The Do's and Don't's of Being a Rep Payee
As a financial planner, I regret to admit that my kids are pretty nonchalant about managing their allowance. But since they are too young to have to pay for their own necessities, the worst thing that can happen if they spend all their weekly disposable income on Pokemon™ or Magic the Gathering™ cards is that they will never get that Nintendo Switch™ that requires months of saving. Your child or adult child, who is receiving benefits such as Supplemental Security Income (SSI) and Social Security Disability Insurance, however, may need your help as a representative (rep) payee to pay more important expenses, as well as follow the rules so that they do not lose eligibility for continued benefits.
What do I do as a rep payee?
Your role as a rep payee is to help the Social Security beneficiary manage their benefits to cover their current needs. You are also responsible for alerting Social Security if the beneficiary’s situation changes; for example, if the beneficiary moves, has an improvement in their condition, begins or ends employment, gets married, divorced, or widowed, starts receiving another benefit, travels outside the United states for more than 30 days, is committed to an institution or imprisoned for a crime (for more than a month), no longer needs a rep payee, or dies. Specifically, for beneficiaries receiving SSI, you must let Social Security know if the beneficiary or their spouse (if married) has any change in income or countable resources, if they move into or out of an institution, or if they have a change in the member, comprising their household.
You must also let the Social Security administration know if there have been any changes on your side; for example, if you are no longer responsible for the beneficiary, you move, you no longer want to be the rep payee, or you are convicted of a crime.
What should I spend the benefits on?
You can spend the benefits on anything the beneficiary wants and needs, but you should focus on the “needs” part first, particularly with SSI, which is designed as a safety net to keep a roof overhead and food on the table. After paying for basic food and shelter, transportation as well as any medical needs not covered by insurance, you can pay for things like clothing, technology, memberships, and activities. According to the SSA, the adult beneficiary has a right to discretionary spending money after their needs are met, even if they make choices you would rather they did not.
Note that SSI recipients who are over 18 will see up to a 1/3 reduction in the maximum SSI they can receive if they do not contribute to the household expenses if they are living in the household of, for example, a parent. It greatly simplifies tracking and, where necessary, reporting the use of SSI funds if the person with a disability pays a significant amount of their benefit as room and board. That expense should be paid by check or online transfer with “room and board” noted on the memo line. Once that expense has been paid, the funds become those of the parents and further use no longer needs to be tracked even if the parent then uses the funds on behalf of their adult child.
Sometimes, there will be a significant lag between the date an applicant submits their application and the date that person is approved for disability benefits. In such cases, once the applicant is approved, the Social Security Administration will pay one or more lump sums of past-due payments. These should also be spent first on daily living needs such as rent, food, and utilities, and then on goods and services that enhance the beneficiary’s quality of life.
It is important to note that an SSI or a Medicaid recipient has nine months to spend down past-due Social Security payments before they become countable resources. If it seems likely that daily living expenses will not meet the spend-down in a timely fashion, the rep payee might consider using the past-due funds to purchase a big-ticket item. Beneficiaries who receive SSI are limited to holding $2,000 of countable resources (assets). Cash and cash equivalents, such as stocks, bonds and mutual funds, are definitely countable resources; but you use the money to purchase large ticket items such as a personal residence, as car, assistive or medical technology and personal use items such as furniture, computers, and other electronics which, though assets, are not countable resources.
If you are the parent or spouse of the person for whom you are rep payee, you no longer need to provide an end-of-year accounting for the way you spent the benefits, although you should keep records. Otherwise, you will need to complete a form, which you can find here.
How should the beneficiary and I hold the funds?
As the representative payee, you should assist the beneficiary to open an account, titled in their own name but with you as the financial agent. You should not open a joint account with the beneficiary. The account should be titled in one of two ways as illustrated below for John Smith, a Social Security beneficiary, who has requested that Jane Doe be his representative payee.
Jane Doe, representative Payee for John Smith
John Smith by (or with) Jane Doe, representative payee
The beneficiary’s bank should be familiar with this sort of titling. If possible, establish the bank account prior to applying for the disability benefits, since the SSA will only remit payments electronically and will request the account details as part of the application process.
Can I save money on behalf of the beneficiary?
Yes, in fact you are required to save the money that the beneficiary does not require to meet their current needs. You can do this in a checking or savings account, titled as described above. When the beneficiary receives a lump sum, for example, as a back payment, the Social Security Administration (SSA) recommends either saving the funds in an interest-bearing checking account or purchasing US government securities as the savings vehicle.
Note that adult SSI beneficiaries lose eligibility, if they have more than $2,000 held in their own names. This can pose a challenge, when an SSI beneficiary has very few expenses, particularly if the beneficiary has past-due payments to spend down and no big-ticket items or services that they need to purchase. One way to solve this conundrum is to open an Achieving a Better Life Experience (ABLE) account. Assets held in an ABLE account are excluded for the purposes of SSI eligibility until they exceed $100,000 and are excluded for Medicaid eligibility purposes until they exceed a higher threshold, which varies by state but is generally $400,000-$500,000. Note that ABLE accounts have an annual contribution limit of $15,000 although owners who work can contribute an additional amount.
If you are the representative payee for a child under 18 and you save money for that child, note that when the child turns 18, Social Security will require these “conserved” funds, as they are called to be returned to the Administration so that they can be re-issued to the beneficiary, who is now considered an adult. If you live in the same household as the child-turned-adult, you can generally bypass the step of returning the funds to the SSA and instead simply transfer them to an account, held in the name of the child only.
The role of representative payee need not be daunting. Your main responsibility is to make sure the beneficiary's basic needs are covered. You can find additional guidance here.