Opening a Joint Bank Account With an Elderly Parent: The Pros and Cons

Opening a joint bank account is one way for an adult child to assist an aging parent with managing their day-to-day finances. The following list provides some examples of the advantages of sharing a bank account with a parent:

• Allows closer monitoring of a parent’s accounts to provide extra security. Seniors are often targets of fraud. Regularly checking their account statements makes it easier to spot. If you’re worried your parent may be suffering cognitive decline, you can also keep track of their purchases to make sure they aren’t overspending.
• Ensures bills are paid on time. You can easily pay your parent’s bills with automatic payments or checks from the joint account. This may come in handy for paying for housekeeping expenses, home care services, or emergency medical care.
• Gives adult child access to funds after a parent dies. With a joint checking account, you have immediate access to funds without having to go through probate. This can help with funeral expenses and hospital or hospice bills.

Depending on your financial situation, the decision to combine accounts could be detrimental to both you and your parent. The following list provides examples of risks families should consider before opening a joint account.

There are no rights of ownership

“The money in that joint account is now owned equally by the parent and the child,” writes Timothy L. Takacs, a certified elder law attorney in Hendersonville, Tennessee. “This means the child can take out money at any time without the parent’s consent.” In other words, the money isn’t split 50/50. Either person can withdraw the entire account without penalty or authorization from the others named on the account.

A joint account can inaccurately count toward financial assets

The funds in the account can affect your ability to qualify for financial assistance. For example, sharing a bank account could put an elderly parent above the income threshold for Medicaid. It could also affect financial aid for prospective college students.

Risk of credit damage or debt

Joint bank accounts are subject to liens, debt collection, divorces, and bankruptcy. This can put either party in financial danger due to the other’s circumstances.

• If the adult child on the bank account gets divorced, their parent’s contributions can be considered part of their assets to be split in the separation.
• If either party declares bankruptcy, the entire account is considered an asset.
• Creditors can pursue the funds if either party owes money for medical bills, child support, etc.

Sharing an account may strain family relationships

Money is the main reason adult siblings fight over their parent’s care, and joint bank accounts can lead to disputes. If one sibling is a primary caregiver, or helps their aging loved one pay bills, it may seem sensible for them to take over an elderly parent’s finances or to set up a joint account.  But siblings could question how and why money is being spent, says Mike Travers, a Certified Financial Planner in Ontario, Canada. They may accuse the joint account holder of financial abuse, especially if the funds appear to be misappropriated. “Parents need to be mindful of what they may set their children up for,” says Travers.

Let our care assessment guide you

If the risks of a joint bank account outweigh the benefits in your family’s circumstances, consider these alternatives:

• Signature authority on accounts. The IRS suggests signature authority, which allows an adult child access to their aging parent’s bank account. They can use it to pay bills and make purchases as long as they’re in the loved one’s interest. Your local bank branch can set this up easily with both signatures.
• Power of attorney. With power of attorney, an adult child can handle financial matters on their aging parent’s behalf. This means they can deposit social security checks, pay bills, or manage investments. With financial power of attorney, a child can also maintain or sell assets and access bank accounts. A durable financial power of attorney is recommended, since it remains in effect even if the parent is incapacitated.
• Payable on death provision. An aging parent can add a “payable on death” provision to bank accounts, according to Legacy Assurance. This ensures their money will bypass probate and be paid directly to beneficiaries. If they have a will, it’s important to be sure the two don’t contradict each other.
• Revocable living trust. Aging parents can put money for relatives into a revocable living trust (“revocable” means parents can alter the trust as long as they’re mentally competent — after that, it becomes an “irrevocable” trust).^[01] There are three parties involved: the creator, the co-trustee who manages assets (which could be an adult child), and the beneficiaries. This is only a viable option if the elderly parent has sufficient finances to set up a trust.
• Direct deposit. An adult child can open a checking account in their own name to manage their parent’s funds. Even though it won’t accrue interest, the balance can be altered with regular deposits. For instance, if a child generally spends $1,000 a month on their parent’s care, the parent’s individual savings account or trust could automatically deposit that amount on a monthly basis.

Talk with a Senior Living Advisor

Every family’s financial situation is different. Consider consulting a certified financial advisor to understand how to best help your elderly parents. Visit the Certified Financial Planner Board of Standards to search for one by city, state, or ZIP code. Certified elder law attorneys are often also experts in financial issues related to aging. Visit the National Academy of Elder Law Attorneys to find one in your area.

Before selecting an advisor, ask about their experience with elderly finances. Registered financial gerontologists have extra training in providing financial advice to aging adults and their families. In addition, some geriatric care managers offer financial advising or can link you with an advisor who specializes in elder-care finance.