A question from Bridget in Grapevine: “I manage my mom’s finances for her. My mom wants to add me as a signatory to her checking account. According to the signature card the bank wants me to sign, the account will be a joint account (with rights of survivorship). Are we doing this the right way? All my mom wants to do is give me the ability to write checks to pay her bills.”
A great question Bridget.
Having a joint bank account with your mom may seem like the easiest way to help you manage her finances. It gives you the same rights of access to the account as your mom has, so you can pay her bills, keep tabs on overdraft charges, and monitor the account for fraudulent activity.
But it is a terrible idea. Why?
There are legal risks to having a joint bank account with your mom:
- Creditors: If you have unpaid debts or a judgement is levied against you, the account could be garnished even if your mom had nothing to do with your financial problems.
- Divorce: If you get divorced, the account can be considered part of your assets, even though everyone understands the money to belong to your mom.
- Estate Planning: Got siblings? If the answer is yes, chances are your mom does not intend to leave you the full amount in the bank account when she dies. Rights of survivorship mean that upon your mom’s death, what’s left in the account automatically goes to you regardless of what is in your mom’s will.
- Gift Taxes: Your mom giving you survivorship rights to the account may be seen as a gift by the IRS. Depending on how much is in the account, your mom may be required to file a form with the IRS and pay gift tax.
- College Financial Aid: If you have a college-age child applying for financial aid, your mom’s account will be factored into eligibility.
- Credit Damage: Overdraft charges, defaults on loans if the account is used for collateral? These can damage your credit score.
Now that we understand that a joint checking account is a terrible idea, what should you do?
One option is a convenience account. A convenience account adds your name to account to give you signatory authority, but does not give you any ownership interest in the account. Unfortunately, many banks do not offer this option.
A second option is a power of attorney. With a power of attorney, your mom retains full ownership of the bank account and you have the right to make financial decisions. While there are free forms a plenty on the internet, to avoid the risk of leaving something out, have an attorney draft the power of attorney for you.
If your mom truly intends for you to be the only beneficiary of the account when she passes, you could also set up the account to “pay on death.”
One last thought. Be sure to read bank signatory cards very carefully to avoid unintended consequences. Just because the bank pre-checks a box, doesn’t mean you can’t question it.
Are you helping your mom or dad manage their finances? What challenges have you encountered? Leave a comment or send me an e-mail.
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