Why you should beware of sharing a bank account with an elderly parent

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When you’re caring for an aging parent, you might automatically think it makes sense to share a bank account with your loved one so you can help them keep tabs on their money.

But there are a few compelling reasons why you shouldn’t, and we’ve got an alternative to suggest, instead!

RELATED: Living Will and Durable Power of Attorney FAQs

Try this alternative to sharing a bank account with an older parent 

Joint accounts may seem like the perfect solution to the problem of keeping an eye on an elderly parent’s finances as advanced age makes them less and less financially independent.

However, a fix that potentially seems like a dream come true can quickly turn into a nightmare because of some potential legal pitfalls involving joint accounts.

For example, regardless of whether the adult child or the aging parent owes debts, the money in the account can be used by creditors to satisfy those debts. So by adding an adult child to their account, the aging parent exposes him or herself up to possible financial harm in this way.

Second, any siblings whose names are not on the joint account could find themselves disinherited when a parent dies. Depending on state law, the money could go directly to the adult child named on the account.

Third, any assets in a joint account could be listed as part of an adult child’s divorce proceedings.

And finally, if an adult child signs on as a joint owner of an account with an older parent, the adult child must list those assets should their own children (as in the elder parent’s grandchildren) seek financial aid to go to college.

The same holds true for an elder parent who is trying to apply for Medicaid — any money in a joint account will be factored into eligibility, even if the money belongs more to their adult child than to the aging parent.

Here’s a better idea…

When you consider all those possible legal risks, a better solution might be a durable power of attorney (DPA).

This indispensable document gives you as the child of an ailing parent the legal right to make financial decisions and transactions on your parent’s behalf should he or she become unable to do so.

Such transactions can include managing bank accounts, paying bills, filing taxes, applying for government benefits and breaking a lease, among other things.

Read more about the durable power of attorney document here on Clark.com. For a list of durable power of attorney forms by state, click here.

When done right, a DPA gives you all the upside of a joint account arrangement with much lower risk.

However, one word of caution about DPAs: An aging parent must be very careful in choosing the adult child they want to have durable power of attorney privileges. That’s because the designee (called an “attorney-in-fact”) will not be regularly supervised by any court.

So if there is any financial elder abuse that happens, it may be difficult to undo the damage — even after a court steps in should the attorney-in-fact (the adult child) abuse his or her power.

That said, the potential benefits of DPA likely outweigh the risk. And when you’re talking about end-of-life financial planning, anything that can be simplified should be.

“Very few people like to think about the end, but there’s an uncontested 100% chance that we’re all going to die someday,” money expert Clark Howard notes. “A little preplanning can go a long way in alleviating the burdens both financial and emotional on loved ones.”

With that in mind, here are a few other important documents someone in their last years should have in place…

Make sure your ailing parent has a will 

This is ground zero for estate planning! Fortunately, though writing a last will and testament was once the exclusive domain of lawyers, today the process has been democratized and simplified by the Internet.

Check out any of these online sites that will help you draw up a legal will for free in 15 minutes or less.

Don’t forget a medical power of attorney, too! 

A healthcare or medical power of attorney is a legal document that names you as the adult child of an ailing parent as their “medical agent.”

Unlike a durable power of attorney, which only addresses the financial part of the picture, a medical power of attorney form is strictly for health care choices should your parent become incapacitated.

When this document is signed, the power is your hands to make informed medical decisions on your aging parent’s behalf after consulting with their doctors.

For a list of medical power of attorney forms by state, click here.

Other considerations

The Montana State University Extension offers the following suggestions if you’re watching over the finances of an elderly parent:

  • Does your parent have a living will in place? A good medical power of attorney document should supersede the need for a living will, but you can never be too prepared!
  • Many older people have a safe deposit box with important papers, such as birth and marriage certificates, dissolution of marriage documents, Social Security and military service records and other valuables. Know where the box and key are located. Do an inventory with your parent to determine the contents and make a list for easy reference.
  • Know where life, health and property insurance policies are kept.
  • Keep an updated list of investments, including stocks and bonds, savings accounts, certificates of deposit, etc.
  • Maintain an updated list of personal and real property that your parent owns.
  • Locate the contact info for any financial advisors your parent uses.
  • Will survivors be entitled to any kind of death benefit after the parent passes away? If so, whom should the survivors contact to start the claims process?
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Theo Thimou About the author:
Theo has co-written several books with Clark Howard, including the New York Times #1 bestseller Living Large in Lean Times. As a single widowed parent of two young children, he strives to bring unique savings tips to men and women like him who must face life without their spouses. He can be reached at [email protected]
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