Monthly Archives: September 2014

Duties of a Representative Payee

Alberts Law, Social Security Disability, ,

A representative payee appointed by the Social Security Administration only has authority over the beneficiary’s funds that come from Social Security Disability (SSD) or Supplemental Security Income (SSI) and is appointed when the SSA decides the person cannot manage their funds. This means that your authority begins and ends with these payments – you are responsible for acting in the best interest of the beneficiary when using the funds. You also have no control over money from any other source so you cannot affect how it is used.

You must consider the SSA’s guidelines for spending priorities when using the beneficiary’s funds. You first have to look at the beneficiary’s needs for personal maintenance, which include housing, medical care, food, clothing, and personal-care items. Also, you must know the individual’s reasonably foreseeable needs in determining how to use these payments. Both of these point out that a representative payee needs to have contact with the beneficiary in order to have enough information to make reasonable decisions.

Those considerations apply to both SSD and SSI while a few other areas, such as providing for legal dependents, apply only to SSD. Any funds that remain should be saved or invested and, any account must show that you hold any funds for the sole benefit of the disability recipient. An added responsibility with SSI is that you must limit how much is saved because countable resources, including funds in savings accounts, cannot be more than $2000 for an individual.

Conserving some funds may be difficult, but it can be vital to provide some safety net when unexpected needs arise. The basic rules for SSD payments are that the SSA’s preferred investments are US Savings Bonds and other low-risk investments; also, payees should look to the laws of their states regarding investing funds held by in trust by trustees for guidance. After savings reached $500, a payee is to place additional savings in interest-bearing accounts. For SSI, this threshold is set at $150.

Whether the beneficiary receives SSD or SSI, you as the payee have another option for deciding how to use the conserved funds – you also can look to the state’s law regarding how trustees are supposed to make investment decisions for guidance. This points out that, like a trustee, a representative payee is a fiduciary, who must exercise a high standard of care in managing the funds of another.

In Pennsylvania, trustees follow the Prudent Investor Rule so payees can follow this, too. This permits investment in every kind of property and type of investment, including mutual funds, considering factors like the needs of the beneficiary for current and future distributions and current income and resources. Pennsylvania also requires a fiduciary to diversify investments unless reasonably determining that not diversifying is in the beneficiary’s interest.

With SSD and SSI, the requirements for handling the recipient’s funds tend to be similar, but the SSI program is a federal welfare program with additional restrictions. The monthly SSI benefit amount is below the poverty level, and the program’s main purpose is helping the beneficiary meet daily living expenses. As savings increase, the SSA may question if these needs are being met or if the beneficiary might have additional income or resources that could affect eligibility. If conserved funds are at least 3 times SSI’s Federal Benefit Rate for the year, you probably should expect the agency to look into the reasons. You may face being replaced as the payee and, possibly, be found to have misused benefits that you would have to repay. Generally, the SSA wants $9 of every $10 received for the beneficiary spent to meet basic needs.

While you have similar investment options with SSD and SSI, the resource limit of $2000 for an SSI recipient means you must track the value of countable resources because the SSA reviews this for financial eligibility. You need to know which resources are counted and which are excluded, too.

Low-risk investments that are preferred investments of conserved SSD funds can be made with conserved SSI funds. However, any interest, which would not be much, could cause problems. When an SSI recipient receives unearned income, the first $20 from any source is not counted. After this, monthly SSI is reduced by $1 for every $1 of unearned income. Then, in the month after the interest income is counted, what remains is added to the countable resources. Depending on how close a person is to the resource limit of $2000 for individuals (and $3000 for couples), the small return on investment could be big enough to push them over the resource limit.

Therefore, a payee must know how to convert a countable resource into an excluded one. There are a number of possibilities, but the SSI program’s rules and regulations are complicated. For example, you could set up a burial fund for the SSI beneficiary. This amount is kept separate from other funds and is to be used only for burial expenses. If the amount that used for this purpose is no more than $1500, then this would not count among resources that determine SSI eligibility, and interest earned is not counted as income. You also might purchase a burial space for the individual because this is not a countable resource.

Next, you might look at insurance. If you buy burial insurance, you would not cause a problem because this has no cash surrender value so it is not counted as a resource. However, if life insurance is purchased for an SSI recipient (who would be the policy owner), you face headaches. Any cash surrender value makes this a resource. Circumstances determine if it will be a countable resource. The basic rule is life insurance policies with face values totaling no more than $1500 will not have their cash surrender values counted as resources.

