If you’ve been helping Mom or Dad with money matters, you might be wondering: “Should I have a joint bank account with my elderly parent?” The answer is, “It depends.”
That’s probably not what you want to hear. However, there truly is no one-size-fits-all approach when it comes to how much access adult children should have to their parents’ bank accounts, says Lauree Peterson-Sakai, aging client services strategy leader at Wells Fargo.
There are pros to having a joint bank account with elderly parents if you’re helping with or overseeing their finances. There also are cons. So it’s important to weigh the decision carefully and consider other options that might be a better fit for your family’s situation.
What is a joint bank account?
A joint bank is essentially the same as an individual account, except that it has two or more owners instead of one. If you and a parent have a joint bank account, that means you both are owners of the account. You both have access to the account, can make transactions and write checks from the account.
Technically, the cash in the account belongs to both of you—even if only one of you if depositing money into the account. Both you and your parent can withdraw the cash without the other's permission. So, you need to be able to trust each other to manage the money in the account responsibly.
To have a joint bank account, your parent could add you as a joint owner to an existing account. Or, you could open a new account together. To do this, you both would need to provide identification and some information to set up the new account.
The pros and cons of joint bank accounts
Having a joint bank account with a parent can make things easier for you if you are your parent’s financial caregiver. But there are risks associated with joint accounts.
- You can easily monitor transactions and account balances to protect your parent’s financial well-being.
- You can deposit or withdraw cash as needed to pay for your parent’s expenses.
- You can act as a second set of eyes to catch unusual transactions and potential fraud.
- You’ll have immediate access to the cash at the time of your parent’s death without having to go through the probate process. Those funds could be used to pay for final expenses.
- You could put your parent’s money at risk if you have financial problems. Creditors can take funds from the joint account to settle your debts.
- Assets in the joint account could affect college financial aid eligibility for any children you have and your parent’s eligibility for Medicaid to cover long-term care costs could be impacted if you’re making withdrawals from the account. Those withdrawals could be considered a transfer of assets from your parent to you, which could make your parent ineligible for Medicaid for a certain period of time.
- There could be tax complications of having a joint account. If the account earns interest, you’ll have to report the interest earned on your federal income tax return, as will your parent. Joint accounts also can have gift tax implications if the co-owners aren’t spouses.
- All the money in the account will belong to you after your parent’s death, which could create problems if you have siblings.
[ Read: What You Need to Know About Being a Financial Caregiver ]
When having a joint account does and doesn’t make sense
Having a joint bank account with an elderly parent can be convenient, but it usually isn’t the ideal approach to helping your parent with money matters. If you have siblings, it easily could lead to disputes. They might assume you are using your parent’s money for your own benefit if you aren’t carefully documenting how the money is being spent. Or, they might assume you’ll keep everything for yourself once your parent passes away. So when there is more than one child, a joint account can create more problems than it solves.
Peterson-Sakai of Wells Fargo says that a joint account could make sense if you are an only child and your parent wants you to take an active role in his or her daily money matters. You also must be committed to using the money in the account for your parent’s best interest, not yours.
Safer alternatives to joint bank accounts
Your family has several options that might be a better—and safer—alternative to a joint bank account.
View-only access. Some banks offer account owners the option to give others the ability to view their account online, Peterson-Sakai says. If you’ve noticed your parent needs help with money matters or have just started stepping in, “view-only is a great first step,” she says. Ask your parent to consider giving you view-only access to his or her account so you can act as a second set of eyes. You can also use Carefull to allow you to view accounts that you or your parent links to the app.
Having a joint bank account with a parent can be convenient, but it usually isn’t the ideal approach to helping your parent with money matters.
Many banks also allow account alerts to be sent to third parties, Peterson-Sakai says. So you could get notifications when, say, your parent’s account balance drops below a certain amount or when transactions are made—if your parent is willing to have alerts sent to your phone or email inbox. You can use Carefull for this purpose as well.
Signature authority on accounts. Rather than make you a joint account owner, your parent could make you an authorized signer on the account. This will allow you to make transactions on your parent’s behalf. However, you might be limited to certain transactions, depending on what signature authority your parent wants to give to you.
Power of attorney. Your parent could name you power of attorney to allow you to make financial transactions for him or her. This can be done by meeting with an estate planning or elder law attorney, who will draft a power of attorney document. As your parent’s power of attorney, you could gain access to all of your parent’s financial accounts, not just the bank account. However, you are required to act as a fiduciary, which means you must manage your parent’s money for his or her benefit rather than yours.
Ideally, your parent should notify his or her financial institutions if you’ve been named power of attorney. Then your parent can sign any additional documents the financial institutions require. If your parent hasn’t notified the bank or other financial institutions of your POA status and you need to start acting on your parent’s behalf, you’ll need to provide the financial institutions with a copy of the POA document (don’t give them the actual document).
Keep in mind that you won’t become the owner of your parent’s accounts as power of attorney. You’ll simply be managing those accounts and making transactions for your parent. Also, you shouldn’t use your power of attorney to take over your parent’s finances if your parent still is competent to handle things on his or her own.
Before making any decisions, consider discussing the options with a financial planner or accountant. A financial professional can help you and your parent chart the best course.
Frequently Asked Questions
What does joint account mean? A joint bank account is an account that has been opened and shared by two or more people.
Is it hard to open a joint account? Opening a joint bank account is similar to opening an account for just one person. However, both account owners must provide identification such as a driver's license and personal information such as date of birth and Social Security number.
What happens to a joint account if my parent dies? If you have a joint bank account with your parent and your parent dies, you will remain an owner of the account and will have access to the funds in the account.
[ Keep Reading: The Ultimate Guide to Financial Power of Attorney ]