Conflict of Interest Questions Arise
SHOULD AGENCIES APPLY FOR AND RECEIVE SSI ON BEHALF OF FOSTER CHILDREN?
by Bruce Boyer and Martha Matthews
Nationwide, some 500,000 children
are in foster care, and estimates on how
many of these children have disabilities range
from 13% to 40%.1 Many of these children
are eligible for Supplemental Security
Income (“SSI”), a federal cash benefit
program for low-income children and adults
with disabilities.2 Whatever the exact
percentage of SSI-eligible foster children
may be, it is clear that serious physical and
mental disabilities are more common among
foster children than among the general
population.
Over the past 10 years, initially
prompted by the Supreme Court’s decision
in Sullivan v. Zebley,3 many state foster care
agencies have tried to identify foster children
1 foster children and process their applications.
Raymond Sanchez, Administration
on Developmental Disabilities, Presentation
at Third National Conference on SSI &
Foster Care (Washington, D.C., July 1999).
2
See, e.g., in Youth Law News,
Bussiere, “Children’s Disability Benefits
Threatened Under Guise of ‘Welfare
Reform,’” (Sept.-Oct. 1996), Palamountain,
“Interim Regulations Issued for Children’s
SSI,” (Jan.-Feb. 1997), Weber, “Feds Offer
Second Chance to Children Cut Off SSI,”
(Nov.-Dec. 1997), Matthews, “SSI Benefits
for Teens with Disabilities in the Post-
Welfare Reform Era,” (Jan.-Feb. 1999).
3
493 U.S. 521 (1990).
1
who might be eligible for SSI, and applied
for these benefits on behalf of the children.
Some states have even hired private
contractors, or created special positions or
units, to increase enrollment of foster
children in the SSI program. These efforts
are often prompted by fiscal concerns, since
state agencies use SSI benefits to pay for the
costs of the child’s care. Beyond saving the
state money, however, establishing foster
children’s eligibility for SSI may also benefit
the children and their families, since SSI
benefits (which include Medicaid eligibility)
are “portable” – they can go with the child if
the child returns to the home of a parent or
relative, is adopted, or transitions to
independent living.
Advocates have encouraged state
child welfare agencies to identify SSI-eligible
At first, this would appear to be a win-win
situation – the state gains a source of
reimbursement for the cost of the child’s
care, and the child gains access to benefits
that may facilitate family reunification,
placement with a relative, adoption, or
independent living. However, some
troubling issues have emerged concerning
state agencies’ decisions whether to apply
for SSI for foster children; and the conduct
of agencies when they manage children’s SSI
benefits as representative payees.
Determining Whether to Apply for SSI
for Foster Children
State child welfare agencies receive
federal reimbursement under Title IV-E of
the Social Security Act for some of the costs
of providing foster care.4 Not all foster
children, however, are eligible for Title IV-E
foster care benefits,5 and the state bears the
full cost of care for those who are not. If a
disabled foster child is not IV-E eligible, it
will be in the state’s fiscal interest to apply
for SSI for the child and use the SSI benefit
towards the cost of the child’s care.
Children in foster care generally are
financially eligible for SSI, because their
parents’ income is not counted as available
since they are not living at home.6 Hence,
the only difficulty in qualifying foster
children for SSI is proving that their
disability is severe enough to meet the SSI
eligibility criteria.7
For foster children who are eligible
for federal foster care benefits through Title
IV-E, however, the situation is more
complicated. Under the Social Security
Administration’s (SSA’s) interpretation of
the financial eligibility rules for SSI, Title IV-
4
42 U.S.C. § 670 et seq.
5
Title IV-E eligibility depends on
several factors, such as whether the child
was removed by court order from a family
that would have qualified for AFDC under
the AFDC eligibility criteria in effect in July
1996, and whether a court found that
reasonable efforts were made to avoid the
need for placement.
6
20 C.F.R. § 416.640(e)(5).
7
For a framework to establish
childhood disability for purposes of SSI, see
Palamountain, “Children with Asthma
Prove Vulnerable to SSI Cuts,” Youth Law
News (Jan.-Feb. 1998).
2
E foster care payments are counted as
“income” to the foster child, so SSI benefits
would be reduced dollar-for-dollar by any
Title IV-E payment made on the child’s
behalf.8 So, for IV-E eligible foster children,
the state’s determination whether to seek
SSI benefits is driven not by whether the
child has a disability, but by the fiscal impact
on the state. The federal government
typically reimburses states for 50%-60% of
the cost of these children’s care. For each
IV-E-eligible child, the state will determine if
the monthly SSI benefit would be higher or
lower than the federal share of the cost of
foster care. Take, for example, a child who
lives, as many children with disabilities do, in
a specialized foster home costing $2000 per
month. If the state’s IV-E match rate is
50%, the state would receive $1000 per
month of federal money towards the cost of
the child’s care – more than the maximum
SSI payment, which is currently $500. So,
the state would not gain financially by
applying for SSI for the child.
