If you’ve just taken over managing your elderly parents' finances, you’ve likely asked yourself, “Should I set up a joint account with them?” It can be convenient and may provide instant access to money after your parents die, without going through probate court.
However, it’s not for everyone. Knowing whether this is the right choice means taking a deep dive into the benefits, legal and financial implications, and potential risks. In this guide, we’ll unpack what to know about managing a joint account with your elderly parents.
Key Takeaways
Setting up a joint account with your elderly parents ensures you have the same access to their money as they do.
Joint accounts ensure that bills get paid and the money is safe.
Using Trustworthy as a financial tool for managing your parent’s finances can make having a joint account much more beneficial.
Benefits of Setting Up Joint Accounts With Elderly Parents
Setting up a joint account to manage your parent’s finances makes sense because you will have the same access and rights as they do. While the account is the same as an individual account, there are now two owners.
So, what are the benefits of owning a joint account? Let’s explore them below.
Easy Management of Finances
One of the biggest perks of having joint ownership is easy and instant access to your parent’s bank accounts, which is a great help when you’re in charge of making payments and ensuring all funds are accounted for.
If you prepare budgets for your parents, having instant access to an overview of their accounts is crucial. Keep track of your parent’s accounts by using an online platform like Trustworthy to create and oversee budgets and set reminders for bill payments. With Trustworthy's Family Operating System®, you can store all your parents' financial documents in a secure location that is easy to organize and access.
Streamlining Payments
As we get older, physical and mental challenges may eventually hamper our ability to remember when and what payments need to be made, so having access to a joint account can eliminate this problem.
You can easily set up automated payments through online banking so you never miss a payment again, and set up reminders for other important finance-related tasks. By accessing your parent’s account, you can watch for pesky late fees and overdrafts.
Added Security
Having an extra pair of eyes on your parents' account can help, especially as elderly people are often targets of financial scams. According to the National Council on Aging, the FBI reported that around $3.4 billion in fraud losses were reported by Americans over 60.
Some of the most common scams are imposter scams, especially impersonating the Social Security Administration. Having eyes on your parents’ accounts can help you spot suspicious or fraudulent activity.
This added security can also help you determine if your elderly parent is overspending due to cognitive decline, and you can step in before things spiral out of control.
Instant Access to Funds After Death
Another benefit of setting up a joint account with your aging parents is that it provides a financial lifeline when your parents pass away. Having this type of account means you have instant access to the funds without going through probate court, which can take some time. This is especially useful if you need the money to pay for funeral expenses and other medical bills.
How to Set Up a Joint Bank Account With Your Elderly Parent
The process of setting up a joint bank account with your parents is not a particularly difficult one. You’ve just got to choose a bank that offers this type of account.
Here’s how you’ll set it up:
Discuss the parameters of the account: It’s a good idea to chat with your parents before opening the account to discuss the goals and wishes of the account holders. For example, they may wish to retain some control over their finances by requesting you update them on what money is being used and where.
Start a joint account application: You can either select the joint account option on the application or add a co-applicant to the application.
Fill out the application: Each account holder must fill out their personal details, such as name, surname, date of birth, contact information, and Social Security number.
Provide all documents: Banks require each co-owner to provide a government-issued ID and sometimes a proof of address.
Keep copies of all your account details somewhere secure but still easy to locate, like Trustworthy. Trustworthy's collaboration features make it easy to share these documents with the people who need them, such as family members and estate planning attorneys.
Legal and Financial Implications of Joint Accounts
Before you rush off to apply for a joint account with your elderly parent, take a moment to consider the legal and financial implications of this type of account. Because both account holders are owners, all aspects of your finances will be linked.
For example, if you apply for credit, whether it’s a new credit card or a mortgage, and your parents have a poor credit history, this could impact your ability to take out credit because your finances are linked.
Think about your parent’s medical care. The funds in the joint account can bring financial challenges, like affecting your parent’s eligibility to qualify for Medicaid.
Don’t forget about taxes, because joint bank accounts can bring about some tax problems. For example, if you deposit a large sum of money into the account and your parent withdraws it, this could trigger gift taxes if it’s more than the tax limit. If the account is earning interest, both you and your parent must file the interest on your income tax returns.
Adam Mangiapane, a trust relationship officer at Greenleaf Trust in Michigan, advises: “Clear communication and documentation related to joint accounts is essential. Consulting with an estate planning attorney can help navigate these complexities and ensure that ownership and titling of financial accounts align with estate planning goals.”
When to Add a Family Member to a Joint Account
The legal and financial implications of joint accounts are complex already. Adding a family member into the mix can be a really good idea or a bad idea, so the key is knowing when the right time is.
One of the most common reasons elderly parents will add another family member to the joint account is so they have monthly access once they pass away without involving probate court. This is a good idea if they want their children to have equal access to money.
If more than one family member is a caregiver, they must be added to the joint account to use the money for care purposes. The person managing the finances will ensure that family members with access to the account are not misusing the money.
If you manage their finances, you can use Trustworthy’s collaboration features to share budgets and other important financial details with your trusted network. Advanced security features like 256-bit AES encryption and two-factor authentication, and HIPAA and SOC 3 compliance keep your sensitive information safe.
Managing Day-to-Day Finances Through Joint Accounts
Having a joint account makes it easy to manage your parent’s day-to-day finances, like setting money aside for groceries, medical expenses, and emergencies and ensuring that money is saved each month for retirement income.
Keeping track of all this while working and having your own responsibilities can be overwhelming. Consider using a financial tool like Trustworthy to help you manage your everyday life. Trustworthy’s money tab allows you to set up reminders for payments, create budgets, and stick to them.
How Joint Accounts Can Impact Estate Planning and Inheritance
Having a joint account is an effective estate planning strategy because it generally removes probate court entirely from the equation when one account owner passes away.
Most joint accounts come with a “rights of survivorship,” which means that if one co-owner passes away (the parent), the money left in the account will immediately go to the other co-owner, who would be the adult child.
While, in theory, this seems great, joint accounts can often cause estate disputes among family members if no proper estate planning is carried out.
Greenleaf Trust's Mangiapane explains: “Discrepancies between joint account ownership and estate documents can lead to disputes among heirs. For instance, if a parent intends for their assets to be divided equally among children but has a joint account with only one child, this could create tension and conflict among siblings.”
If a parent had wished for their money to be shared equally among all her children but only had one child as a co-owner of the joint account, that money would go to them. If the relationship between the siblings is sour, the chances of that money being shared equally are slim.
Potential Risks of Joint Accounts
We’ve explored the benefits of a joint account, but what about the risks?
While sharing a bank account with your parents is convenient if you’re managing their finances, there are some risks:
Financial risks: Because your finances are linked if you or your parents have bad credit, this can affect the other co-owners.
No rights of ownership: Because all co-owners have equal rights to the money, your elderly parents can withdraw money at any time without your permission.
Strained family relationships: These accounts can cause disputes among siblings over how money is being spent.
Another potential risk of having a joint account with multiple co-owners, even if they are family, is misuse of the money. You can keep track of who is spending what by using Trustworthy’s money tabs. Keep a catalog of receipts to track expenses and protect the money from being used for ulterior motives.
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