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.