The state agency’s choice to collect
IV-E instead of SSI for a foster child does
not necessarily harm the child (since the SSI
benefit would be used up by the cost of
foster care anyway) – unless the child is
about to be discharged from foster care. As
discussed below, state child welfare agencies
may be obligated to apply for SSI for
disabled foster children who are about to
leave care (or reapply, if the state’s choice to
receive IV-E benefits has caused the child to
lose SSI eligibility).
In general, foster children with
disabilities benefit from having SSI eligibility
established, since it gives them a “portable”
cash benefit and Medicaid eligibility.
Therefore, advocates should ensure that their
8
POMS SI 00830.410.
states’ child welfare agencies have
procedures in place to process SSI
applications diligently, appeal denials, etc., at
least for non-IV-E-eligible foster children.
Advocates should also ensure that, if the
child welfare agency elects to receive IV-E
benefits for children who would otherwise
qualify for SSI, it has a mechanism in place
to establish or re-establish SSI eligibility for
these children when they are about to leave
foster care.
Representative Payees for Foster Children
Receiving SSI
For adult SSI recipients who are
unable to manage their own financial affairs,
SSA will select a “representative payee” to
manage the payments.9 Children, however,
are always required to have representative
payees, except in very limited
circumstances.10 In most states, child
welfare agencies act as representative payee
for the great majority of disabled foster
children preferring to manage children’s
benefits directly rather than rely on the
cooperation of a private payee such as a
parent or relative. State child welfare
agencies’ applications to serve as
representative payees for foster children are
routinely granted by SSA, because the
agency generally controls the presentation of
information about the child’s circumstances,
on which SSA bases its decision. Although
in theory SSA conducts an individualized
investigation to select the representative
payee,11 in practice it generally relies on the
9
42 U.S.C. § 1383(a)(1)(ii); 20
C.F.R. §§ 416.601, 416.610(a).
10
Id., § 416.610(b).
11
See 20 C.F.R. § 416.401.
3
agency’s statement that no other payee is
available or suitable to protect the child’s
interests. Indeed, in many jurisdictions, the
assignment of the responsible child welfare
agency as representative payee for a disabled
foster child is practically automatic.12 This is
also a matter of convenience for SSA, in that
making payments for a large number of
children to a single agency rather to multiple
individual payees simplifies accounting
procedures and makes it easy for SSA to
recover any overpayments made to the
child’s account.13
12
At the Third National Conference
on SSI and Foster Care, convened in
Washington DC in July 1999, some state
officials indicated that the child welfare
agency is appointed as payee for all foster
children; others said that it was a case-by-
case determination, and that SSA sometimes
refused to change the payee from a parent
or relative to the agency when a child enters
care. In Illinois, SSA will not even accept
applications from private individuals
seeking to act as payee for a child under the
state’s legal guardianship.
13
In a case currently pending before
the Washington Supreme Court, SSA filed
an amicus brief in support of the state child
welfare agency’s practice of seeking
appointment as payee for all foster children.
SSA apparently was not troubled by the
serious questions raised by the plaintiff
children about the propriety of the state’s
handling of their benefits, and emphasized
that if the state agency no longer served as
payee, SSA “would be compelled to find
alternative representative payees,” and this
search “would impose a substantial burden
on [SSA].” Estate of Danny Keffeler v.
State of Washington, No. 67680-1, Amicus
 While the flow of SSI money directly
into state coffers may be convenient for the
state and for SSA, however, it is problematic
in several ways. First, a child welfare
agency’s assumption of the role of
representative payee creates a direct conflict
of interest between its fiduciary obligations
to the child and its own fiscal interests.
Federal regulations impose on any payee a
responsibility to use SSI payments only for
the “use and benefit” of the child.14 They
may cover the child’s “current
maintenance”15 and — if the child’s current
and reasonably foreseeable needs have been
met — pay off debts owed to creditors.16
This limitation is especially important
because SSI benefits are, as a rule, protected
Brief filed by SSA Commissioner Kenneth
Apfel (May 25, 1999).
14
See 20 C.F.R. 416.635. See also
Riddick v. D’Elia, 626 F.2d 1084, 1088 (2d.
Cir. 1980) (noting that representative payee
has a “legally enforceable fiduciary
obligation”); Jackson v. Mullaney, 708
F.Supp. 483, 488 (N.D.N.Y. 1989)
(provisions of Social Security Act impose
fiduciary duty on a representative payee to
spend benefits solely "for the use and
benefit" of the beneficiary); Mack v.
