Can Creditors Take My Social Security Checks?

Creditors generally cannot seize Social Security benefits, even if they have sued you and obtained a court judgment against you. However, there are some limited exceptions to this rule for certain types of government debts which are detailed below.

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Are Social Security benefits protected by law?

Yes. Creditors cannot garnish or confiscate Social Security benefits, whether they be retirement, disability, survivor's benefits, or SSI, with the exception of certain federal agencies. This safeguard has been codified into law by Congress. This means that conventional creditors, such as credit card companies, medical collectors, and loan businesses, are prohibited from taking Social Security benefits if it is evident that the money they want is Social Security income. 

Does it matter if the creditor has sued me in court? 

No. Even if the creditor obtains a court judgment against you, these rights apply. You may not be able to pay the judgment with Social Security funds if the court rules against you. As a result, if you are sued for a debt, it is critical that you do not enter into any agreed orders or judgments that require you to pay a debt with your Social Security benefits.

Do these protections exist if the Social Security money is deposited into a bank account? 

Yes. Once funds are placed in a bank, they are protected against garnishment or confiscation. The Court, on the other hand, must be able to distinguish between exempt and non-exempt funds.

If the Court cannot tell whether money is Social Security income from your documents and bank statements, the Court will most likely rule that none of the money is exempt. If Social Security income is directly deposited into a bank account, the statement will reflect a deposit from the United States Treasury at about the same time each month. To make it evident that the Social Security Administration is the only source of funds in the account, the direct deposit from the US Treasury should be the only deposit reported on the bank statement each month. This will show creditors and a court that the money in your bank account is protected income.

What if a collection agency threatens to take my Social Security? 

By making false assertions, the collection agency may be breaking the Fair Debt Collection Practices Act (a federal law that regulates collection agencies). Only if the creditor or collection agency knows that your only source of income is Social Security would these statements be false. You should seek legal assistance if you believe you have legal claims against the collecting agency. 

Can government agencies take my Social Security benefits? 

Yes, but only under limited circumstances.

First, SSI (Supplemental Security Income) cannot be taken at all, unless the Social Security Administration is trying to correct incorrect past payments.

Only federal agencies may try to take Social Security benefits. Examples of some things the federal agencies can try to take your Social Security benefits for are:

  • Federally subsidized student loans.   
  • Other loans owed to, or subsidized by the government.   
  • Food stamp overpayments.   

Can the federal agency take my whole Social Security payment?

No, a government agency can only take a portion of your Social Security check each month.

The first $750 per month (or $9000 per year) is not confiscatable. As a result, if your monthly benefits are less than $750, your benefits cannot be taken.

Can I protest the government’s action? 

Yes. You have the right to get written notice in advance if the government plans to "offset" (take a portion of) your Social Security income. If you believe you do not owe the money, you have the right to a hearing. You might want to seek legal counsel. Another option is to work out a payment plan with the government entity that is threatening to withhold your Social Security income.

Can I get rid of the government debt in bankruptcy? 

Yes, in a lot of circumstances. However, there are certain noteworthy exceptions, such as:

  • Student debts are normally non-dischargeable, and income taxes can only be forgiven in certain situations.
  • If the person or entity to whom you owe the money establishes you collected the obligation by false pretenses or fraud, the debt will not be dismissed.

If you need an experienced attorney to review your financial circumstances and the nature of debts to help you decide the best course of action, please contact the Law Office of Inna Fershteyn at (718) 333-2395.

Handling Bank Account Funds in an Estate

How you handle bank accounts, like any other asset owned by a deceased individual, depends on how they were owned. Here are a few scenarios in which funds are handled and how one may go about handling them under certain circumstances. 

Handling Bank Funds in an Estate

Solely Owned Bank Accounts 

If the deceased individual owned the account in his or her own name and did not identify a payable-on-death beneficiary, the account will certainly be subject to probate. Probate is the legal process that takes place after the death of an individual to make sure that their assets are properly collected and distributed to the appropriate beneficiaries by the appointed executor. If the deceased left behind an estate plan, identifying their beneficiaries is as simple as reading the will; if not, their assets will be distributed according to New York’s intestate succession laws. However, if the total amount of probate assets is low enough to count as a "small estate" under state law, the rightful heirs will be allowed to claim the money using either streamlined probate processes or an affidavit.

Accounts with a Payable-on-death Beneficiary

These are the straightforward ones: because the money is still not part of the deceased person's probate estate, you do not have any control over it as executor. 

The money can be claimed by the beneficiary specified by the deceased individual by visiting the bank with a death certificate and identification. The paperwork in which the account owner chose the POD recipient should be kept with the bank.

