Should You Have a Joint Bank Account with a Parent?

How does a joint bank account work?

When you and a parent share a joint bank account, both of you own the account and have complete control over it. You could open a new account together, or they could add you to an existing account. Either way, you can both withdraw funds, pay bills, save for future purchases, and make deposits.  

What are the benefits of a joint account?

The primary advantage is that you can conveniently keep an eye on transactions and balances to safeguard your parent’s finances. By providing another set of eyes on the account, fraudulent activity and unusual transactions are less likely to get through unnoticed. You can also make deposits and withdrawals when you need to pay your parent’s expenses.

Another benefit is that you will have access to funds to pay for funeral costs and any other final expenses without going through probate when your parent dies.

Related: How to Help Your Aging Parent Avoid Scams

Why would a joint bank account with a parent not be a good idea?

A joint bank account with your parent can be convenient, but it is often not the best approach to assisting your parent with financial affairs. Consider these:

• If you run into financial problems, creditors can take money from the joint account to settle your debts, putting your parent’s money at risk in the process.
• Unless you are an only child, a joint account with a parent could result in disputes with your siblings. They might believe you are using your parent’s money for yourself, or they could assume you will keep the money when the parent passes. This would leave you with a joint bank account with a deceased parent, meaning you receive full ownership of the account.
• The assets in a joint account could affect financial aid eligibility for your college-age children.
• Your parent’s eligibility for Medicaid covering long-term care costs can be affected if you make withdrawals from the joint account. Any withdrawals could be deemed a transfer of assets from your parent to you, making your parent ineligible for Medicaid for a specific period.
• An interest-bearing joint account could cause tax issues since you and your parent will be required to report any interest earned for federal tax purposes.
• Joint accounts also can have gift tax consequences when the co-owners are not spouses.

Alternatives to the joint bank account

In many cases, the risks of a joint bank account with a child or a parent can outweigh the benefits. If that seems to be true in your family’s circumstances, look at these alternatives:

Power of attorney

Your parent could name you power of attorney to deal with their financial matters in place of having a joint account with them. You could make deposits, pay bills, and manage any investments with the financial power of attorney. Set up a meeting with an estate planning or elder law attorney to draft the power of attorney document.

Signature authority

Instead of having you as a joint account owner, your parent could make you an authorized signer. As such, you can access your parent’s bank account, pay bills, and make any purchases that are in your parent’s interest. A bank can set this up with both signatures.

View-only access

Some banks give their account owners the option to allow others to see their accounts online. For those adult children starting to notice that their parent needs help managing money, the view-only access is an excellent starting point. Talk to your parent about this relatively safe alternative to the joint account.

Before you make any decisions, you should discuss all the options with an accountant or financial planner. These trained financial professionals can provide insight into the best choice for your and your parent’s specific circumstances.