Secretary of the Department of Health and
Human Services, 1995 WL 507581, *3 (Ct.
Fed. Cl. 1995) (“[R]egulatory provisions
regarding representative payees [place]
those payees in a fiduciary relationship with
the intended beneficiary.”)
15
20 C.F.R. § 416.640(a).
16
Id., § 416.640(d).
4
from attachment by creditors,17 including
state agencies, who may not use any legal
process to force a beneficiary or a payee to
satisfy an outstanding debt from SSI
payments.
The problem, however, is that child
welfare agencies themselves are often
creditors as well as caretakers of foster
children, and may want to reimburse
themselves for current and past costs of
foster care. The Social Security Act
generally prohibits creditors from acting as
representative payees at all.18 State social
service agencies are exempted from this
blanket prohibition,19 but they still must
obtain prior authorization from SSA if they
seek to use a child’s SSI to reimburse
themselves.20 This protection is effective,
however, only if SSA carefully evaluates
requests for prior authorization on a case by
17
42 U.S.C. § 407(a) (made
applicable to SSI benefits by 42 U.S.C. §
1383(d)(1)).
18
See 42 U.S.C. §
1383(a)(2)(B)(iii)(III).
19
See 42 U.S.C. §§
405(j)(2)(C)(iii)(III), 1383(a)(1)(ii).
20
See POMS, GN § 00602.030
(Claims of creditors). State laws may
include additional safeguards against the
conflict of interest that arises when a
creditor accepts responsibility as a payee.
For example, Illinois law requires that a
creditor who seeks to act as a payee for an
individual with a mental health disability, he
or she must first secure the informed consent
of the beneficiary. See 405 ILCS 5/2-105;
Brown v. Murphy, 278 Ill. App. 3d 981, 664
N.E.2d 186 (1st Dist. 1996).
case basis.
Second, even aside from the conflict
of interest problem, the routine appointment
of state child welfare agencies as
representative payees for foster children
conflicts with SSA’s own selection criteria
for payees. The regulations describe a
hierarchy of preferred representative payees
for minors, beginning with individuals (such
as custodial parents and relatives) whose
relationship with the child would normally
ensure the payee’s familiarity with the child’s
needs and circumstances and commitment to
guarding the child’s interests.21 Last and
least-favored is an authorized social agency
or custodial institution such as a child
welfare agency.22 Thus, SSA’s current
practice of routinely approving child welfare
agencies’ applications to serve as payee for
foster children is inconsistent with its own
regulations.
This practice has led to litigation in
several states. For example, a federal lawsuit
filed in Tennessee in 1994, led to a
settlement under which SSA agreed to abide
by its hierarchy of preferred payees, and to
investigate specific allegations of misuse of
21
See 20 C.F.R. § 416.621(b).
22
20 C.F.R. § 416.621(b)(7). Cf.
Muller v. State of New York, slip op., no.
M-46512, 1999 WL 138757 (N.Y. Ct. Cl.,
January 28, 1999) (noting that under
provisions of 20 C.F.R. § 404.2021, which
are identical to § 416.621, public
institutions are “placed in the third
preference rank behind a legal guardian,
spouse or other relative in the first rank, and
a close friend in the second rank.”)
5
funds by representative payees.23 The same
settlement also included an agreement by the
state agency to provide notice to family
members whenever it sought to be appointed
as a child’s representative payee.24 More
recently, plaintiffs in pending cases have
claimed that child welfare agencies have
misrepresented to SSA that no other, more
suitable payee is available to manage a
child’s benefits.25
In Washington State, a dispute
between a child welfare agency and a foster
child’s grandmother is central to a case now
pending before the state Supreme Court.
The conflict in Guardianship Estate of
Danny Keffeler v. Washington Department
of Health and Social Services26 began with
an attempt by the state agency to force the
grandmother, who was the child’s payee, to
relinquish his SSI benefits to help cover
foster care expenses. When the grandmother
invoked the federal law protecting SSI
benefits from creditors’ claims, the agency
tried to substitute itself as payee. A class
action was filed in state court on behalf of
Danny Keffeler and similarly situated foster
children, arguing both that the state acted
23
Michael B. v. Corker, No. 3-94-
0525 (M.D.Tenn, 1994).
24
See Tenn. Admin. Code §
1200–31–1 (State must notify child’s parents
when it seeks appointment as representative
payee for a child entering foster care).
25
Cornett v. Hattaway, No. 3-98-
0825 (M.D. Tenn.) (filed Sept. 4, 1998);
Willingham v. McDonald, No. 96 CO 00120
(Circuit Court of Cook county, Illinois)
(filed June 1996).
