Do You Need a Representative Payee for Social Security if You Have a Financial Power of Attorney?

Q1. My long-time friend, Ellie, is a widow who lives alone and never had children. Without family members to help, and dealing with her own dementia-related challenges, she’s finding it more and more difficult to manage her day-to-day finances and expenses, which she pays almost exclusively with her monthly Social Security income. She recently received a notice from her bank saying there were insufficient funds in her checking account to cover some items she purchased. I’m afraid she is reaching the point where she cannot manage her finances anymore.

Luckily, she is competent enough to know that she needs help with finances, and has asked me to step in as the agent under her Financial Power of Attorney. Before I agree, what does that role entail?

Q2. Also, if she has me as her agent under Financial Power of Attorney, will she also need a Representative Payee for Social Security, and is that something I should take on? Thanks for your help!

A1. Every adult should have a Power of Attorney. This is especially important for seniors who are near the point of no longer wanting to (or no longer being able to) make financial decisions for themselves. A power of attorney document appoints an agent who can step in if and when needed to handle someone’s legal and financial affairs, such as paying bills, filing insurance, dealing with lawyers and accountants, etc.

An agent acting under power of attorney is considered a fiduciary. As a fiduciary, the law requires you to manage Ellie’s money and property for her benefit. When you act as a fiduciary for Ellie, there are three basic duties that you must keep in mind:

1. Act only in Ellie’s best interest:

• Read the power of attorney and do what it says. Your authority is strictly limited to what the document and state law allow. Every state’s laws are slightly different, so be sure to consult with an elder law attorney before taking any action that is not explicitly allowed by the power of attorney.
• As much as possible, involve Ellie in decisions. Even after it is clear that you must make decisions for Ellie, ask her what she wants if she can communicate.
• Make the decisions you think Ellie would have wanted, unless doing so would harm her.
• Put her well-being above saving money for others who may inherit her money and property. Make sure she is safe and comfortable, and her needs are met.
• Avoid conflicts of interest. A conflict of interest happens if you make a decision about Ellie’s property that may benefit you at Ellie’s expense. As a fiduciary, you generally have a strict duty to avoid conflicts of interest—or even the appearance of a conflict of interest.
• Be very careful if you pay yourself for the time you spend acting as Ellie’s agent. Virginia law allows you to pay yourself “reasonable compensation” unless the power of attorney document says otherwise. If you pay yourself, you need to be able to show that your fee is reasonable. To show that your compensation is reasonable, you must carefully document how much time you spend, what you do, and what you are charging. What type of fees are considered reasonable? This is an area that is open to wide interpretation.

2. Manage Ellie’s money and property carefully.

As Ellie’s agent, you may generally pay her bills (using her money of course), oversee her bank accounts, and pay for things she needs. You might also make investments, pay taxes, collect rent or unpaid debts, get insurance if needed, and do other things specifically allowed in the power of attorney.

• Use good judgment and common sense. As a fiduciary, you must be extra careful with Ellie’s money, and always use sound judgement.
• Know what she owns and owes. List Ellie’s money, property, and debts to get a clear picture of her assets and liabilities. Your list might include checking and savings accounts; cash; pension; retirement; real estate; cars and other vehicles; insurance policies; stocks and bonds; and more.
• Protect Ellie’s property. Keep her money and property safe. You may need to put valuable items in safe deposit boxes, change locks on property, and make sure her home or other property is insured. Make sure bank accounts and investments earn reasonable interest and have low or no fees. Review bank and other financial statements promptly. If Ellie owns any real estate, keep it in good condition.
• Invest carefully. If you are making investment decisions for Ellie, talk to an experienced financial professional, such as myself. Discuss choices and goals for investing based on Ellie’s needs and values. Pay bills and taxes on time.
• Keep Ellie’s property separate from your own. Don’t mix Ellie’s money or property with your own or someone else’s; never deposit Ellie’s money or property into your own or someone else’s bank account or investment account; and avoid joint accounts.
• Pay Ellie’s expenses from her funds, not yours. Spending your money and then paying yourself back makes it hard to keep good records. If you really need to use your money, keep receipts for the expense and maintain a good record of why, what, and when you paid yourself back.

3. Keep good records.

You should keep complete and accurate records of Ellie’s money and property:

• Keep a detailed list of everything that you receive or spend for Ellie. Records should include amount of checks written or deposited, dates, reasons, names of people or companies involved, and other important information.
• Keep receipts and notes, even for small expenses. For example, write “$50, groceries, Safeway, May 2” in your records soon after you spend the money.
• Avoid paying in cash. Avoid paying Ellie’s expenses with cash. Also, try to never use her ATM card to withdraw cash or write checks to “cash.” If you absolutely need to use cash, be sure to keep receipts and notes. Instead of using cash, try to use a debit card (and not a credit card) as much as possible as debit cards automatically provide a very accurate and easy to find description of how the funds were used.

In a nutshell, as a fiduciary, you must be trustworthy, honest, and act in good faith. If you do not meet these standards, you could be removed as a fiduciary, sued, arrested, or have to repay money. Be sure to take all of the above into consideration as you decide whether to act in the role of fiduciary for your dear friend. However, please also be aware that everything stated above is the general rule, but that all these rules have exceptions. One major exception is that an agent under a power of attorney may engage in acts of self-dealing and conflicts of interest when these acts are specifically allowed in the power of attorney document, as is typically the case with a power of attorney drafted with Medicaid asset protection in mind. In fact, in our practice, almost all of our power of attorneys are drafted with Medicaid asset protection in mind and specifically allow violation of some of these general rules under certain specific circumstances.

A2. Ellie Will Have a Power of Attorney in Place. Does She Also Need a Representative Payee to Deal with Social Security?

You asked about the need for Representative Payees. Many people don’t realize that Social Security recognizes only the use of appointed Representative Payees for interfacing with Social Security (a power of attorney is not enough). However, at the Farr Law Firm, we typically suggest that agents under a power of attorney don’t take on the added responsibility of being a Representative Payee for a Social Security recipient unless they absolutely have to. Why? Because an agent under power of attorney will typically already have access to the recipient’s bank accounts, including the account into which the recipient’s Social Security checks are direct deposited, so an agent under power of attorney will typically not need to be appointed separately as a Representative Payee unless there is some need to deal directly with the Social Security Administration, which is unlikely. So, there is typically no need to take on the added responsibility and reporting requirements of being a Representative Payee.

Plan for Yourself, as well

Your friend was prudent in asking someone she feels she can trust to be a fiduciary for her under her power of attorney. Whether or not you assume the role, you should strongly consider planning for yourself, as well. If you have not done Incapacity Planning or Estate Planning yourself, or if you have a loved one who is nearing the need for long-term care or already receiving long-term care, the time to plan is now.

Please contact us at any time to make an appointment for a consultation, and best of luck in your new role if you choose to accept it!

Fairfax Power of Attorney Lawyer: 703-691-1888
Fredericksburg Power of Attorney Lawyer: 540-479-1435
Rockville Power of Attorney Lawyer: 301-519-8041
DC Power of Attorney Lawyer: 202-587-2797