#51 - Joint Bank Accounts with Aging Parents: Convenience or Trouble?
Reluctant Executor News
You finally had that conversation with your parents about their estate. That was hard, but you're not done. Now you need to take action on a few things. One topic that often comes up is deciding if you should be added as a joint owner to your parent's bank account. What things should you consider before deciding? What could go wrong?
Why do families want to add adult children to their bank accounts?
The first thing to do is understand why families would want to add their adult children to their bank accounts. One concern is that parents want their kids to be able to access money quickly after they die. They could be concerned that final expenses, such as funeral or other bills, will need to be paid quickly. They don't want to burden their children with these costs, even temporarily. Often they assume that having access to their bank account is the easiest way to achieve this.
Another reason is that they want their children to access their money while they are alive. This is typically done when they want to ensure that their bills get paid if they are not physically able to pay them, all while not causing financial stress on their kids. Also, they may have heard that adding your kids to a bank account will bypass probate. They may be unsure of what exactly probate entails, but they've heard it's best to avoid it.
The key takeaway: understand why your parents are asking to add you to their bank account. This will help determine the best path forward.
What are the pros and cons of adding adult children to a bank account?
When you add anyone as an owner to a bank account, they gain all rights to the assets in that account. All account holders have the ability to deposit, withdraw, or even close the account without the other's permission, as long as the account is designated as "or" between the account owner names (which is most common).
By sharing this money, adult children will have instant access to this money, removing the concerns about quickly accessing funds to pay expenses both before and after a death. Also, if the account is titled correctly (see below), the money will go directly to the joint owner, no probate needed.
On the other hand, if there is a lawsuit, a divorce, or some other claim against one joint account owner. the entire account is now fair game. So a parent's account with significant assets, at least by percent of total net worth, could end up depleted if there is a negligent accident or a messy split.
How Account Titling Changes Your Rights—and Risks
The exact details of account access and inheritance depend on how an account is titled. One difference is if the owners are listed as "and" or "or." If it's parent AND child, then both parties need to sign off any transaction or decision. This isn't common for everyday checking accounts, but it is more common in business or investment accounts. If it's parent OR child, then either party can perform transactions without the other's consent, or even knowledge.
Another huge thing to understand is if the account has rights of survivorship or not. In general, if it is a joint account with right of survivorship, the surviving owner will inherit the deceased owner's share. If it's a joint account without right of survivorship, the deceased owner's share will go to their estate. Be aware that different states (community property vs. common law) and different situations (blended families) impact how assets are treated. Always check with a professional for your specific situation.
Options That Avoid Risk While Still Meeting Your Parents’ Needs
Again, it's important to understand why your parents want to give you access to their bank account. There are other options that may be better suited for you. If paying bills while alive is important, consider filing a Power Of Attorney (POA) with the bank, or look into convenience signer options. These options are valid while the owner is alive, but end when they die.
If accessing money after a death is critical, consider a life insurance policy. These are usually paid within 30 days of the insurance company receiving the death certificate. Also consider a Payable on Death (POD) designation. This is similar to naming beneficiaries on investment accounts. With a POD, the account assets bypass probate and transfer directly to the named beneficiary, also typically within 30 days of receiving the death certificate.
If paying for final expenses is most important, families could just allow their assets to go into an estate account. This way, all owed expenses can be paid before any distributions to heirs. This is a good option if inheritance is broken down by percentage (e.g. 3 children receive 33% each).
Estate Organization
Do you know how your parent's accounts are titled? Do you know how your own accounts are titled? If not, an Estate Organization session with Reluctant Executor can help create an inventory of all accounts with details, such as how they are titled. We also talk about what each designation means, and if it's the best option for your family.
When you're ready to stop putting off this work, schedule a call with us.