26
No. 67680-1 (Wash. Sup. Ct.).
improperly in seeking to remove children’s
individual payees, and that the state agency,
when acting as representative payee, should
not take children’s SSI benefits to reimburse
itself for foster care. The trial court enjoined
the state agency from “engaging in legal
maneuvers to remove private representative
payees or force them to pay the Social
Security benefits to the state.”27 The case is
currently pending before the Washington
Supreme Court. The Tennessee case
mentioned earlier raises a similar issue.
Plaintiffs claim that the state child welfare
agency falsely stated that the named plaintiff,
Linda Cornett, had no parent or relative who
could serve as her payee, when in fact the
agency’s own records showed that Linda had
a grandparent who was closely involved in
her care.
The question of who serves as payee
can make a major difference in foster
children’s lives. For example, in the
Washington case, the named plaintiff Danny
Keffeler was able to go to college because
his grandmother, as payee, fought to
conserve his SSI benefits.
Advocates should challenge the
common agency practice of seeking to
become representative payees for all foster
children receiving SSI, without notice to
parents and other family members, and
without a case-by-case determination
whether a parent or relative, or foster parent,
would be better suited to determine the
child’s needs, manage the benefits, and
protect the child’s interests. Advocates
should also challenge SSA’s practice of
“rubber stamping” these applications without
fulfilling its duty to make an individualized
27
Estate of Keffeller, No. 67680-1
(Order Granting Plaintiffs’ Motion for
Summary Judgment, January 7, 1999).
6
selection of the best payee for each child, in
light of the preferences established by the
SSI regulations and in light of state agencies’
inherent conflict of interest.
Child Welfare Agencies’ Use of Foster
Children’s SSI Benefits
If the agency is the payee for a foster
child receiving SSI benefits, whether because
no other payees are available or because the
agency has not sought them out, further
issues arise concerning the proper use and
management of the child’s benefits.
Experience in some states suggests that
many child welfare officials regard children’s
SSI benefits as just another federal funding
stream – like Title IV-A, Title IV-E, or
Medicaid – to be used to offset foster care
costs. But, unlike these other sources of
funding, SSI benefits belong to the
individual child. A child welfare agency
acting as payee is obliged by both federal
regulations and fiduciary duties to use the
funds only to benefit the child.
Under common law in most states,
once a child welfare agency assumes legal
responsibility for a child, it also has a
fiduciary duty to protect that child’s
interests, financial as well as physical and
emotional.28 Fiduciaries may be held
28
See, e.g., In Matter of
Conservatorship of Deremiah, 477 N.W.2d
691 (Iowa 1991) ( as fiduciary, coguardian
was under obligation to act in best interest
of ward including not misusing or abusing
estate by withdrawing unnecessary funds);
In Matter of Conservatorship of Marcotte,
243 Kan. 190, 756 P.2d 1091 (1988) (Co-
conservator found liable to estate for
unnecessary and wasteful expenses that did
not benefit conservatee); In re Estate of
Berger, 166 Ill. App. 3d 1045, 1055, 520
accountable not only for active
mismanagement, but also for failing to take
affirmative steps to guard a child’s assets or
to secure income from readily available
sources.29 In addition, payees are bound by
federal regulations, and a payee who misuses
benefits may also be held liable under federal
law.30 Moreover, SSA has a duty to
investigate before selecting a payee and to
remove the payee if benefits are being
misappropriated;31 the agency may be held
liable if negligent in investigating an
applicant or monitoring a payee.32 Advocacy
N.E.2d 690, 697 (1st Dist. 1987)(In
managing a beneficiary’s money, the
paramount duty of a fiduciary is to
“conserve and protect the assets of the
[beneficiary] and to see that the assets and
income therefrom are properly applied to
use, enjoyment and benefit of the
[beneficiary].”).
29
See, e.g., Matter of Estate of
Dyniewicz, 271 Ill. App. 3d 616, 627, 648
N.E.2d 1076, 1084 (1st Dist. 1995) (A
guardian is bound to use ordinary prudence
in managing his or her ward’s estate and
may be held liable for losses incurred
through culpable negligence or
indifference).
30
See, e.g., Estate of Murphy, 162 Ill.
App. 3d 222, 223, 514 N.E.2d 1225, 1226
(5th Dist. 1987).
31
20 C.F.R. § 416.650.
32
42 U.S.C. § 405(j)(4)(D)(5). In a
Tennessee case against both the state child
welfare agency and SSA, Michael B. v.
Corker, No. 3-94-0525 (M.D.Tenn 1994), a
1995 settlement required SSA to improve its
7
efforts are urgently needed, to scrutinize
state agencies’ practices, take action to
prevent or remedy misuse and
misappropriation of foster children’s SSI
benefits, and ensure adequate SSA oversight
of state agency payees.
