If you're thinking ahead to a time when you might need help with money matters, you might be wondering: “Should I have a joint bank account with my adult children?” The answer is, “It depends.”
That’s probably not what you want to hear. However, there truly is no one-size-fits-all approach when it comes to how much access adult children should have to their parents' bank accounts, says Lauree Peterson-Sakai, aging client services strategy leader at Wells Fargo.
There are pros to having a joint bank account with your children if they're helping with or overseeing your finances. There also are cons. So it’s important to weigh the decision carefully and consider other options that might be a better fit for your family’s situation.
What is a joint bank account?
If you and your child have a joint bank account, that means you both are owners of the account. You could add your child as a joint owner to an existing account or you could open a new account together. Regardless of the approach you use, you both will have full access to the cash in the account.
The pros and cons of joint bank accounts
Having a joint bank account with a child can make things easier for you if your child becomes your financial caregiver. But there are risks associated with joint accounts.
- Your child can easily monitor transactions and account balances to protect your financial well-being.
- Your childcan deposit or withdraw cash as needed to pay for your expenses.
- Your child can act as a second set of eyes to catch unusual transactions and potential fraud.
- Your child will have immediate access to the cash at the time of your death without having to go through the probate process. Those funds could be used to pay for final expenses.
- Your child could put your money at risk if your child has financial problems. Creditors can take funds from the joint account to settle your child's debts.
- Assets in the joint account could affect college financial aid eligibility for your son or daughter's children and your eligibility for Medicaid to cover long-term care costs could be impacted if your child makes withdrawals from the account. Those withdrawals could be considered a transfer of assets from you to your child, which could make you ineligible for Medicaid for a certain period of time.
- There could be tax complications of having a joint account. If the account earns interest, you and your child will have to report the interest earned on your federal income tax returns. Joint accounts also can have gift tax implications if the co-owners aren’t spouses.
- All the money in the account will belong to your child after your death, which could create problems if you have more than one child.
When having a joint account does and doesn’t make sense
Having a joint bank account with a childt can be convenient, but it usually isn’t the ideal approach to letting your child help you with money matters. If you have more than one child, it easily could lead to disputes. The other child might assume you the joint account owner is using your money for his or her own benefit if there isn't documentation about how the money is being spent. Or the other child might assume the joint account owner will keep everything for himself or herself once you pass away. So when there is more than one child, a joint account can create more problems than it solves.
Peterson-Sakai of Wells Fargo says that a joint account could make sense if you have only one child and want that child to take an active role in your daily money matters. Your child also must be committed to using the money in the account for your best interest.
Safer alternatives to joint bank accounts
Your family has several options that might be a better—and safer—alternative to a joint bank account.
View-only access. Some banks offer account owners the option to give others the ability to view their account online, Peterson-Sakai says. “View-only is a great first step,” she says. Consider giving your child view-only access to his or her account so your child can act as a second set of eyes. You can also use Carefull to allow your child to view accounts that you link to the app.
Many banks also allow account alerts to be sent to third parties, Peterson-Sakai says. So your child could get notifications when, say, your account balance drops below a certain amount or when transactions are made. You can use Carefull for this purpose as well.
Signature authority on accounts. Rather than make your child a joint account owner, you could make your child an authorized signer on the account. This will allow your child to make transactions on your behalf. You can limit your child's signature authority to certain transactions.
Power of attorney. You could name your child power of attorney to allow your child to make financial transactions for you when you are no longer able to yourself. This can be done by meeting with an estate planning or elder law attorney, who will draft a power of attorney document. It's important to have this document drafted sooner rather than later because you must be mentally competent to sign it. If you become incapacitated and haven't named a power of attorney, your child will likely have to go through a lengthy and expensive court process to be named your conservator to have the legal right to help with your finances and access your accounts.
Ideally, you should notify your financial institutions that you've named a power of attorney. Then you can sign any additional documents the financial institutions require. That will make it easier for your power of attorney to step in and help when you do need help.
As your power of attorney, your child will not become an owner of your accounts. Your child will simply have the legal right to manage those accounts and make transactions for you.
Before making any decisions, consider discussing the options with a financial planner or accountant. A financial professional can help you chart the best course.
[ Keep Reading: The Ultimate Guide to Financial Power of Attorney ]