Can you still withdraw money from a joint account if one person has dementia?

According to the National Institute on Aging, financial problems are often one of the first noticeable signs of dementia. So, can you still withdraw money from a joint account if one person has dementia? The ability to access funds depends heavily on the bank's knowledge of the diagnosis and whether appropriate legal documents were put in place while the individual still had legal capacity.

Quick Summary

Accessing funds from a joint account after a dementia diagnosis depends on the bank's awareness of the account holder's incapacity. Without a durable power of attorney, the bank may freeze the account, complicating financial management for the non-incapacitated holder. Legal counsel and proper planning are essential to ensure continued access for essential transactions.

Key Points

• Bank Awareness is Key: Your ability to withdraw money from a joint account depends heavily on whether the bank has been officially notified of your partner’s dementia and subsequent lack of legal capacity.

• Risk of Frozen Accounts: Once a bank is aware of a joint holder’s incapacity, it may freeze the account to prevent exploitation, making access for both parties difficult until legal authority is established.

• Importance of Durable Power of Attorney (DPOA): A durable power of attorney, created before incapacity, designates a trusted agent to manage finances seamlessly and avoids the need for court intervention.

• Seek Legal Authority Post-Incapacity: If a DPOA was not established in advance, family members may need to go through the costly and time-consuming process of applying for a court-appointed guardianship to manage the incapacitated person's finances.

• Protect Against Financial Abuse: Responsible management requires withdrawals to be in the incapacitated person's best interest. Misusing funds, even unknowingly, can lead to legal consequences.

• Simplify and Automate Finances: During the early stages of dementia, setting up automatic bill pay and simplifying accounts can help manage finances and reduce the risk of errors or exploitation.

The Legal Implications of Shared Account Access

For many couples and families, a joint bank account offers a simple, convenient way to manage shared expenses. Both account holders typically have equal access to funds and the right to make withdrawals, deposits, and other transactions independently. However, a dementia diagnosis introduces significant legal and practical complications. The central issue revolves around the concept of "legal capacity"—the ability to understand and make financial decisions.

If the bank is not aware of the dementia diagnosis, the non-incapacitated holder can generally continue to operate the account as usual. However, this carries substantial risk. The cognitively impaired person may still attempt to make inappropriate transactions, potentially leading to financial loss or exposure to scams, a common risk for individuals with dementia.

The Risk of a Frozen Joint Account

Once a bank is officially notified that one of the account holders lacks legal capacity, their policy often dictates that they freeze the joint account. This is done to protect the incapacitated individual from potential financial exploitation, including misuse of funds by the other joint holder. The freeze remains in place until a court-appointed deputy or a designated agent with a registered Power of Attorney provides legal authority to manage the funds. This sudden restriction can cause immense disruption, making it impossible for the other account holder to pay bills, cover living expenses, or access any of the money until the legal issue is resolved.

To manage finances effectively for someone with dementia, proactive legal planning is crucial. If legal documents were created while the person still had capacity, the process is far smoother than having to go to court after capacity is lost. Below is a comparison of two key legal documents used for managing finances for a person with dementia.

Feature	Durable Power of Attorney (DPOA)	Court-Appointed Guardianship/Deputyship
Initiation	Created voluntarily by the individual while still legally competent.	Established by a court after the individual is deemed incapacitated.
Timeliness	Can be prepared quickly and takes effect immediately or upon incapacity.	A lengthy and expensive legal process that can take months to resolve.
Control	The principal chooses a trusted agent to manage their affairs.	The court appoints a guardian, who may or may not be the family's preferred choice.
Accountability	The agent has a fiduciary duty to act in the principal's best interest.	The court has ongoing oversight, requiring the guardian to provide regular reports and accountings.
Cost	Less expensive than pursuing a court order after the fact.	Significantly more expensive due to legal fees and court processes.
Scope	Can be tailored to specify which powers the agent has.	Provides the guardian with broad powers over the individual's finances and sometimes personal decisions.

