Parents commonly add their children as joint owners to their bank accounts as they get older. This is a deceptively practical and easy solution to the problem of what to do when your parents become unable to manage their own affairs.

Imagine, however, this scenario: mom or dad has developed dementia or Alzheimer’s. They are in a memory care unit and they start complaining about you stealing their money. The nursing home staff have seen this a million times before so they know this is dementia talking, not truth. But then you get into an argument with the nursing home manager about some bruises that appeared on your parent’s arms and the next thing you know you are being investigated by the Minnesota Department of Human Services’ Adult Protective Services unit for civil financial exploitation of a vulnerable adult. Or worse, the police are questioning you about the alleged crime of financial exploitation of a vulnerable adult.

This is a very real scenario and something like it has happened more than once.

Watching your parent descend down the path of dementia or Alzheimer's is unspeakably heartbreaking. Changes in personality and wild, unfounded accusations are common symptoms of these cruel illnesses.

How can you prevent trouble from happening?

Joint account ownership can be problematic.

For starters, understand that as a joint account owner or signer on your parent’s bank account, you do not have the right to spend your parents’ money in whatever way you want and for whatever purpose.

If your parent appointed you as joint-owner of their bank account, you are an owner of the bank account under the terms of the bank’s contract. However, regardless of what the account contract says, you do not have every legal right to use the money in the bank account as if it was your own. Your right to spend those dollars and for what purposes depends on the many facts of your specific situation, and you would be wise to consult with an attorney before spending any money out of the joint account.

If you are only a signer on the bank account and not a joint owner, your right to spend your parent’s dollars and for what purposes will be more shaky than if you were a joint owner, and depends on the many facts of your specific situation. Again, consulting with an attorney would be very wise in this circumstance before you sign any checks.

A power of attorney is good to have… and you have to follow the rules.

Sometimes, a parent (the “principal”) will execute a financial power of attorney form naming their adult child as power of attorney (also called the “attorney-in-fact”). This form makes the attorney-in-fact a fiduciary and gives the attorney-in-fact authority to spend the principal’s money for the benefit of the principal. Being a fiduciary imposes specific obligations on the attorney-in-fact that must be followed.

Not knowing where to find the right forms, a parent might write a letter (maybe even notarized!), stating that their adult child is authorized to spend their money however the adult child wishes. Please note, such letters are often not worth the paper they are written on, and it is best to consult with an attorney to ensure things are done properly.

Keep in mind that a “principal” (such as your parent) can revoke the authority they gave you to spend their money at any time. It could be as simple as them scribbling on a paper napkin that they revoke your authority. If you are wondering whether your parent has the mental capacity to revoke the authority they previously gave you, then you are in a situation requiring a court to intervene.

That said, it is wise to have a properly executed power of attorney in place, and to then carefully fulfill all of your fiduciary duties. Before discussing those duties, I discuss some things to avoid.

Avoid any approach that results in you spending your parent’s money on yourself out of your parent’s accounts.

When executing a power of attorney form, parents sometimes want to give their adult child more flexibility, so they will check a box on the form that enables the attorney-in-fact to make gifts to themselves. Essentially, this allows the adult child to spend their parent’s money on themselves.

And, it can be tempting to spend your parent’s money on yourself if you are a joint owner of the account.

Spending your parent’s money on yourself has at least the following three risks:

1. Your parent can accuse you of stealing at any time. Your parent can revoke your authority to spend their money on yourself at any time. If you are seeking legal advice about whether their revocation is valid, you are already in a bit of a mess.
   
   
2. You or your parent could end up owing taxes. To the extent you have explicit permission to spend your parent’s money however you wish, your parent can end up with unanticipated Gift Tax consequences, because your parent is fundamentally making a gift to you. And, the two of you cannot get around that by saying, “well, my parent is paying me to take care of them, so it’s not a gift” because you now end up with income tax consequences. A transfer of your parent’s money to you has potential tax consequences and you should seek professional advice about what you plan to do before you do it.
   
   
3. Medicaid may seek to recover money given to you. Medicaid will take a very close look at where your parent’s money went and why, and has powerful mechanisms to recover money it has spent on your parent’s behalf. This consideration requires its own article, but it is important to say here: if you or your parent are at all concerned about your parent qualifying for Medicaid (for example, to pay for nursing home expenses), you need to consult with an attorney before proceeding any further.

If your parent intends to give (or pay) you money, they should, while they have the mental capacity to do it, write you a gift check that you deposit into your own bank account, or set up a service contract with you to pay you for your services in taking care of them. Seeking professional advice about the tax and medical assistance consequences of these transactions would be wise.

If you can wait it out, a better solution is usually to have your parent set up a well-drafted written estate plan that leaves you funds after they pass away, rather than transferring funds to you while they are alive. There are many risks and tax implications to consider, and it is strongly advisable to consult with an estate planning attorney about the various options.

Avoid a setup that requires you to reimburse yourself out of your parent’s accounts, if possible.

Situations involving bona fide reimbursements can come up. For example, you might pick up your parent’s prescription at the pharmacy and pay for it with your own money. You can carefully document these situations, showing what money was taken from your parent’s account and why.