Numerous issues may arise over
agency decisions about how to manage and
spend a child’s SSI money. What counts as
“current maintenance” of the child? May an
agency use SSI benefits to defray
administrative, overhead, and personnel
costs? When current maintenance needs
have been satisfied, may the state take the
remaining SSI benefits to reimburse itself for
past costs of care? To what extent must an
agency seek alternate sources of funding
(e.g., through Medicaid or schools) for
needed services? Must the agency take
affirmative steps to maximize the child’s
income or assets, or to protect the child’s
ongoing eligibility for benefits? And finally,
what obligation does the agency have to plan
for the child’s future needs, including needs
that will arise following discharge from
foster care?
“Current maintenance”
The basic purpose of SSI benefits is
to provide for the needs of low-income
persons with disabilities.33 So, a payee is
permitted to use SSI benefits to pay for the
costs of “current maintenance,” defined to
include food, shelter, clothing, medical care,
process of selecting payees, tighten
accounting requirements, investigate claims
of misuse of funds, and reimburse children
in cases where SSA’s negligence led to
misuse of foster children’s SSI benefits.
33
See 20 C.F.R. §416.110.
and personal comfort items.34 As SSA
interprets these regulations, state foster care
agencies may use foster children’s SSI
benefits to offset current costs of care – the
child’s room and board.
Advocates generally have not
challenged this practice, with one notable
exception. In the Estate of Keffeler case in
Washington, advocates argued successfully
that, since the agency had a duty under state
law to pay for foster care whether
reimbursed or not, using foster children’s
SSI benefits to reimburse itself for their care
violated this duty. The trial court issued an
injunction requiring the agency to conserve
foster children’s benefits for future needs,35
and the case is now pending before the
Washington Supreme Court. SSA, however,
has filed an amicus brief in support of the
agency, arguing that the agency, as payee,
should be allowed to use children’s SSI
benefits to offset the costs of foster care.
There is little law exploring the
meaning of “current maintenance” in the
context of foster care, and payees generally
retain substantial discretion in the use of SSI
benefits, although cases in other contexts
have limited this discretion.36 However,
34
20 C.F.R. § 416.640(a).
35
Estate of Keffeler (Order Granting
Plaintiffs’ Motion for Summary Judgment,
Jan. 7, 1999).
36
See e.g., Jahnke v. Jahnke, 526
N.W.2d 159, 162-63 (Iowa 1994) (use of
child’s disability benefits to pay court costs
and attorney fees incurred by parents in
marital disputes was outside boundaries of
current maintenance and therefore
improper); Catlett v. Catlett, 55 Ohio
App.3d 1, 6, 561 N.E.2d 948, 954 (Ohio
8
several claims have been made in pending
lawsuits. In Illinois, for example, one of the
central charges in a pending class action
lawsuit challenges the state agency’s use of
benefits to pay for personnel and other
administrative costs incurred by private
agencies with which the state contracts to
serve foster children.37 A fixed amount was
being deducted from children’s benefits to
cover the private agencies’ costs of business.
Since many children’s monthly SSI benefits
are higher than the payments made to foster
parents for their care, without this extra
deduction, they would have had money left
over each month to be conserved for special
needs or future use. Plaintiffs have argued
that whatever benefit children derive from
case management by the private agency is
too remote and indirect to fall within the
scope of permissible uses for SSI benefits,
and that the agency’s practice of using the
children’s benefits to pay these costs violates
its statutory and fiduciary duties to them.
Advocates in Massachusetts have
also challenged that state’s practice of taking
most or all of foster children’s monthly SSI
benefits to offset the costs of foster care.
Their efforts have resulted in implementation
of some safeguards, including better
accounting practices and the conservation of
at least 25% of the children’s monthly
App. 1988) (mother’s use of child’s back
benefit award to remodel kitchen and
purchase gifts for other family members
constituted improper use of payments for
purposes other than current maintenance).
37
Willingham v. McDonald, supra, n.
25.
benefits for future use and/or special needs.38
Use of SSI benefits to reimburse for past
foster care costs
In addition to using children’s
monthly SSI payments to offset the costs of
current foster care, state child welfare
agencies commonly seek to use these funds
to reimburse themselves for foster care costs
incurred before the child started receiving
SSI. In particular, when children receive
large retroactive SSI awards – which is
common because delays in processing SSI
applications can range from three to nine
months – state agencies often seek to take
these lump sum awards to pay back the costs
of providing foster care while the child’s SSI
application was pending.
