Raising teenagers can be tricky, but things can become especially challenging when a teenager suddenly makes some money.
Imagine Steve, a 45-year-old father from Portland, Oregon. About a year ago, after Steve’s wife died, his 16-year-old daughter, Rebecca, began receiving $800 a month in Social Security benefits.
The Social Security Administration’s (SSA) survivor benefits are designed to help children like Rebecca who are living without one of their parents’ income. Steve will manage the funds until Rebecca turns 18, and he wants to use the money wisely to ensure his daughter’s long-term financial stability.
But since Steve was far from a financial expert, he felt overwhelmed by the situation. Here are some things parents should know about survivor benefits, as well as some tips on how to use the funds.
According to AARP, approximately 1.3 million minor children in the United States receive survivor benefits(1). The SSA allows minors to receive benefits until age 18, or until age 19 if the child is a full-time high school student.
Survivor benefits for minors are equal to up to 75% of the deceased parent’s Social Security benefit. If the deceased parent was not receiving benefits prior to his or her death, the minor children will receive the benefits to which the deceased parent was entitled at the time of death. If more than one child in a family is receiving survivor benefits, the maximum family payment can be 150% to 180%.
In Rebecca’s case, assuming she is 19 and still in high school, she could potentially receive these benefits within the next three years. After one year of receiving survivor benefits, Rebecca has received about $9,000 and will receive another $28,800 if she continues receiving $800 monthly benefit checks for three more years.
With this in mind, Rebecca has the opportunity to earn a lot of money in the next few years, and managing it responsibly is crucial.
Melissa Brennan, certified financial planner at ARS Private Wealth Management, shared with AARP: “Careful consideration must be given when deciding how to use these benefits and how to prepare for the transitions that come with your children’s aging.”
Read more: Vanguard reveals what’s ahead for U.S. stocks, a wake-up call for retirees. Here’s why and how to protect yourself
Since Rebecca is under 18, Steve will serve as her representative payee, which means he is legally responsible for depositing her benefits into the family bank account or an account owned by Rebecca and ensuring that the money is used for Rebecca’s current needs(1).
These needs include food, clothing, medical and dental care, shelter, and personal care items. If benefit funds are not required for these purposes, the representative payee must save or invest the money for the beneficiary.
Since Steve is administering survivor benefits on behalf of his daughter, he should be aware of certain things that may affect Rebecca’s benefits.
As part of his primary duties on behalf of the payee, Steve must maintain records of expenditures while administering Rebecca’s survivor benefits (2).
The SSA requires payee representatives to track the disbursement of each benefit payment. Steve needs to use the benefit funds to pay for Rebecca’s current and future needs while properly preserving the remaining funds. If the SSA requests a report on Rebecca’s benefits, Steve must provide them with evidence of how her benefit funds were used or saved.
When Steve manages Rebecca’s benefits, he should keep a close eye on the deposits to make sure she doesn’t receive more than she is entitled to. Overpayments within SSA can sometimes occur, usually due to missing or incorrect information(3).
If SSA believes a payment error has occurred, it will send an overpayment notification to or on behalf of the payee. The SSA will then give welfare recipients 30 days to correct the overpayments before starting to collect payments themselves.
If a recipient does not repay the SSA within 30 days, the SSA will withhold 50% of the benefit, or 10% of the recipient’s Supplemental Security Income, each month until the overpayment is repaid.
If an overpayment notice is issued when a recipient is no longer receiving benefits, the SSA can recover the funds in a number of ways, including withholding the recipient’s tax refund or certain state payments, and garnishing wages.
To avoid this headache, Steve must monitor Rebecca’s payments to ensure she does not receive overpayments and act quickly when overpayments occur. Steve would also be wise to ensure that his SSA information (and Rebecca’s information) is correct and up to date.
Once Rebecca’s current needs are met, Steve can use the remaining benefit funds for his daughter’s future. Two good options Steve could consider are custodial UGMA or UTMA accounts, which allow an adult to manage a minor’s investments until they are old enough to take full control of the account.
UGMA accounts are primarily used for cash and securities, while UTMA accounts can also hold a wide range of assets, including art, real estate, and jewelry(4). Funds in an escrow account belong to the minor and can grow over time, providing potential tax benefits based on the minor’s tax bracket. Another advantage of these accounts is that they do not have any contribution limits.
A 529 plan—an investment account that allows an adult to save money for a minor’s future educational expenses—was another investment option Steve considered. If he prefers to save benefit funds for Rebecca’s higher education, a 529 plan is a good choice because it has more tax benefits than a UGMA or UTMA account(5).
If Steve is committed to understanding the rules and managing these funds responsibly, he can ensure that this benefit contributes positively to Rebecca’s future. Consulting with a financial professional and staying informed of SSA guidance will also help them navigate the process effectively.
We rely only on vetted sources and reliable third-party reports. For more information, see our Editorial Ethics and Guidelines.
AARP (1); Congress.gov (2); Social Security Association (3); Thrive (4); Saving for College (5)
This article provides information only and should not be considered advice. It is provided without any warranty of any kind.
