The truism “With great power comes great responsibility”, defined the life of Peter Parker as Spider-Man. Taking responsibility for someone’s finance—in particularly helping them navigate the maze of rules that can surround Social Security benefits—may not be on par with saving the world, but it is a serious responsibility.
Either minor children or adults with disabilities may need help managing their Social Security benefits. In these cases, another individual, typically a family member or friend steps in as a representative payee (or rep payee for short). The rep payees’ primary responsibilities are 1) to see that the Social Security benefits are used responsibly for the beneficiary; 2) to account on behalf of the Social Security Administration for the expenditure and saving of the benefit; 3) to update the Social Security Administration about any changes that might impact the beneficiaries’ eligibility and/or payment amount and 4) to act as an advocate for the beneficiary if there are issues in the calculation and/or payment of benefits. Rep payees are not required to help manage the beneficiaries’ funds that did not originate from either Social Security or a beneficiary’s medical matters. Parents who are rep payees for minor children receiving SSI are, however, required to find the child all necessary medical treatment, and the rep payee for an adult may need to help a beneficiary access medical services in order to insure “proper” use of funds.
The rep payee must assist the beneficiary to open an account and set up the account to receive electronic transfers. The account must be titled in such a way as to show the beneficiary as the owner and the rep payee as the fiscal agent. An example of this titling would be “Jane S. Doe, representative for John H. Doe” or “John H. Doe, by Jane S. Doe, representative payee”. The funds should NOT be put into an account that is jointly owned by the beneficiary and the rep payee or any other individual together. Technically, there is some exception to this rule if the spouse or parent, who is acting as rep payee, is also receiving benefits. However, it is still far cleaner to have an account, held only for the beneficiary and designated to receive only Social Security benefits. Especially with today’s electronic record keeping, this makes it much easier to categorize and account for expenditures when required.
Until recently, all rep payees were required to file an annual accounting document report using form SSA-623 or SSA-6230 or SSA-6233, which are variations of the first. However, as of May, 2018, representative payees, who are either natural or adoptive parents or the legal guardians of a minor-child beneficiary, are exempt if they live in the same household as the child. Also exempt are the biological or adoptive parents of an adult with a disability, who receives benefits, as well as the spouse, who is rep payee, for a spouse receiving benefits. The grandparent, stepparent or guardian of an adult with a disability is still required to file an annual accounting report.
Benefit funds must go first to pay for the beneficiary’s food and shelter, and then for her or his medical or dental needs, which are not covered by insurance, and finally to pay for any qualify-of-life enhancements. Any benefit funds left over may be saved. These funds should be saved in an account that is owned by the beneficiary, even if the beneficiary is a child. If the funds are saved in an account, owned by the parent or guardian, Social Security will request the funds back at the child-beneficiary’s 18th birthday. Although the funds will be reissued to the child, the process of returning them to Social Security could have repercussions. For example, if the funds have been saved in a tax-advantaged college savings (529) plan owned by the parents, pulling the funds out would result in taxes and a penalty. On a case-by-case basis, Social Security may allow funds saved to be transferred directly from a parent-owned account to a child-owned account in order to avoid such issues, but is it best to save the funds into an account owned by the child at the outset.
Note that Supplemental Security Income (SSI), a benefit paid by Social Security, is welfare or public aid, and as such, has strict asset-ownership requirements for eligibility. If you are the rep payee for someone receiving SSI, you must be careful not to save more than $2,000 for the beneficiary in an account, owned directly by him or her unless the account is in a 529A or an ABLE account. I have written about the ABLE account in previous blogs. Generally speaking, though, since SSI is meant to cover basic food and shelter needs, it is best to spend SSI benefits to meet the beneficiary’s food and shelter needs and that save other available funds for that person’s future. Social Security Disability Insurance (SSDI) benefits or Social Security auxiliary benefits to minors or “Disabled Adult Children” (“DAC”) do not have this same eligibility restriction.
In some cases, a beneficiary may apply for benefits, but it may take the Social Security Administration some time to determine eligibility. When the determination is made, the beneficiary may receive a sum of back-pay. If the beneficiary is receiving SSI, s/he has up to nine months to spend down the back-pay sum before it is considered a resource with the $2,000 limit. The rep payee should help the beneficiary spend down the funds first on the most necessary expenditures and keep in mind which long-term purchases will “count” towards that $2,000 limit. For example, back-pay spent on a residence or a vehicle, used for work or medical treatment, will generally not count, since those are exempt or non-countable resources. In contrast, any back-pay that is invested in mutual funds will just exchange one countable asset for another, which is also subject to the same overall $2,000 limit.
Finally, the rep payee must be aware of any changes in the beneficiary’s employment, living, medical or marital arrangements and also whether the beneficiary starts receiving other income, is committed to an institution, or commits a crime, or dies. The rep payee is thus responsible for informing the Social Security Administration of any of these changes. Perhaps it is true that “Not everyone is meant to make a difference”—Peter Parker, Spider-Man, 2002) but as a rep payee, you certainly can and do.