Ask Terry Questions Substitution for Payee retirement benefits

Substitution for Payee retirement benefits

By Terry Savage on October 12, 2019 | Financial Planning / Retirement

My sister had a severe stroke in July although she is making small steps in recovery of her speech and movement of arm and leg. She’s expected to go into LTC soon but most likely is expected to stay there . She is retired and had worked for the railroad company who wants me to fill out a Substitution for Payee because they don’t honor the POA I have on my sister. I heard I’ll have to open a bank account for the company to pay me in order to pay her bills. So far I’ve been paying her bills with her money with the POA that I have with her checking acct. Will I have to claim my sister’s retirement money as my income that the railroad company is going to pay me? Thinking that will put me in the next tax bracket. I’m her only relative in Illinois. She’s never been married or had any children.

Terry Says

Well, it looks like you are doing OK with having the money from the railroad company direct-deposited into her account, over which YOU have POA.  Why do you want to change that?

I don’t know if the income would be taxed to you if you are able to become the payee of record, but you should ask them.  In fact, I think it’s pretty unusual that the payout could be diverted to you.  Without more details, I really can’t advise.  But it looks pretty “clean” the way it’s set up now.

Also, I’m sure you understand that if she cannot otherwise pay for her LTC and Medicaid takes over, all the money (except for a small amount reserved for personal expenditures) would be taken by Medicaid at that point.

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