The burial fund that you established two paragraphs ago to exclude resources will be affected. While the face values of the life insurance results in its cash surrender value being excluded as a resource, the part of the amount in the burial fund now will be counted. Because the cash surrender value of the insurance has been excluded, the $1500 exclusion for the burial fund is reduced by the face value of any life insurance policy of the beneficiary.

Potential landmines like this exist for a payee, especially with SSI. You have to do your homework or consult with someone so you know what you can do and its impact. You also need to discuss possible decisions with the beneficiary to get input whenever possible. If you do not talk with the person receiving the disability payments, forgetting your duty to act in that person’s interests, the Social Security Administration may make you an ex-payee. This should give you an idea of the both importance of the representative payee and of making sure you know what you can and cannot do when you accept this position.

Responsibilities of the Trustee of a Trust

Alberts Law, Probate & Estate Administration, ,

Depending on the size and the purpose of a trust, the grantor (sometimes called the settlor) who established the trust may decide upon a relative or a close associate to act as the trustee of that trust. If you are chosen to handle this responsibility, you need to understand what you will be required of you before you take on this role.

The basic reason why a trust has to have a trustee is because the document that the grantor used to create the trust will convey that person’s intention(s) regarding how the assets in the trust are to be used on behalf of its beneficiaries. Some trusts are created to minimize taxes and preserves more assets to pass to the ultimate beneficiaries; the so-called “generation-skipping” trust might be used to accomplish this.

Other people may want to take care of needs of a child who has a disability which entitles the child to certain types of government assistance. However, direct payments from the trust could reduce this assistance while payments for financial or health needs might take the place of items that the government, otherwise, would have provided. To prevent these possibilities, the grantor might establish what is known as a “supplemental needs” trust for the child. Whatever the intention stated by the grantor in the trust document, the trustee must understand it, must understand how to manage the trust’s assets to carry it out, and must be willing to do so.

You generally have to follow the directions of the trust’s creator. You only have discretion to make decisions that are permitted in the trust instrument. A supplemental needs trust would give a trustee a certain amount of discretion, but you have to read the document to be sure. Other trust instruments can contain very specific criteria for the manner in which the principal and interest that comprise the trust’s assets are to be distributed. If language regarding discretionary decision making is nowhere to be found, then you have no authority to deviate from the grantor’s instructions.

In addition to the grantor’s intentions, a trustee must remember that the role always carries fiduciary duties. This means that you must act for the benefit of others, who are defined by the grantor’s intent in setting up the trust. Among those duties are good faith, candor, and loyalty.

There also is the duty to treat beneficiaries impartially (unless the trust’s language expresses a different intent), as well as a duty to balance the interests of the lifetime beneficiaries with those of the remainder persons (who would receive what remains in the trust at its termination). You have to keep beneficiaries updated periodically with an accounting of the trust’s performance. Meanwhile, as a fiduciary, you must avoid self-dealing in addition to conflicts of interest that could undermine your ability to act in the best interests of beneficiaries. Trustees can be held liable when fiduciary duties are breached.

For trusts governed by Pennsylvania law, trustees must understand the Prudent Investor Rule, which was enacted in 1999. Its general rule is as follows: “A fiduciary shall invest and manage property held in a trust as a prudent investor would, by considering the purposes, terms and other circumstances of the trust and by pursuing an overall investment strategy reasonably suited to the trust.” The Prudent Investor Rule also defines permissible investments of a trust and considerations when making investment and management decisions.

This law does allow you to delegate investment and management decisions if someone with skills comparable to yours might do so. You will not be responsible for your agent’s investment decisions when you can show that you used reasonable care, skill, and caution in selecting the agent and you have reviewed periodically the agent’s performance and compliance with the terms of the delegated duties. Any trustee without sufficient investment experience would be wise at least to consider seeking professional advice when investing the assets of the trust so that distributions can be made and expenses can be paid while taxation of the trust is minimized to the extent possible. Obviously, the job of a trustee is not an easy one.

As you undertake these and other actions as a trustee, you generally are entitled to some compensation, defined in the trust instrument, as well as reimbursement for legitimate expenses. Again, you are a fiduciary so you must act in good faith and not inflate these expenses, for example. You always face being held accountable for your actions and could end up being ordered by a court to repay improper payments. If you go too far, the court could remove you as the trustee.

While all of these factors may make being a successful trustee an impossible task, you should remember that many trusts exist and each has, at least, one trustee. The vast majority of trustees handle the role without great difficulty. You simply must understand what is expected of you and know how to carry out your obligations. If you have doubts, you should consult with an attorney with experience in this area to discuss what you need to do to be a successful trustee.