Most credit unions work with Representative Payees on Social Security or Social Security Income fairly frequently. In the case of a minor or a person who is legally incompetent, a Representative Payee is required. State law typically creates a mechanism for guardians to be appointed for incompetents. However, Social Security will sometimes appoint a Representative Payee for someone without a legal adjudication of incompetency. This gets tricky for the financial institution when the beneficiary wants to take funds out of his or her account on his or her own without input from the Representative Payee.
When there is a guardianship in place, the credit union has a much clearer idea of what it can and cannot do. Often, an account will be restricted to require a court order for each distribution from the account and the beneficiary is prevented from having direct access to the account. The credit union, then, must deal with the Guardian.
Without a guardianship in place, the credit union needs to be more careful. Representative Payees may only control SS or SSI income. He or she has no authority earned income, pensions or any income from sources other than SS or SSI.
But how should the account be set up? Guardianships are relatively easy: “John Doe, by Sally Roe, Guardian.” Can you then set up a Representative Payee account that’s not a guardianship by using “Sally Roe, by John Doe, Representative Payee?” In Ohio, there’s not really any law on this.
In researching this issue, I also called my friend Dave Shoup at the Ohio Credit Union System. Dave had written an advisory some years ago on this issue which he shared with me. This memo has some excellent tips on dealing with Representative Payees generally, but the issue remains (at least in Ohio) that agency appointed personal fiduciaries are really not covered by Ohio credit union law.
So what’s to be done? In the case where a Representative Payee wants to set up a Representative Payee account, but where he or she is not also the guardian of the beneficiary, exercise extra caution. Make sure that they have documentation from the particular agency. Set up the account using the beneficiary’s name by the Representative Payee’s name: “Sally Roe, by John Doe, Representative Payee.” Do not let the Representative Payee control any non- Social Security or SSI assets. If you are confronted by the member beneficiary who wants you to give them the funds from the Representative Payee account directly, refer them to the Social Security Administration. Ultimately, a credit union may decide that it’s not worth it to allow a Representative Payee account without a guardianship in place. Of course this does not help the people that this program is designed to protect. This issue may be worth writing to the NCUA about.