Should You Have a Joint Bank Account With Your Parent?
That could be helpful for both of you, but there are drawbacks
(This article previously appeared on Samada.com.)
Taking care of an aging parent is full of challenges. So on first thought, opening a joint bank account with your mom or dad seems like a no-brainer. Dig deeper though, before you make such a move. For all the advantages, there are risks and complications.
“Opening a joint bank account with your aging parent is one of those plans that sounds like a good idea, but usually isn’t,” says Joshua Zimmelman, a tax accountant and president of Westwood Tax & Consulting in Rockville Centre, N.Y.
Advantages of Having a Joint Bank Account
A joint bank account can be the simplest and easiest way to help parents pay bills and monitor and track their funds, says Lauren Klein, a Certified Financial Planner and president of Klein Financial Advisors in Newport Beach, Calif. There’s a certain amount of comfort that comes from knowing that your parent’s bills are being paid on time. You can use a parent’s account to make everyday purchases like groceries for him or her as well as to pay for bigger expenses, keeping these separate from your personal accounts.
And with your eyes on their account, it’s easier for you to spot potential fraud. “It allows the adult child to check for unauthorized purchases or other problems with the account such as late fees or overdrafts,” points out Linda Sherry, director of national priorities for Consumer Action, a consumer advocacy organization in Washington, D.C.
Another benefit is that in case of your parent’s death, you’ll have immediate access to his or her funds, without having to go through probate. This may be especially helpful for paying funeral and other final expenses.
Disadvantages of a Joint Bank Account
What can go wrong if you have a joint bank account with your parent? Plenty.
For starters, your parent’s money won’t be safe from your debts or liabilities. Should something happen to you — like an accident, divorce or bankruptcy —your parent’s money will also be at risk, warns Zimmelman.
Also, depending on the rights of survivorship on the account, all the money in the account could go directly to you when your parent dies — disinheriting your siblings.
Know too that if you add any money to the account yourself, it may affect your parent’s eligibility for government benefits (such as Medicaid). A joint account could even affect your child’s student financial aid. That’s because government and financial institutions can count all the money in the account as your money, even if half of it is yours and half is your parent’s.
Finally, there can be tax implications to having a joint account.
“A parent should not simply add the adult child’s name to their account. The IRS could deem this a gift, triggering a gift tax return if the account is valued above $15,000 in 2018,” says Melinda Kibler, a Certified Financial Planner with Palisades Hudson Financial Group in Fort Lauderdale, Fla. “Similarly, if the parent and adult child open a new account together and the parent deposits a large amount of money and the adult child later withdraws that money, it could be argued this was a gift as well.”
5 Alternatives to a Joint Bank Account
Consider one of these five other options that might work better for you and your family
1. Signature authority on an account or accounts. With this, “you’ll be able to pay your parents’ bills, but you won’t be authorized to use the money in ways that aren’t for their benefit and the money will be protected from your creditors,” explains Zimmelman.
2. Power of attorney. Establishing power of attorney allows the adult child to make financial decisions on the accounts still titled in the parent’s name. The power of attorney should be durable, meaning it will still be in place if the parent becomes incapacitated. A power of attorney lays out the responsibilities and approved financial transactions the adult child can take part in. Having a lawyer prepare a durable power of attorney costs about $150 to $400, depending on the complexity or the location.
3. Revocable living trust. Your parent can establish a revocable living trust, appoint you as co-trustee and open a bank account in the name of the trust with two signers. Consult an estate planning or elder law attorney to determine if this makes sense in your situation.
4. Guardianship. If you’re concerned about your parent’s mental capacity, you can apply for guardianship, which will allow you to manage his or her finances. The guardian does not own the funds and the money can’t be garnished or seized to settle a guardian’s debt. However, this can be a difficult and complicated process; it’s best to plan ahead by having a durable power of attorney in place before a parent becomes incapacitated.
5. Payable on death provision. If the primary concern is avoiding having money tied up in probate after a parent’s death, your mother or father can add a “payable on death” provision to financial account(s). With this provision, the money in the account will bypass probate and be paid directly to their beneficiaries, says Zimmelman. However, you may want to consult with a lawyer to make sure that this won’t contradict a will or any other estate planning that has been done.