23: Joint Account vs Power of Attorney for Finances - which is better?

I don’t have to tell you that money is important, but what does money actually signify? For some, it can be seen as an indicator of how valuable someone is to society. Whether or not you have money can affect your sense of security. Money can carry a sense of freedom. For sure having your own money is associated with being independent.

If you’re caring for an elderly parent or someone else, at some point you’re probably going to be faced with deciding whether or not to get involved with their finances. You might get concerned about their ability to pay their own bills. You might worry that they’re susceptible to being scammed or taken advantage of. You might worry that they’re going to run out of money to cover their health care.

Maybe they’ll ask you to help them handle some day-to-day finances. Or maybe they insist that they’re fine but you’re noticing bills piling up and feel the need to intervene. Either way, it can be a tricky conversation, and one in which you’ll need to keep in mind all those other things that money can mean: independence, security, value. You may be asking your loved one to give you access to their accounts for practical reasons, but they may see it as a loss of independence. They may trust you in all other realms but get suspicious if you ask about their money. 

Talking about finances can be even trickier if they have any cognitive impairment which leads them to get confused easily. At that point they need more help but are also likely to have a harder time letting go of old systems, even if they’re doing them imperfectly.

So, at some point you may find yourself in the position of needing to take over their finances. The two most common options are to add your name to their accounts, or to do a Power of Attorney for Finances. I’ll go over some differences between them and some things you might not have considered if you’re going to have to do this for someone else as a caregiver.

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Hello, and welcome to Dying Kindness, the podcast for people who are going to die someday. I'm Cianna Stewart, and I'm going to die someday. I've cared for people as they died and have supported grieving friends, both emotionally and practically. I've seen the impact that death has on the people left behind and how much worse that experience is when the grief is complicated by having to deal with a messy, legal, financial, or physical aftermath. I don't want to do that to the people I love when I eventually die. And I don't want you to either, because (spoiler alert) you are going to die someday, too. So let's all do what we can to make key decisions now in order to be kinder to the people we'll leave behind. That's a dying kindness.

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Before I get into the heart of this episode, a disclaimer. I am sharing this from my personal experience and not because I'm a financial wiz or anything. This is not financial advice. I’m going to talk about what I’ve found through my own caregiving experiences, including some stuff that was not so great. Finances can be tricky and confusing, so I’m going to share what I’ve learned in hopes it helps you.

Speaking of finances, if you’ve been getting value out of this show and you want to help me keep it going, please send a donation or became a Patreon supporter. This show will always be available for free, but it’s not free to make. So if you have the means to help me out, head over to DyingKindness.com and click the link at the top that says “Support the Show.” Thank you so much!

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As we age, the vast majority of us are going to need some help managing our day-to-day activities at some point. This can include needing help managing our finances. At the same time, the idea of relinquishing control over our bank accounts, giving someone access to our money, can trigger all kinds of anxiety. It feels really vulnerable. In some ways, entrusting someone with our money can feel even harder than asking them to help us when we’re sick. And yet we might need to ask for help paying our bills, to buy us groceries, to pay for our housing and insurance, etc. It can be tricky to find that balance between getting the support we need while ensuring  we’re not taken advantage of. And that fear of getting taken advantage of only grows as we become more frail physically and mentally. That’s right: At the exact moment we need more help, we may start to become more afraid of accepting it.

I want you to think about this, especially if you’re in the position of trying to convince your aging parents or loved ones to let you help. They might resist your help and that can be frustrating. I saw it happen with my father as he got sicker, and I’m experiencing it right now as I care for my aging aunt. When I get frustrated, I find it helpful to remind myself of what they’re experiencing, what it might feel like to lose independence, to find myself unable to do things that I used to be able to do. And it’s not hard to imagine I’m going to be a pain in the butt when I get older, too. I get cranky if I’ve just sprained my ankle and can’t walk for a while! It grounds me to remember that there’s fear and grief underneath the resistance to accepting help.

Today I’m framing this conversation around you being a caregiver because that’s a situation I know so many of us are in right now or are expecting to be at point. To make the examples even more clear, I’m going to imagine that would be caring for an elderly parent. Now, I know not all of us have parents, and not all caregiving is for parents. I, for one, am a caregiver for my aunt, and all my parents are dead. And some people are caring for loved ones who are not elderly but who need care because of some health situation. But if I had to talk about all these situations every time, it will get confusing for you to listen to this and you might miss the point. 

So, just for today, I’m going to pretend like you’re a current caregiver for an elderly parent who is single or widowed, and living independently, not in a care facility. I’m also going to assume that they have no cognitive issues right now but might in the future. If they are already in cognitive decline, then it’s too late to implement a lot of what I’m going to discuss today. See, really none of this can be done if your parent isn’t able to fully consent to having someone else manage their money. You also don’t want to get into any situation in which someone might suspect that your parent is being pressured to do any of this against their will.

