Like any other financial move that seems to make sense at first, a joint bank account could actually create more issues than it solves, warns NextAvenue in the article, “Should You Have a Joint Bank Account With Your Parent?”
A joint bank account can be a quick and easy way to help your parents pay bills and monitor their spending. With you monitoring their account, it’s also easier for you to see potential fraud. It allows an adult child to watch for unauthorized purchases or other issues with the account, like late fees or overdrafts. Another benefit is that in the event of your parents’ deaths, you will have immediate access to the account funds without the need to go through the probate process. This can be helpful when paying burial and other final expenses.
However, there’s plenty that can go wrong if you have a joint bank account with your parents.
First, your parents’ money won’t be safe from your own debts or liabilities. If something happens to you, like an accident, divorce, or bankruptcy, you’ll be putting your parents’ money at risk. Depending on the rights of survivorship on the account, all the money in the account could go directly to you when the last of your parents dies. That would disinherit your brothers and sisters.
If you make deposits to the account yourself, it may impact your parents’ eligibility for government benefits, like Medi-Cal. A joint account may also play a role in your child’s student financial aid eligibility because government and financial institutions can designate all the money in the joint account as your money—even if half of it is yours and half belongs to your parents.
There can also be tax implications to having a joint account. The IRS could deem this to be a gift, triggering a gift tax return, if the account is valued above $15,000 (from each parent for 2018). Likewise, if the parents and adult child open a new account together, and the parents deposit a large amount of money which the adult child later withdraws, it could arguably be seen as a gift.
Look at these options that might work better for you and your family instead of a joint bank account:
- With signature authority on an account, you can pay your parents’ bills. However, 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.
- With a durable power of attorney, an adult child can make financial decisions on the accounts that are titled in the parents’ names. The DPOA should be durable, so that it will still be in place, if the parents become incapacitated. However, banks often are very reluctant to honor powers of attorney -- even when they are done on the bank's own forms.
- Your parents can create a revocable living trust, appoint you as co-trustee and open a bank account in the name of the trust. Talk with an estate planning or elder law attorney to see if this makes sense in your situation.
- If you’re worried about your mom or dad’s mental capacity, you petition the court for conservatorship, which will let you to manage his or her finances. The conservator doesn’t own the funds, and the money can’t be garnished or seized to settle a conservator’s debts. However, it’s a difficult, complicated and costly process. All concerned may be better served to have a durable power of attorney in place, before a parent becomes incapacitated.
- What if your larger concern is that funds will not be available after your parents die, because they’ll be part of probate? One way to address is by adding a ““Payable on Death” provision to their bank account. The funds will be paid directly to the account’s beneficiaries. A word of caution: speak with an estate planning attorney to be sure that this will not have an impact on any estate planning already in place. Also recognize that a payable on death designation does nothing to gain access to funds for your parents' needs while they are alive.
Reference: NextAvenue (July 17, 2018) “Should You Have a Joint Bank Account With Your Parent?”