Should I Open a Joint Bank Account With My Elderly Parent?

Pros of Opening a Joint Bank Account With an Elderly Parent

Sharing a bank account could give your parent a second set of eyes on their account, which could be helpful in the following ways:

• Easier to manage a parent's finances: Sharing an account makes it easy to help your parent pay bills and manage their funds. Joint accounts provide a convenient way to pay for their expenses, from groceries to medical care, while keeping their finances separate from your personal accounts.
• Streamlines payments and withdrawals: Easily deposit and withdraw cash as needed to handle your parent's expenses.
• Helps to look out for fraud: Having access to your parent's account allows you to spot late fees, overdrafts and more serious account problems like fraudulent transactions.
• Instant access to account upon a parent's passing: A joint account can provide a financial lifeline when your parent passes away. Having access to their funds allows you to pay for hospice and funeral expenses without going through the time-consuming process of probate.

Sharing a joint account is one of the easiest ways to manage a parent's expenses while they're alive and avoid financial hardships when paying for their remaining bills after they pass.

Cons of Opening a Joint Bank Account With an Elderly Parent

While sharing a joint bank account is a convenient option to assist in your parent's finances, it does present some risks, such as:

• Financial risks with joint accounts: With any joint account, each account holder could be impacted by the financial decisions of the other. For example, either of you could withdraw cash without the other's consent. Similarly, a creditor could unexpectedly access funds from your joint account to settle unpaid debts.
• Could create inheritance issues with siblings: According to the Federal Deposit Insurance Corp. (FDIC), ownership rights for funds in your joint account are usually transferred to the survivor when the other account holder passes away. This could potentially lead to conflicts with siblings or other heirs expecting to receive a share of the funds.
• Could affect Medicaid and student aid eligibility: Your parent may depend on Medicaid to cover long-term care costs. But if you contribute your own funds to the joint account, you may inadvertently push your parent's income over the Medicaid limit for eligibility. The money in your account could also affect the amount of needs-based college financial aid you or your college-aged child may qualify for.
• Could encounter tax issues: If your joint account earns interest, the funds could be subject to taxes. Also, keep in mind that if either of you withdraw more than $14,000 in a given year, it could be subject to gift tax by the IRS.

What to Consider Before Opening a Bank Account With Your Parent

The decision to open a joint account with a parent is an important one that shouldn't be made without considering the complications that could arise, such as:

Durable Power of Attorney

A power of attorney is a legal document that enables you to act on your parent's behalf, and it could be useful if you plan on managing their finances. If your parent is mentally sound and designates you to make decisions on their behalf, it could help to avoid potential inheritance issues with other heirs who want someone else to make those decisions.

Your Parent's Will

Additionally, your parent can further solidify their intentions with a clear and updated will. However, it's important to consider that your account's rights of survivorship could go to you as the joint account holder despite the provisions outlined in the will. As a result, other heirs could be essentially disinherited, leading to a host of potential problems. Your parent might consider consulting an estate planner before proceeding.

Financial Aid Eligibility

Before opening a joint bank account with your parents, consider how it might affect their ability to qualify for Medicaid. Medicaid helps people with limited resources pay for various medical services, but they could become ineligible if the account funds are factored into their eligibility. Similarly, if you, your spouse or a college-bound child seeks financial aid, their eligibility for needs-based assistance may be impacted if your account and other assets are verified.

Age and Health Considerations

If a parent is experiencing cognitive decline due to dementia, Alzheimer's disease or another condition, sharing a bank account with them could help you make sure their bills are paid on time while keeping an eye out for potential fraud. If an elderly parent is facing significant health issues, knowing you have access to their account and financial management could provide them with peace of mind.

Alternatives to a Joint Bank Account With Your Elderly Parent

Depending on your situation, the risks of a joint bank account with your parent may outweigh its advantages. In that case, consider the following alternatives:

• Durable power of attorney: An estate planning attorney can draw up a durable power of attorney document for between $200 and $500. The document gives you the legal right to handle certain financial transactions, not just the joint bank account, as outlined in your parent's wishes. A durable power of attorney could also grant you the ability to make these decisions even if your parent becomes incapacitated.
• Signature authority: Rather than setting up a joint bank account, your parent could ask their bank to designate you as an authorized signer on their existing account. That way, you could have to access their account, pay bills and manage their expenses without setting up a fully joint account.
• Payable on death provision: Your parent can add a payable on death provision to their bank accounts to make it easier for their heirs to receive funds directly and avoid probate. The information in the payable on death provision should mirror provisions they may have established in a will.

Protect Your Parent Against Elder Fraud

According to a 2022 FBI report, the agency received over 88,000 fraud complaints from victims ages 60 and above resulting in $3.1 billion in losses—an average loss of $35,101 per victim. Sharing a joint bank account or having signature authority could help you monitor your parent's bank account for signs of fraudulent activity. Another way to protect against elderly fraud is to use free credit monitoring from Experian to detect any suspicious activity, such as an unauthorized credit account opened in their name.