The Social Security Administration (SSA) manages the two largest government benefit programs for people with special needs, Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). Many of the people with special needs who receive these benefits are qualified to manage their own money and can make other financial decisions for themselves. The SSA sends these people their own benefit check each month.
However, when a person with special needs cannot make important financial decisions, either because of her disability or because she has not reached the age of majority, the SSA sends the benefits directly to a third party, known as a representative payee, who is charged with managing the funds for the beneficiary. When a parent or caregiver signs up to be a representative payee, they often do not take the time to truly explore what they are getting into, which could lead to trouble down the road. Here are a few key things to remember about being a representative payee.
It's Not Your Money
The funds you receive are the beneficiary's funds, not yours. When you agree to be a representative payee, you are responsible for managing the beneficiary's money for their benefit, not yours. In almost all cases, this means that you are not allowed to charge a fee to be a representative payee. It's easy to lose track of the beneficiary's funds, especially when family finances are mixed together. As a representative payee, you must ensure that the monthly payments get to, and are used for, the beneficiary and no one else.
The best way to ensure that the beneficiary's funds are used for their benefit is to segregate the funds in a separate bank account. This account should reflect the beneficiary's ownership of the funds, and should not be a joint account with the representative payee as the other owner. Instead, the bank account should be titled in the name of the beneficiary, with the representative payee noted on the account, i.e., "Your name, as representative payee for your child's name." Obviously, this can be difficult when you are serving as the representative payee for a minor child who lives with you. In these cases, the SSA says that the child should have his own savings account, even if most of his benefits are being spent out of the family's checking account.
File Your Representative Payee Report
The SSA requires that a representative payee file an annual accounting called the Representative Payee Report. This report details what you, as the representative payee, have done with the beneficiary's funds during the previous year. If you have kept accurate records of the beneficiary's funds over the course of the year, the report will be very easy to fill out. Commingling funds, or not keeping accurate records of expenditures, can lead to an incredible headache when it comes time to file the report. Not filing the report, on the other hand, could lead to your removal as representative payee.
Know the SSI Rules
If you are serving as a representative payee for a person receiving SSI benefits, your job is made even more difficult by the SSI program's stringent income and asset rules. For instance, SSI beneficiaries can have only $2,000 in their name in order to be eligible for benefits. As representative payee, you must make sure that you know the rules regarding asset accumulation and their effect on the beneficiary. You must also deal with any lump-sum payments that the beneficiary may receive as "past due" SSI benefits, which have their own set of rules. In a worse-case scenario, not knowing the rules can lead to loss of benefits and the possibility of overpayments that the beneficiary must repay from her own funds.
As you can see, being a representative payee is a difficult job that should not be undertaken lightly. The SSA offers a guide for representative payees here, but the best way to make sure that you have a handle on your duties is to speak with your special needs planner, who can explain the intricacies of the system and give you tips that fit your particular family member.
This information is not intended to be a substitute for specific individualized tax, legal or estate planning advice as individual situations will vary. Neither Royal Alliance Associates, Inc., nor its registered representatives or employees, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.
Securities and investment advisory services offered through Royal Alliance Associates, Inc. member FINRA/SIPC. Royal Alliance Associates, Inc. is separately owned and other entities and/or marketing names, products or services referenced here are independent of Royal Alliance Associates, Inc. Special needs consulting services are not offered through Royal Alliance Associates, Inc.
Content provided by the Academy of Special Needs Planners, Copyright 2020