So if your parent is already experiencing some level of dementia or other cognitive impairment, then I recommend talking with their doctor and working with an elder care lawyer to figure out how you might set up a system that respects their rights while giving you the support you need to care for them.

For now, let’s say your parent is mentally ok and is thinking ahead. They’re making plans for how you could start helping them manage their finances sometime in the future. The two most common options are to add you to their accounts, meaning setting up a joint bank account, or to draw up a Power of Attorney for Finances. 

Both options are valid and useful, but they’re very different and have some limitations.

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First: A joint bank account.

Setting up a joint bank account is pretty straightforward. If you’re married, you may already have a joint account so you know what I’m talking about. If you were to do this with your parent, generally the process is you would both go together to the bank in person to sign the papers, etc. It’s less straightforward if you don’t live nearby, but overall it’s not very complicated and can be done in a day. Because many people (including your parent) are familiar with joint bank accounts due to marriage, this may feel ok, like there’s little risk, but there are a few things to know before jumping in to this approach.

The big thing to consider is that a joint bank account changes the “ownership” of the money in the account. Technically, a “joint account” means that both account holders own the money. Since we’re talking about your parent adding you to an account containing their money, it’s almost like they gave you a monetary gift. Depending on the size of your parent’s account, this may affect your credit rating or tax bracket or something else because your parent’s money may very well end up being included in an evaluation of your net worth. Your parent may only be thinking about doing this to allow you to pay their bills, but in reality it means that you’d be legally within your rights to spend that money as if it were your own. If you and your parent have an easy and complete trust of each other, and you have no siblings or anyone who might cause problems about it, then this might not be a problem.

However, sometimes things change, particularly if, say, your parent starts to have cognitive issues. Some forms of dementia create increased anxiety and paranoia. Giving up full ownership of their money might trigger those feelings of anxiety, or be interpreted as a loss of independence. They may start to worry that you’ll use the money for your own needs, not just theirs—and you’d be legally within your rights to do so. On the other hand, if your parent starts to act irrationally, running up debts or randomly withdrawing large sums of money or whatever, then as joint account owner you would be held equally responsible for any overdraft fees or other liabilities that came up.

Another consideration for a joint account is the fact that it takes effect immediately. If your parent is simply trying to plan ahead, say they’re in good health and believe that they won’t need your help for years, then adding you to their account now may not make any sense. Also, in order for this approach to really enable you to handle their finances in the future, you would need to be added to all their accounts one by one so that you could legally access them—that means to bank accounts as well as insurance, utilities, etc. This can be tedious and something can be easily overlooked.

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The more complete option is to do a Power of Attorney for Finances. This is a legal document that designates an individual as a legal representative for someone else in all financial matters. The agreement is that the designated representative will manage finances on the behalf of someone else, assumedly acting in their best interests. It does not mean that the ownership of the money changes hands, only the management of it.

Sometimes, a Power of Attorney for Finances can be written so that it is effective immediately, but it can also drawn up so that it doesn’t take effect until certain conditions are met, like a physician determines that your parent has experienced cognitive issues and is no longer able to take care of themselves. Your parent should work with a lawyer in their state to be sure that the POA will cover all that will need to be covered, and that it can be implemented when needed.

Unlike the joint account approach, this will take longer and it is a bit more complicated. But once it takes effect, it will allow you to act as an agent on behalf of your parent, managing all their accounts, endorsing checks for deposit, paying bills, etc. You would be able to put some restrictions on the accounts if that was needed to protect them, like if your parent is susceptible to being scammed. Using a Power of Attorney also makes clear that the money in these accounts still belongs to your parent. As their agent, you’re legally obligated to use the funds only on their behalf, for their benefit, not for any of your personal expenses. This may be more acceptable to your parent, knowing that they don’t lose ownership of their money and you’d be prevented from accessing their accounts before they need you to.

So a Power of Attorney for Finances sounds pretty great, right? What are the downsides? First, it is more complicated to set up and I do recommend involving a lawyer. Second, if you don’t want to have it go into effect immediately, then you’re going to need to include a clause about what is needed to make it valid, and then go and get that thing when that time comes. Usually that’s something like a doctor’s evaluation of diminished mental capacity. This also means that there may be a window of time in which your parent is starting to get confused about finances but hasn’t yet hit the threshold for diminished mental capacity that would trigger the Power of Attorney. That gap in time can be quite stressful for both of you. I say this from personal experience.

Also—and here’s the thing that many don’t tell you—banks don’t always honor these Powers of Attorney, even when they’re drawn up carefully and you have the doctor’s assessment that it’s time. 