Practical Strategies for Financial Management

If you are a joint account holder with someone who has dementia and no durable power of attorney exists, it's critical to act responsibly. Withdrawals should only be for the benefit of the incapacitated person. Misusing funds, even accidentally, can lead to legal liability and accusations of elder abuse. Instead, focus on protecting and managing their assets effectively.

Several strategies can be employed, particularly if the dementia is still in its early stages:

• Simplify Account Management: Reduce the number of accounts to minimize complexity. This makes tracking transactions easier for both the individual with dementia and the caregiver.
• Set Up Automatic Payments: Use direct debit or automatic bill pay for recurring expenses like mortgages, utilities, and insurance. This prevents missed payments and reduces the need for the cognitively impaired individual to handle routine financial tasks.
• Establish Spending Limits: Use prepaid or limited debit cards for smaller, everyday expenses. This gives the individual a sense of independence while limiting potential financial damage from poor judgment.
• Consolidate Investments: Combine investment accounts under a revocable trust. This can provide a smoother transition of management upon incapacitation, as a successor trustee can take over without court intervention.
• Communicate with the Bank: Inform the financial institution of the situation and provide them with copies of any legal documents, such as a durable power of attorney, to ensure a seamless transition of financial management. Some banks have specialized services for at-risk adults and can place alerts on accounts.

Conclusion

The ability to withdraw money from a joint account after a dementia diagnosis is not a simple yes or no answer; it is a complex situation influenced by the timing of legal preparations and the bank's policies. While the other joint owner can technically make withdrawals as long as the bank is unaware of the incapacity, doing so without proper legal authority is risky and potentially illegal. The best course of action is to have a durable power of attorney in place early on. If that is not an option, a court-appointed guardianship will be necessary to regain legal access to the funds if the bank freezes the account. It is highly recommended to consult with an elder law attorney to navigate these sensitive financial issues and protect the assets of a loved one with dementia.

This content is intended for informational purposes only and does not constitute legal or financial advice. Consult a qualified professional for guidance regarding your specific situation.

Frequently Asked Questions

What happens if a bank is notified about a joint account holder's dementia?

If a bank is notified that a joint account holder has lost mental capacity, it will likely freeze the account to protect the funds. Both account holders would then be restricted from making non-essential withdrawals until a legal authority, like a durable power of attorney or court order, is provided.

Can I use a power of attorney for a joint account after the person has dementia?

A durable power of attorney (DPOA) can be used, provided it was executed while the individual still had legal capacity. A standard POA becomes void upon incapacity. If a DPOA is in place and registered with the bank, it allows the designated agent to continue managing the joint account.

Is a joint account enough to manage a spouse's finances if they have dementia?

No, a joint account is not sufficient on its own. While it provides access initially, it does not prevent the bank from freezing the account upon becoming aware of the dementia diagnosis. Furthermore, it does not grant authority for assets outside of the account, like real estate or investments.

What are the risks of withdrawing money without legal authority?

Withdrawing money without legal authority, especially for personal use, could lead to legal accusations of financial abuse or exploitation, even if your intentions were good. All actions must be demonstrably in the best interest of the incapacitated account holder.

Can a person with dementia create a power of attorney?

A person must have legal capacity to create or update a power of attorney. In the early stages of dementia, this may still be possible. However, as the disease progresses and capacity diminishes, it is too late to execute the document.

What is the alternative if no durable power of attorney was prepared?

If a durable power of attorney was not prepared in time, the alternative is to petition the court for guardianship or deputyship. This is a court-ordered process that appoints a person to manage the incapacitated individual's finances and other affairs.

How can I protect my loved one from financial exploitation?

To protect against financial exploitation, establish a durable power of attorney with a trusted agent, consolidate accounts, use prepaid debit cards for daily spending, set up transaction alerts, and inform the bank about the situation so they can watch for suspicious activity.