As explained above, state agencies
are exempt from the rule that creditors
cannot be representative payees, but they
must seek prior authorization from SSA
before using SSI benefits to reimburse
themselves. Payees cannot use SSI benefits
to pay the child’s debts (either to themselves
or other creditors), unless they first ensure
that all of the child’s present and reasonably
foreseeable future needs are met.39 This
obviously requires an individualized
determination, by someone familiar with the
child’s circumstances. However, in using
lump sum awards to reimburse themselves
for past foster care costs, many state child
welfare agencies routinely represent to SSA
that children’s current and foreseeable needs
have been met, without any inquiry into or
regard for the child’s individual
circumstances,
38
Ray Cebulla, personal
communication July 30, 1999.
39
20 C.F.R. § 416.640(d).
9
Moreover, children whose lump-sum
SSI awards amount to more than six months’
worth of payments (about $3000) are
protected by the “dedicated account” rule.40
This rule requires large lump-sum awards to
be placed in a special account, used only for
special needs (e.g., a college fund), and
protected both from depletion to pay for
basic living expenses and from creditors’
claims.41
Advocacy is needed to challenge
state agency practices such as failing to
create dedicated accounts for large lump sum
awards; taking foster children’s SSI money
as reimbursement for past foster care costs
without seeking prior authorization from
SSA; and, when prior authorization is
sought, representing to SSA that all of a
child’s current and foreseeable needs are met
without making an individualized
determination that this is true. SSA’s routine
40
20 C.F.R. § 416.546, POMS SI
01130.601.
41
Children’s advocates may face a
dilemma in the future, if legislation is
proposed to repeal the dedicated account
rule. (According to Kevin McCahill, SSA
Office of Program Benefits, there is some
support within SSA for such legislation). On
one hand, the rule can cause hardships for
low-income parents and relatives who serve
as payees, by requiring them to create
special bank accounts and reducing their
discretion to use SSI awards. But on the
other hand, the dedicated account rule may
also protect children from misuse of large
SSI awards both by individual payees and by
state agencies! Advocates may wish to
oppose the repeal of the dedicated account
rule, at least with respect to institutional
payees.
approval of state agencies’ requests for prior
authorization should also be challenged.
For example, audits by the federal
Office of the Inspector General (OIG) in
1996-9742 revealed that the county child
welfare agency in Los Angeles, which served
as payee for 1300 SSI-eligible foster
children, routinely reimbursed itself for past
foster care costs without seeking prior
authorization, failed to create dedicated
accounts for large lump-sum awards, and
misappropriated the interest earned on
children’s SSI accounts (which amounted to
$72,000 in 1997). Similar problems were
revealed in a 1998 audit of Contra Costa
County, California. Moreover, OIG found
that the Los Angeles child welfare agency
had retroactively increased the foster care
rates charged for SSI-eligible foster children,
enabling it to take more of the children’s SSI
funds than the county had actually paid for
their care! OIG informed county officials
that this was improper, and recommended
that SSA issue nationwide guidance limiting
foster care costs charged to SSI-eligible
children to the same foster care rates paid by
other foster children.
The duty to conserve children’s SSI benefits
by seeking alternative funding sources
As discussed above, in most states a
fiduciary must manage the ward’s property
with the same degree of care and prudence
that a reasonable person would exercise in
managing his or her own property, and may
be liable for failing to take affirmative steps
to maximize the value of the income or
42
Office of the Inspector General
audit reports concerning the SSI program
can be accessed from SSA’s website,
www.sss.gov. These audits can be a useful
tool for advocates.
10
assets it oversees. Thus, in the context of
foster care, a child welfare agency acting as
representative payee may be obliged to do
more than use children’s SSI benefits for
current costs of care and place any remaining
money in an interest-bearing account.
Many of the expenses routinely
incurred by agencies caring for foster
children may be reimbursable through other
federal or state funding sources, such as
Medicaid or special education funds. Where
agencies fail to take reasonable steps to
secure payment for services through these
other sources, they may arguably be liable
for the depletion of children’s SSI benefits
used to pay for such services.
Lawsuits in both Tennessee and
Illinois43 have raised challenges to the failure
of child welfare agencies to be more
aggressive in seeking Medicaid funding for
covered services. In the Cornett case in
Tennessee, plaintiffs allege that the agency
often hospitalizes foster children with serious
emotional disturbances, and the state
Medicaid agency frequently denies
reimbursement for hospital costs which it
deems unnecessary. Instead of either
contesting this determination through the
administrative appeals process, or
reconsidering the children’s placement, the
child welfare agency routinely pays for the
costs of institutionalization out of the
children’s SSI funds.