However, reimbursements are risky because, again, your parent can revoke your authority to take their money, even for reimbursement purposes, at any time. And, if you forget to carefully document these situations, your parent can accuse you of stealing and the accusation could stick due to their declining mental capacity.

The best approach is to spend your parent’s money on your parent’s needs and keep all receipts, and to spend your money on your needs, and to not resort to reimbursements. This is where a properly executed power of attorney comes in, allowing you to spend your parent’s money on your parent’s needs.

Have a power of attorney in place and always behave as a fiduciary of your parent’s money.

Arguably, the best solution for how to handle your parent’s money when they become unable to manage their own affairs is to have a financial power of attorney document that was properly executed before they became incapacitated. With that power of attorney, always behave as a fiduciary of your parent’s money, and never spend their money on yourself, even if they checked the box saying you could do so. “Always” and “never” are intentional terms here: no exceptions.

If your parent gave you financial power of attorney, you are, as a matter of law, a fiduciary. But if you are named as joint owner or signer on an account and it’s too late to have them execute a power of attorney form, the best thing you can do to avoid trouble is to always behave as a fiduciary and to not split hairs about whether you are technically obligated to behave as a fiduciary or not.

How do you behave as a fiduciary in order to avoid problems? The following language is excerpted from the Minnesota Statutes, which describe the duties of a fiduciary (the “attorney-in-fact”):

DUTIES OF YOUR ATTORNEY(S)-IN-FACT: Your attorney(s)-in-fact must keep complete records of all transactions entered into on your behalf. You may request that your attorney(s)-in-fact provide you or someone else that you designate a periodic accounting, which is a written statement that gives reasonable notice of all transactions entered into on your behalf. Your attorney(s)-in-fact must also render an accounting if the attorney-in-fact reimburses himself or herself for any expenditure they made on behalf of you. An attorney-in-fact is personally liable to any person, including you, who is injured by an action taken by an attorney-in-fact in bad faith under the power of attorney or by an attorney-in-fact’s failure to account when the attorney-in-fact has a duty to account under this section. The attorney(s)-in-fact must act with your interests utmost in mind.

IMPORTANT NOTICE TO THE ATTORNEY(S)-IN-FACT

….[Y]ou must:

(1) act with the interests of the principal utmost in mind;

(2) exercise the power in the same manner as an ordinarily prudent person of discretion and intelligence would exercise in the management of the person’s own affairs;

(3) render accountings as directed by the principal or whenever you reimburse yourself for expenditures made on behalf of the principal;

(4) act in good faith for the best interest of the principal, using due care, competence, and diligence;

(5) cease acting on behalf of the principal if you learn of any event that terminates this power of attorney or terminates your authority under this power of attorney, such as revocation by the principal of the power of attorney, the death of the principal, or the commencement of proceedings for dissolution, separation, or annulment of your marriage to the principal;

(6) disclose your identity as an attorney-in-fact whenever you act for the principal by signing in substantially the following manner: Signature by a person as “attorney-in-fact for (name of the principal)” or “(name of the principal) by (name of the attorney-in-fact) the principal’s attorney-in-fact”;

(7) acknowledge you have read and understood this IMPORTANT NOTICE TO THE ATTORNEY(S)-IN-FACT by signing the power of attorney form. You are personally liable to any person, including the principal, who is injured by an action taken by you in bad faith under the power of attorney or by your failure to account when the duty to account has arisen.

TLDR (Too Long, Did Not Read), so what do I do?

The TLDR key checklist to avoid problems is this:

1. Never spend your parent’s money on yourself.
2. Keep every receipt relating to your parent’s money that you spent.
3. Keep a ledger of each expenditure you made and what it was for. You can do this in Word, Excel, in a notebook, or whatever suits you. It does not need to be fancy at all. It just needs to be accurate and complete.

Conclusion

Helping a parent through the end stage of life is something that many of us go through. The stress of taking care of our own families and responsibilities on top of taking care of a very ill parent is beyond description. The short and blunt advice to avoid your kindness coming back to bite you is to never spend your parent’s money on yourself, keep receipts, and keep a ledger.

That said, the best defense is a strong offense. It is highly advisable to work with an estate planning attorney before your parent becomes so ill that you end up in a bad situation. Even if you are now in this situation, all is not lost: seeking advice from an estate planning attorney can give you direction and peace of mind to help you navigate through this very difficult time.

To schedule a consultation at either our St. Paul or Edina offices — either in person or via Zoom, anywhere in Minnesota — please contact us online or call (651) 300-3106 for convenient, accessible legal support.

Louise Livesay and Peter Ladwein share a commitment to helping families find peaceful, practical solutions during difficult times. Together, they bring compassion, experience, and a personal touch to every case they handle.

With more than twenty years of experience, Louise has guided countless families in the Twin Cities and across Minnesota toward out-of-court resolutions through collaborative divorce, mediation, and other flexible, client-centered options. Peter shares that same dedication to protecting families and their futures. Having firsthand experience with a special needs family member, he brings a deep understanding and empathy to his work. Licensed in both Minnesota and Illinois, Peter helps clients navigate the legal process with care and clarity.

Louise and Peter work together to ensure every client feels supported, informed, and confident in moving forward toward a positive resolution.