Millions of people collect Social Security benefits each and every month, and most of them are fully capable of managing the money they receive from the federal government. However, a significant number of Social Security recipients are incapable of managing their payments from Social Security or the need-based Supplemental Security Income program. That opens up the potential for financial elder abuse, especially if an older recipient has family members who don't always put the recipient's best interests ahead of their own.

The Social Security Administration (SSA) is aware of the potential for financial mishandling of benefits, and they therefore have put together what's called the Representative Payment Program. Under the program, the SSA will appoint a suitable person, called the representative payee, to manage the payment of benefits on behalf of the person who needs help managing their financial affairs. Below, we'll look more closely at how the program works and when it might be a good idea for you.

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Who can serve as a representative payee?

Most of the time, the SSA looks for family members or friends to serve as representative payees. That way, the chosen person already has a relationship with the Social Security recipient and a sense of the recipient's financial needs. For instance, when one spouse becomes incapacitated, it's typical for the other spouse to be named representative payee.

There inevitably will be situations in which there's a conflict among family members and friends, and the SSA might have to make an unpopular choice. In these cases, there are often wider-ranging financial issues that could include a court-appointed guardian to handle finances beyond the Social Security context, and the choice of a representative payee for Social Security benefits often takes those decisions into account.

If there's no suitable friend or family member who can act as representative payee, the SSA will reach out to certain organizations or institutions to provide that service. Some of these organizations do so free of charge, while others have fees.

When would a representative payee make sense?

There are many situations in which the appointment of a representative payee can occur:

  • Any minor child receiving Social Security benefits technically needs a representative payee, who in most cases will be the child's parents or legal guardians.
  • Mentally-disabled beneficiaries of any age who lack the capacity to handle their own finances and who are receiving family benefits based on a family member's Social Security work record.
  • Recipients who initially have the capacity to manage their financial affairs but later become incapacitated due to illness or injury.

In any of these and similar cases, the SSA can act to name a representative payee to protect the recipient's benefits.

What does a representative payee have to do?

Being a representative payee is a big deal. If you take on the role of representative payee, you have a fiduciary duty to manage the Social Security benefits in the best interest of the recipient. You have to manage the money prudently, spending it only on behalf of the recipient, and you need to keep records to establish that you've properly managed and spent the benefit money that came to you. You'll need to have a bank account that the SSA can use to make direct deposits, with a special title for the account that indicates that you're a representative payee for the recipient.

In particular, the SSA says that you must first take care of food and shelter needs, medical expenses, and personal needs. You must save any leftover money. If you get a large lump sum of past benefits, then immediate needs are paramount, and only then can you consider spending to improve the beneficiary's daily living conditions or for better medical care.

Most representative payees have to complete a short annual report. The report includes both yes-no questions and lines to indicate dollar amounts of benefits that you received and how you spent them. Parents and guardians of minor children who live in the same household as the children, or spouses of a beneficiary, are typically exempt from the annual representative payee report requirement.

The SSA also can do a representative payee review at any time or call a payee in for an educational visit. For the review, the reviewer will want to see a budget for the beneficiary, as well as bank statements, account balances, and various documentation of income and expenses on the recipient's behalf. If you aren't fulfilling your obligations, then the SSA can replace you, and you can be personally liable for any wrongdoing.

If I know someone who needs a representative payee, what should I do?

The SSA urges those who are concerned that someone has become incapable of managing Social Security benefits to contact them at 1-800-772-1213 to request an appointment.

Social Security benefits are an essential part of how most older Americans make ends meet financially in retirement, so it's critical to ensure that they're not mishandled. Representative payees can help prevent those who've lost the ability to handle their own money from making massive financial mistakes that could put them in very real jeopardy at a time when they're least able to recover.

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