Social Security: 8 Mistakes Representative Payees Must Avoid

Senior woman sitting in wheelchair and talking with afro american home caregiver, smiling to her.
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The Social Security Administration (SSA) estimates that more than 8 million people who get monthly Social Security or Supplemental Security Income (SSI) payments need help managing their money. Those that do can be appointed a relative, friend or other interested party to serve as “representative payees.” The role comes with a lot of responsibility, meaning if you become a payee you should be extra careful to avoid mistakes that might cost you money.

On its website, the SSA says it “thoroughly investigates” those who apply to be representative payees to protect the interests of Social Security beneficiaries. The reason is that a representative payee receives the beneficiary’s payments and is given the authority to use them on the beneficiary’s behalf.

Representative payees are required by law to use the benefits in the beneficiary’s best interest. If a payee misuses benefits, they must repay the misused funds. A payee who’s convicted of misusing funds could also be fined and even imprisoned.

If you’re a payee for a child receiving SSI payments, you will be responsible for seeking medical treatment for the child when necessary. If you don’t get medical treatment for the child, the SSA might appoint a new representative payee.

And if you’re thinking about charging for the service, think again: Representative payees cannot charge or take fees and must get approval from the SSA before spending money on any items other than medical treatment, education, jobs training or personal needs related to the beneficiary’s disability.

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You’ll have to get a record of all money taken from the account, so be sure to save the receipts for all items or services bought — the SSA reviews those records at least once a year. If you knowingly use money from the dedicated account for anything other than the expenses listed above, you must repay the SSA from your own funds.

To ensure you stay in the good graces of the SSA, here are eight mistakes to avoid if you are a representative payee:

Failure to Provide for Beneficiaries’ Needs

You cannot fail to provide for the beneficiary’s daily needs. The first thing the representative payee is required to do is to provide food, shelter and other necessities for the beneficiary. Next, the funds must be used for medical and dental care that is not paid for by health insurance. If the beneficiary is an institution such as a nursing home, you can use the funds to pay the fees for the institution. Anything left over can be used for other expenses such as education and past-due bills, the Patrick J. Thomas Agency noted. Unspent funds can be kept in an interest-bearing account but cannot be spent on items not specifically allowed by the SSA.

Not Reporting Important Life Changes

Another responsibility of a representative payee is to let the SSA know when a protected person has an important life change that could also alter their benefits. These changes include marriage, a new address, hospital care, gains or losses in employment/income, an improved medical condition, receipt of other government benefits, travel outside the U.S., custody changes, being convicted of a crime, and so on. Failure to report changes could result in a penalty.

Getting Funds Mixed Together

This might happen if you are a representative payee for different people across various agencies or programs. You cannot combine the beneficiary’s funds with your own. You must keep a separate bank account for the beneficiary’s funds, and the account must show the beneficiary as the owner and the representative payee (you) as the financial agent. No one else can own the account other than the beneficiary. Getting funds mixed up might lead to mistakes in the way money is distributed. You can avoid this by keeping separate accounts for each person and program you represent.

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Failure To Keep Accurate Records

As a representative payee, you might be required to fill out an annual Representative Payee Report, according to the Patrick J. Thomas Agency, a Minnesota-based provider of surety and insurance services. You might also be responsible for keeping detailed records of how payments are being spent or saved. Be sure to keep these records up to date in case the SSA requests them.

Some representative payees are exempt from having to file this report. They include the spouse of the beneficiary; a natural or adoptive parent of a minor child or disabled beneficiary who lives in the same household as the beneficiary; and a legal guardian of a minor child who lives in the same household as the beneficiary.

Incorrectly Using Past Due Benefits Payments

You have specific obligations if you get a large payment of past-due benefits. If a beneficiary receives a large lump sum of past-due benefits, the representative payee must use these funds for current needs, improving the beneficiary’s daily living conditions, or better medical care – whatever is in the beneficiary’s best interest. Any remaining funds must be saved, as described below.

Not Using a US Bank

You must hold the benefits in a bank account or U.S. Savings Bonds in the beneficiary’s name. All federal benefit payments are made electronically, so the SSA recommends that representative payees hold benefits in a savings or checking account. Any funds left over after meeting the beneficiary’s needs can be kept in an interest-bearing savings account or in U.S. Savings Bonds. Any interest earned belongs to the beneficiary.

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Collecting Fees

You cannot collect a fee, except in very specific circumstances. Unless you are beneficiary’s legal guardian and authorized by the court to charge a guardian fee, or if you have been allowed by Social Security to charge a fee, which is rare, you may not charge a fee.

Spending Money on Yourself

You cannot spend any of the money on yourself, or anyone other than the beneficiary. You must keep the beneficiary’s money separate from your own, and it can only be used for expenses of the beneficiary. You must also keep records of how much you spend and what you spend it on, and how it benefits the beneficiary.

Special Payees

In some cases, a parent or spouse may be the representative payee. In this case, you can keep the benefits for all family members living in the same household in a single bank account with a parent or spouse as the owner of the account. In the case of children, however, each child must have a separate savings account with the child as the owner.

Organizations like nursing homes can keep funds for multiple beneficiaries in a single account, referred to as a ‘collective account.’ In this case, the account title must indicate that the funds belong to the beneficiaries, not to the representative payee, and any interest belongs to the beneficiaries. Credits and debits to each beneficiary’s share must be documented. The account must be distinct from the operating account of the organization.

Medicare and Medicaid

Beneficiaries of Social Security and Supplemental Security Income are typically eligible for healthcare through Medicare or Medicaid. They may need help to get and use these services, so representative payees may need to offer assistance. Some beneficiaries may also be eligible for Extra Help (a service for Medicare and Medicaid recipients with limited income and resources), which can cover deductibles, premiums, and prescription co-payments.

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Karen Doyle contributed to the writing of this article.

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