different) and leave the mandate as either to sign. Notifying the bank will be counter-productive, provoking at least its locking itself for a short time in the loo.

Many individuals put money into an account on such a basis precisely to avoid probate formalities (currently completing sometime never–"We can’t tell you now!–after the papers have been found) trusting the surviving account holder to be bound by the law of succession as regards devolution of the funds (or perhaps not, though I could not possibly comment and do not approve). The bank does not need to be notified of the death of a joint holder let alone be sent a grant. I can see as an unforeseen consequence of the Probate Service’s Meltdown as making this self-help ruse even more popular.

If the survivor alone can sign he or she can operate the account alone unless the bank stipulates for notice to it of the death. In general it will surely run the account in accordance with its mandate and avoid the intricate theology of joint ownership of bank accounts unless it is forced to interplead. Notice of an Order such as Mullenky mentions should cause it to re-consider that mandate and the effect of the Order on it. Similarly simple notice by an account holder that there is a dispute.

Jack Harper

Just to give you a little bit of background.

My client’s husband has dementia - total loss of capacity. She is his Attorney.

They have joint accounts and investments.

I have just drafted her Will to leave her estate to hear children. That is the obvious danger here - that she dies first.

At the same time as signing her Will she signed a notice of severance for all joint accounts and investments so that those can pass to her children under her Will.

Given that she has Power of Attorney for her husband would she be better taking her half share out of the accounts now and re-investing them in her sole name? Rather than rely on the severance

After severance, the wife may well be able to lawfully and unilaterally access jointly-owned (as tenants in common) funds or assets but must deal with them on the basis that her husband’s share is not hers but those of a third party. If she is his Attorney she can do with that share whatever she is permitted to do under the Power with any asset of his. In principle if she has lawful access she can take possession of his share but what she can then do with it is defined by the scope of the Power whether he is her husband or Uncle Tom Cobleigh.

Jack Harper