Another issue raised in the Cornett
case is that when the actual cost of a foster
child’s residential care exceeds the Medicaid
reimbursement, the state agency often simply
pays the excess from the child’s SSI funds,
rather than challenging the provider’s
excessive rates. Similarly, in the Illinois
case, plaintiffs have charged that the state
43
See note 25.
child welfare agency sometimes secures
Medicaid-eligible services through providers
who are not certified and who consequently
must bill the child welfare agency rather than
Medicaid – and that the agency passes these
costs on to the child. All of these practices
may be challenged as inconsistent with the
agency’s fiduciary duty to ensure that
children’s SSI benefits are managed in the
best interests of the children.
In addition, children who need
institutional care often qualify for special
education, so that the portion of residential
care costs that are unrelated to health care
should be paid for by school funds, under the
Individuals with Disabilities Education Act
(IDEA).44 The named plaintiff in Cornett
was placed in a residential facility by the
child welfare agency, which failed to pursue
her eligibility for special education, instead
deducting the cost of her care from her lump
sum benefit award.45
The duty to conduct reasonable financial
planning
As representative payee for a foster
child, a child welfare agency is responsible
for managing the child’s assets, and one
concern that may arise stems from the
resource limits on SSI eligibility. Any child
with countable resources (such as savings
44
Individuals with Disabilities
Education Act, 20 U.S.C. § 1400 et seq.
45
The Tennessee Justice Center,
which filed the Cornett case, also filed an
Office of Civil Rights complaint on behalf of
Linda Cornett, alleging discrimination on
the basis of disability, since she was not
allowed to attend public school, and then
was compelled to pay for her own
residential program.
11
accounts, stocks and bonds, etc.) in excess
of $2000 is ineligible for continued SSI
benefits. When a child receives a lump-sum
award of benefits, SSA gives payees a six
month grace period before considering the
award a countable asset.46 If a child’s assets
exceed the ceiling after this grace period, SSI
payments will be discontinued.47 However,
children who receive lump sum awards
above the “dedicated account” threshold of
six months’ benefits (about $3000) are
protected, because money in a dedicated
account does not count towards the resource
limit.
Thus, foster children who receive
lump sum awards between $2000 and $3000
are at risk of losing their continued eligibility
for SSI unless their resources are spent down
or sheltered in a trust. Children whose
monthly foster care costs are less than their
SSI payments (and whose payees are acting
properly by conserving the balance in an
interest-bearing account) are also at risk of
losing SSI eligibility if their resources grow
to exceed $2000.48 SSI payments can be
reinstated if the child’s resources drop below
the limit within 12 months, but after that
benefits can only be reinstated after a
complete reapplication process, including a
new determination of disability.49
In Massachusetts and in Los Angeles
county, for example, 1997 audit reports by
46
See 42 U.S.C. § 1382b(a)(7).
47
See 20 C.F.R. § 416.1324.
48
Similar concerns may arise when
children receive substantial sums of many
through other sources, such as insurance or
wrongful death claims.
49
See 20 C.F.R. § 416.1335.
SSA’s Office of the Inspector General
revealed that foster children’s SSI account
balances were not being monitored, that the
agencies had no mechanism through which
to spend down or shelter funds when a child
neared the resource limit, and that
caseworkers did not realize that the funds
were available and/or did not know how to
access them for the children’s needs.
Advocates should ensure that their
states’ child welfare agencies have a
mechanism to monitor children’s SSI
accounts to guard against the loss of
eligibility for ongoing benefits due to excess
resources. When children have resources
above $2000, an individualized
determination should be made whether to
spend some of the money on special needs or
personal comfort items (e.g. a computer,
sports equipment, summer camp, etc.), or to
set up a trust account for the child’s future
education and other needs.50
50
Texas, for example, has a
computerized accounting system that
appears to function well. According to an
official of the of the Texas Department of
Regulatory Services, the following steps are
required whenever a foster children receives
a lump-sum award: (1) Determine if the
lump-sum meets the threshold for the
dedicated account rule, and if so, create
dedicated account, and use funds in accord
with SSA regulations; (2) If the lump-sum
award does not meet this threshold, use it
for (a) any special needs of the child not
covered by other funding sources (such as a
computer); (b) creating a savings account
for up to $1000 (the state’s foster care
resource limit); (c) spend down any
remaining funds above the resource limit on
costs of care. Max Villareal, Presentation
at Third National Conference on Foster
12
Information flow problems
All the above concerns about
financial planning are exacerbated by the lack
of information exchanged within many child
welfare agencies. Services are usually
purchased for foster children through the
decisions of a caseworker. However,
particularly in large agencies, the
management of children’s accounts may be
handled by a division of the agency that has
no regular contact with caseworkers and no
information about children’s individual needs
and circumstances. Moreover, caseworkers
may not even be aware that children are
receiving SSI payments, or of how to access
these benefits. Good financial planning is
virtually impossible under these conditions.
