Will Social Security Pay Benefits to a Revocable Trust?
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Question:
In answering a recent question about transferring assets into a revocable trust, you wrote:
Taking this step can cause it’s own difficulties. For instance, my mother recently moved her money market account into her revocable trust and Social Security stopped direct depositing her checks because the name on her account was changed to the name of her trust.
I was planning to transfer my bank account into my trust, but my Social Security is deposited into my bank account. The obvious question is: Can you have Social Security direct deposited into a bank account in the name of your living trust? I’ve tried to research this issue, but I’m completely confused. Below is a summary of what I found:
- The page linked below appears to be Social Security’s policy about this issue. But it’s confusing and I can’t figure out what it means. https://secure.ssa.gov/poms.nsf/lnx/0202402060
- I found several online sites that say you can’t use a trust bank account for Social Security deposits. One site says: The social security administration has taken the position that it cannot provide direct deposit to an account held in the name of a trust. Source: https://www.attorneyfee.com/blog/funding-a-living-trust-how-to-put-real-estate-property-and-other-assets-in-a-revocable-trust
- Another site says: Social Security must be paid directly to the beneficiary. It cannot be paid to a trust. If you are receiving Social Security by direct deposit, you should leave the account that receives the payments outside of your trust. Source: https://speedwelllaw.com/2020/07/12/understanding-funding-your-living-trust/
- Another site says: Some assets should not or cannot be owned by a trust. They include bank accounts that receive Social Security income deposits. These accounts cannot be re-titled in the name of the trust. Source: https://tuckerlegal-llc.com/how-to-fund-your-revocable-trust/
I also found sources that say you CAN use a trust bank account for Social Security. You might be familiar with Lee Phillips who is a prominent estate planner and author of the book: Protecting Your Financial Future. In his book and web site, he is a strong advocate of putting your bank account in a trust. He has never mentioned problems with Social Security and a trust bank account. So I wrote a message to him:
Hello Lee, If I put my bank account into my living trust, can I continue to have my Social Security deposited to the account? I Googled this issue but found conflicting answers. Some sources say no. Some sources say yes.
ANSWER FROM LEE: For three years, my wife had her SS disability deposited into her bank account held in the name of her trust. It had her SS number on it. A living revocable trust is by definition a “disregarded entity” according to the IRS and government in general. You shouldn’t have any trouble.
Harry, your Ducks in a Row book was very helpful but it does not discuss this issue. Do you have any information or advice about this issue? I would be very grateful to finally get a definitive answer about this.
Response:
That’s great research. I’m sorry, but I don’t have any additional information. I agree that revocable trusts are “disregarded” with respect to the IRS, but the IRS and the Social Security Administration are separate agencies and don’t have to follow the same policy. It seems that a lot of people have had trouble with trust accounts and Social Security payments, so it probably makes sense not to transfer such accounts to trusts. This can be problematic if it requires a probate administration just for a small account when the rest of the estate avoids probate. However, all states have simplified processes for small accounts making the process a lot easier it that’s all that must go through probate. Another solution for many people is to add a family member or other trusted person as a joint owner of the account. This would give them access if needed both during the primary owner’s life and after death without the necessity of probate. This could also make it easier for that person to pay any necessary bills, including funeral expenses, when the time comes.
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Thanks Harry. I always appreciate your responses.
Another option would be to make the trust the beneficiary of the bank account and file the power of attorney on the account.
Yes. It seems that as long as the account itself remains in the name of the Social Security recipient, the Social Security Administration has no problem with it.
Harry
I am the rep payee for my disabled adult son and set up a checking account for SSDI direct deposit. . We set up a 3rd party trust and it owns the condo where my son lives. We had been sending SSDI money from the checking account to the Trust to pay condo ownership expenses-condo fee, insurance, real-estate taxes.
I was told that the 3rd party trust can’t receive money from my son’s SSDI to pay condo expenses.
If I direct deposit SSDI money into his ABLE account, Can I write checks from the ABLE account to pay the condo costs ?
Joan,
I don’t think what you’re doing is a problem, though an ABLE account would be a bit cleaner. It is true that your son can’t fund the third-party trust with his own money. Doing so could cause a problem with Medicaid and, potentially, taint the rest of the trust. However, your son isn’t funding the trust. He’s simply reimbursing it for expenses paid on his behalf. That’s why I don’t see a problem with what you have been doing.
That said, it would be cleaner to use an ABLE account. However, I don’t see why that is necessary. Why not simply pay the expenses directly from the checking account that is receiving the SSDI deposits? I don’t see the necessity of the extra step.
Harry
I have a Revocable Living Trust and am receiving SS Retirement separately into a non-trust account. I want to change Trustee to my Son who is named as First Successor Trustee. I saw a video that stated the SS Admin can call this a Barter transaction, thus stopping my SS Benefit because I may have exceeded the $$ allowed. I would not deed the Real Property to him until after my death; therefore, no actual transfer would take place until DOD or my complete disability. Your thoughts?
Bill,
I’m not familiar with the “barter” transaction to which you refer. People use revocable trusts all the time with no effect on their Social Security benefits and I’m not aware of any Social Security benefits that are affected by the level of assets of the beneficiary.
The only exception is for Supplemental Security Income (SSI), for which the beneficiary is limited to $2,000 in countable assets other than their home, but you say you’re receiving Social Security retirement benefits. In any case, even with SSI, adding your son’s name as co-trustee of your trust should have no effect.