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  • Writer's pictureChris Stein, CFP®

Representative Payee Basics

For those people needing assistance managing their finances while receiving Social Security benefits the SSA has a program where another person is designated a Representative Payee to assist the beneficiary.  It is estimated more than 8 million people receiving SS benefits need help managing their money.  Today I will run through the basics of how the Representative Payee program functions.

Power of Attorney Not Good Enough

Normally when someone needs help managing their money a Power of Attorney (POA) is created that gives another person some level of control over the affected person’s finances.  However, the Social Security Administration does NOT recognize a POA for purposes of managing SS benefits.  Instead the SSA appoints a “Representative Payee” after the submittal of an application and completion of a background check.  This RP receives the beneficiary’s SS payments and is given the authority to use them on the beneficiary’s behalf.

Report to the SSA

Each year the RP is required to report to the SSA how all the benefits for the year have been used.  The benefits must first be used to cover basic needs of the beneficiary, which essentially amount to food and shelter.  After that the money must be used for medical and dental expenses not covered by insurance.  If there is still money left the RP can pay for other personal needs, like clothing and recreation.  If there is any money left over it MUST be saved for the beneficiary, preferably in an interest bearing bank account or U.S. Savings Bonds.

No Fees For the Representative Payee

The RP cannot take a fee from the beneficiary for their services as the RP.  Usually the RP is a friend or relative willing to help out voluntarily.  To ensure no diversions of funds the SSA bans fees being paid to these people.  Sometimes an unrelated professional or institution will act as the RP and with SSA permission they can charge fees to the beneficiary, and also co-mingle funds in common accounts.

Separate Bank Account

The RP should set up a separate bank account to receive the SS benefits.  The account must show the beneficiary as owner, but the RP as the financial agent.  The beneficiary cannot have direct access to the account, but the RP cannot be listed as the owner.  Do NOT use joint account ownership since this would violate the rule that the RP cannot have any ownership of the account.

Child Beneficiary

If the beneficiary is a child it is acceptable to have the benefits deposited into a common account for the family, even if the parent is the owner of the account.  Any savings of a child’s benefits must be transferred out of the family account into the child’s own separate savings account.  This is really only an issue when the child’s benefits happen to be high enough as to exceed the monthly food, shelter, medical, dental, clothing and recreation expenses of the child.  The Representative Payee Report  accounting for the use of the child’s benefits over the year must be submitted by the RP, just as if the child were an adult.

Notify the SSA

The RP is also responsible for notifying the SSA if the beneficiary’s situation changes in a way that would result in their eligibility for benefits changes. Some examples of these changes might be; the beneficiary starts or stops working, other government benefits start or stop, the beneficiary is imprisoned, gets married or moves out of the country for more than 30 days.  There are other changes that effect benefits that can be reviewed on SSA publication No. 05-10076.

With the high incidence of dementia and related afflictions in our aging population, it will be more and more common for people to be asked to become a Representative Payee.  Hopefully you now have a better understanding of their role and responsibilities.

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