Why Opening a Joint Bank Account with an Elderly Parent Could Be a Mistake

In recent years, more families have been opening joint bank accounts with elderly parents to help manage their finances. It seems like a simple and practical solution, making it easier for children to step in and assist with banking, without the hassle of trips to the branch or complicated online services.

At first glance, it feels like the sensible thing to do. But what many people don’t realise is that this setup can lead to major issues down the line, especially if the parent loses capacity or passes away. Before going ahead, it’s important to understand the potential risks and consider better alternatives.

The Complications of Joint Accounts

Who Owns the Money?

A joint account legally belongs to both holders, but when one of them passes away, the funds typically transfer automatically to the surviving account holder.

This is rarely an issue between spouses. But if a parent shares an account with one child, the other siblings may find themselves in a difficult position, especially if the parent’s Will states that their money should be split equally. The joint account holder may legally keep all the funds, leading to potential disputes and strained family relationships.

Inheritance Tax (IHT) Misconceptions

Some people assume that a joint account might help avoid inheritance tax, but that’s a common misunderstanding.

If all the money in the account originally belonged to the parent, it remains part of their estate when calculating inheritance tax, even if it was held jointly.

Additionally, if the child withdraws money for their own use beyond their own contributions, it may be classed as a gift, potentially triggering tax liabilities for both inheritance tax and the child’s income tax.

Risk of Unauthorised Withdrawals

Another issue is the possibility of withdrawals without the parent’s consent. If the joint holder takes a lump sum, it’s very difficult to prove whether the transaction was authorised. This could lead to siblings missing out on their rightful inheritance.

A Better Alternative: Lasting Power of Attorney

To avoid these risks, it’s advisable to consider a Lasting Power of Attorney (LPA) instead of a joint account.

An LPA allows a parent to appoint a trusted individual (often a child or professional attorney) to manage their finances if they lose capacity. This ensures that all financial decisions are made in their best interest while protecting their estate and preventing unnecessary family disputes.

Unlike a joint account, an LPA does not automatically transfer ownership of the money, keeping all assets legally intact according to the parent’s wishes.

Final Thoughts

While joint accounts may seem convenient, they can lead to serious complications, inheritance disputes, tax liabilities, and financial uncertainty. To ensure your estate remains protected and fairly distributed, setting up a Lasting Power of Attorney is often the safer and smarter option.

If you currently have a joint account with a parent, it might be time to reconsider your approach. For legal advice tailored to your situation, contact Garner & Hancock Solicitors today.