The consequences of this information
gap are multiple. First, workers may not
know that children have money that could be
used to cover comfort items outside the
agency’s usual budgeted expenses, such as
summer camp, after-school arts and sports
programs, or computers. Second, workers
may arrange for expensive, marginally useful
services for children on the assumption that
they will be paid for by government funds,
not realizing that these services would
deplete the child’s personal assets. Thus,
caseworkers cannot make informed
judgments whether it is in the child’s best
interest to spend her own money on the
services.
In states where caseworkers lack
access to information about a child’s SSI
status, advocates should consider pursuing
administrative and legal strategies to
encourage better training of workers and
Care and SSI, July 1999.
better management of information.51 The
problem could also be partly alleviated
through enforcement of the order of
preference for appointment of representative
payees, so that at least some foster children
would have parents, relatives, foster parents,
or other responsible adults acting as their
payees and working with the caseworker to
make decisions about the use of the child’s
benefits.
The duty to plan for future needs
Child welfare agencies are obliged
not only to ensure that a foster child’s
immediate day-to-day needs are met, but also
to plan for the child’s future. This obligation
derives from general fiduciary principles as
well as from specific regulations governing
the use of SSI benefits. A recurring problem
that arises when child welfare agencies act as
payees is the failure to plan for the child’s
discharge from foster care.
Payees have an obligation to
conserve any benefits not used for either
current maintenance or debts of creditors in
an individual interest-bearing account kept
for the child.52
51
The Illinois class action lawsuit has
charged that such a failure to provide
workers with information constitutes a
systemic breach of the agency’s fiduciary
duty. Willingham, supra, n. 7. While the
suit is still pending, improvements appear to
contemplated in the area of worker training.
Also, the settlement in the Michael B. case in
Tennessee provides for training for workers,
and provisions to ensure that caseworkers
know when children are receiving SSI and
can access the benefits for special needs.
52
See 42 U.S.C. §1383(a)(2)(F); 20
C.F.R. S 416.640(e).
13
Moreover, the agency’s fiduciary duty as
payee also requires it to plan for the child’s
future after discharge from foster care. If it
is clear that the child will continue to have
special needs, the agency payee is bound to
take these needs into account before it uses
the child’s benefits to reimburse itself –
especially before it takes children’s lump-
sum awards to reimburse itself for past costs
of care. Particularly for youth aging out of
foster care, agency practices of taking foster
children’s SSI benefits conflict with the goal
of ensuring that the child has access to job
training, education, housing, and income
support during the transition to
independence. The risks for a disabled foster
child headed for independence are especially
acute, due to the special SSI eligibility
review now mandated by federal law for
children turning 18, which may cause many
disabled youths to lose their SSI eligibility.53
Agencies must be encouraged to
guard against future financial uncertainties,
including the possible loss of benefits, by
careful planning before the child’s discharge
from foster care. One mechanism for helping
this process is SSA’s PASS (Plan for
Achieving Self-Support) program, under
which teens and adults who have a specific
vocational goal can set aside income in a
special account (e.g. to pay for college
tuition, books, vocational training, tools,
etc.) that will be disregarded for purposes of
SSI eligibility.54 Title IV-E foster care
benefits, since they are counted as the child’s
income, can be disregarded just like any
other source of income – which means that if
53
20 C.F.R. § 416.987(a)(2).
54
Matthews, “SSI Benefits for Teens
with Disabilities in the Post-Welfare Reform
Era,” Youth Law News (Jan.-Feb. 1999).
a foster youth has an approved PASS plan,
the state agency could both collect the
maximum monthly SSI payment for the
youth and use it to pay for the costs of care,
and put IV-E funds (as well as any other
earned or unearned income the youth has,
e.g. from state independent living funds, a
part-time job) into a special account to
finance the youth’s education or job training!
It is not clear if any states have yet adopted
this strategy. Advocates should discuss the
PASS program with their state child welfare
agency’s Independent Living coordinators.

Conclusion
Clearly, more careful scrutiny of
agency practices is required to ensure that
foster children’s SSI benefits are put to best
use. Too many agencies assume that SSI
benefits belong not to the child, but to the
agency. Foster children’s SSI benefits are
not just another federal funding stream –
they are intended to meet the individual
needs of individual children. Careful scrutiny
by advocates is needed to ensure that state
child welfare agencies are fulfilling the duties
entrusted to them when they act as payees
for SSI-eligible foster children.
Bruce Boyer is supervising attorney
at the Children and Family Justice Center at
Northwestern University Law School, and is
class counsel in the Willingham case.
Martha Matthews is a staff attorney at
NCYL.

14