The responsibilities of caregiving are diverse, ranging from physical care, to emotional support, to financial caretaking. Family caregivers who help Mom or Dad pay their bills or manage their money often need access to the parental accounts to make these tasks a little easier. Setting up a joint bank account may seem like the natural solution, but there are several reasons why this isn’t the best idea for Mom, Dad or you. There are several other ways to give a family caregiver access to a loved one’s finances in a safe, responsible manner. Caregiving isn’t just about providing the physical comforts of homecare, it also means ensuring financial reliability in the safest way possible.
So why is a joint bank account such a bad idea? It seems like such an easy solution, since you can make any checking account a joint account, and the joint holder can be anyone in your life. Most joint accounts carry rights of survivorship, meaning the other account holder continues to have access to the funds in the event of one joint holder’s death, and this is the most common reason for setting up these types of accounts. But there are a few reasons why joint accounts can cause unintentional trouble:
- Once the account is set up, both account holders have equal and full rights to the money in the account. Neither person is obligated to inform or get consent from the other before spending, transferring or giving away the funds in the account, and the bank isn’t either. The bank can’t protect either party in the event of confusion, misappropriation or outright betrayal.
- The assets in the account belong to both account holders, and so the money is available to creditors of both as well, no matter what amounts each party has contributed to the account. If, for example, Mom contributed 100% of the balance, but the child divorces, that account is considered part of the child’s assets in any divorce settlement or alimony calculation.
- When a joint account is used to disperse money to beneficiaries outside of the estate settling process, the money can be considered a gift, and gift taxes may apply. And, if the joint account holder isn’t a spouse, but both account holders are still alive, tax issues may develop for the second account holder if they withdraw more than the $14,000 per year ‘gift limit’.
- When income is assessed for nursing home care, the total account balance of any joint account is attributed to Dad, even if you and Dad are both account holders. The government doesn’t pro-rate based on who contributed what amounts, or divide by two accounts holders. Since all the money is technically available to Dad, it’s considered his money. If he plans to rely on Medicaid to cover his nursing home expenses, this can cause a real problem.
- Finally, since the account belongs to the account holders alone, the funds in the account automatically go to the child whose name is on the account upon the death of the parent, theoretically disinheriting other siblings or relatives.
So how can you solve this knotty problem, while preserving your loved one’s financial stability at the same time? Depending on your goals, there are several ways to ensure that a loved one’s funds are used in their best interests, in the most appropriate manner. Caregivers and loved ones can set up different mechanisms to pay bills, transfer funds to a child immediately upon passing, or give control of funds only during periods of medical emergency.
Next week, we’ll present Part 2 of Caregivers Cheat Sheet: Joint Bank Accounts 101.