Because there have been so many cases of elder abuse in this country, some banks now have their own versions of the documents that need to be completed separately, or they might accept your POA but have additional requirements. Your parent should talk with their bank about what the requirements are and be sure that they have completed whatever forms are necessary for that particular bank. And if they change banks, they will need to do this again. 

This is the situation my stepmother found herself after my dad came out of ICU with dementia, and it’s one of the things I’m dealing with right now with my aunt. Trust me, you don’t want to learn about this extra requirement after your parent has already declined and you’re in the position of needing to take over financial management. Be sure that you review the requirements with the bank in advance, before you need them.

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So.

A joint bank account is simple to implement and takes effect immediately. It has limited application, but is quick and for some people in simple financial situations that may be all that’s needed. 

And a Power of Attorney for Finances is more complex and can be drawn up well in advance of when it would take effect. It can be flexible so that it applies to any financial account at any institution. But some banks may have their own version and reject the blanket POA.

Clear so far? We’re not done yet. The other big difference is in what happens to the money when your parent dies.

I’ll start this time with the Power of Attorney for Finances. That’s a document that applies only as long as your parent is alive. Once they die, you, as the agent, no longer have any right to access the bank accounts, pay bills, or do anything else with the money. If your parent expects you to use their money to pay for their funeral, medical bills, or any other post-death expenses, they need to take the additional step of naming you as a beneficiary on their bank account, payable upon death. Then you would need to show the death certificate to the bank to close the account and get the funds distributed. If your parent doesn’t do this step of naming you as beneficiary, once they die you’re locked out of the account and it gets handled as part of their estate.

Note that the beneficiaries are entirely separate from the Power of Attorney. What your parent puts onto their Power of Attorney doesn’t have anything to do with naming beneficiaries after death. Naming beneficiaries is done per account at each bank or financial institution. They can also choose to name more than one beneficiary if they want. 

If, on the other hand, your parent made you a joint owner of their bank account, you would assume full ownership and have full access after they died, so you could use it to pay for the funeral or whatever else is needed. You wouldn’t need to show a death certificate or anything. You’d just access the funds as you did before.

Having you get the entire bank account is fine if your parent intended for all the money to go to you anyway. But if they were expecting that the money would be divided between different people, like you and your siblings for example, then they would have to be relying on your good will to do this on your own. Because a joint account becomes the property of the surviving account owner, those funds wouldn’t be included in the overall estate and wouldn’t be subjected to whatever asset allocation was included in their will. So in our hypothetical universe, no matter what your parent wanted, it would be up to you to share with your siblings.

So, in summary, a joint account makes sense when the money in the account truly belongs to both people, like the joint ownership that is the agreement of many married couples.

But in all other cases, I think it’s far better to do a delayed Power of Attorney for Finances. Just remember to take the additional steps of contacting each financial institution to find out if they have their own versions that need to be completed in addition to the overall Power of Attorney. And remember that you parent will need to name beneficiaries for each financial account, payable upon death.

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I hope this was helpful to you. I found it to be extremely important to learn the difference between the joint ownership and the power of attorney, especially around the ownership of money. And remember that you need to set all this up before there are any signs of cognitive decline. Try not to get frustrated if your parent is feeling anxiety or distrust around whether or not they're being taken advantage of. It can be a scary time. Ask for support from legal and medical professionals so that you don’t get yourself in hot water. As a caregiver, you are already juggling a lot of things. Try to get this set up in advance so you don’t add struggling with financial management to your already long list.

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Thank you for joining me today. If you know someone who could benefit from this episode, please share it with them. The transcript and other resources are available at DyingKindness.com. The music is by Blue Dot Sessions, and everything else was done by me. I'm Cianna Stewart, and I'm going to die someday - but hopefully not before I earn enough to set up a foundation or something to benefit others after I’m gone.

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Today’s death reading is “Autobiography in Five Chapters” by Portia Nelson, as reprinted in the 20^th anniversary edition of The Tibetan Book of Living and Dying

1) I walk down the street.

There is a deep hole in the sidewalk

I fall in.

I am lost… I am hopeless.

It isn’t my fault.

It takes forever to find a way out.

2) I walk down the same street.

There is a deep hole in the sidewalk.

I pretend I don’t see it.

I fall in again.

I can’t believe I’m in the same place.

But it isn’t my fault.

It still takes a long time to get out.

3) I walk down the same street.

There is a deep hole in the sidewalk

I see it is there.

I still fall in… it’s a habit

My eyes are open

I know where I am

It is my fault

I get out immediately.

4) I walk down the same street.

There is a deep hole in the sidewalk.

I walk around it.

5) I walk down another street.