Jointly Owned Accounts 

In most situations, if a deceased individual has a joint account with another individual, the surviving co-owner becomes the account's owner immediately. To be transferred to a survivor, the account does not need to go through probate.

The Right of Survivorship

There are, however, exceptions to this general norm. The "right of survivorship" applies to most accounts that are held in the names of two individuals, but not all. In other words, if one of the co-owners dies, the money immediately passes to the surviving co-owner. (It typically works in the same manner with retirement funds.) 

Sometimes it may be obvious that the account has a right of survivorship. Suppose the account is named "Lisa Johnson and William Johnson, JTWROS." (Joint tenants with right of survivorship is the acronym.)

It's likely still a joint tenancy account if the account registration document at the bank only includes two names without mentioning joint tenancy or right of survivorship. In Texas, for example, in order to establish a joint tenancy account, the account owners must sign a separate contract in addition to the bank's registration card.

Disputes About What The Deceased Intended 

When two people—say, a married couple—open a joint account, no one will argue that when one of them dies, the assets in the account go to the survivor. When an elderly person adds someone else's name to an existing bank account, the situation may be different.

This is frequently done to avoid probate in the event of the original owner's death. However, the second name is often added only for the sake of convenience—that is, so that the other person may write checks on the account and assist the original owner. Alternatively, the arrangement is meant to provide simple access to the assets to the second person following the original owner's death, so that the funds may be utilized for the burial or other expenditures.

When the original account owner dies, the person whose name was added to the account legally becomes the outright owner of the money. Unless it’s in writing, any previous agreement about how the money should be spent is unenforceable. The money belongs to the new owner, who can spend it on anything he or she wants. If family members are certain that the deceased individual desired a different outcome, they will have a hard time getting the money back from the surviving joint account owner if they go to court.

Bank Accounts Held In Trusts 

Many people put their significant assets in a living trust to avoid having to go through probate later. You'll be able to tell if the deceased individual had a bank account in trust based on the account statements, which will reveal who the account was owned by for example, "Lisa Johnson, trustee of the Lisa Johnson Revocable Living Trust dated September 9, 2003.”. The account, like other trust assets, is managed by the successor trustee, who takes over once the original trustee passes away. The funds will be transferred to whoever inherits them under the provisions of the trust deed by the successor trustee.

The Law Office of Inna Fershteyn can assist you in handling bank account funds in an estate. Please contact us at (718) 333-2394 for an experienced and diligent estate attorney who is familiar with the probate and trusts process.

Passing Assets to Grandchildren Through a Generation–Skipping Trust

While there are numerous ways in which one can pass assets to family members or following generations, a generation-skipping trust allows a beneficiary—or otherwise called a trustor or grantorthe ability to pass all assets onto the next generation by "skipping" the consecutive generation tax–free. This form of trust is most often utilized for relatives who are at least 37.5 years younger than you. They often include a beneficiary such as a friend, grand–child, or niece/nephew (excluding a spouse or ex-spouse).

Generation-Skipping Trusts and Esates

What is a Generation-Skipping Trust?

A generation-skipping trust is an established trust that names a beneficiary who has to be at least 37.5 years younger than the settlor. A generation-skipping trust can be established by a settlor, as part of a complete estate plan to reduce tax obligation. 

A settlor, for example, might leave an inheritance to a grandchild without ever transferring ownership of the assets to the child's parents. The assets flow tax–free to the recipient upon an individual’s death from the consecutive generation.

How a Generation-Skipping Trust Works

Generation-skipping trust laws provide precise requirements for who can be designated as the "skip person," according to the United States Code. According to these laws, the skip person, or beneficiary, must be “a natural person allocated to a generation 2 or more generations below the transferor's generation assignment.”

Three Things to Consider when Creating a Generation-Skipping Trust

  1. First, the federal GST exemption level was raised to $11.4 million in 2019 and $11.58 million in 2020, after being adjusted for inflation. This implies that you are eligible for a lifelong generation-skipping tax exemption on property transfers up to that amount. There are twelve states who additionally have their own inheritance tax, which applies to smaller estates in some cases. When someone leaves an estate to their child, who then leaves the estate to their offspring, the estate taxes are levied twice. One of these transactions and estate tax assessments is avoided by using a generation-skipping trust.
  2. As long as the original assets stay in the trust for the deceased person, there is no restriction prohibiting the following generation from obtaining earnings on assets. The trust can also be set up for them to obtain a voice in future beneficiaries' rights and interests. When your children pass away, the assets will transfer to the beneficiaries.
  3. It is not necessary for the recipient to be blood related. A generation-skipping trust solely requires that the trust is created for a beneficiary who is at least 37 1/2 years younger than the deceased individual.

Generation-Skipping Trust and Taxes

“Congress created the generation-skipping transfer (GST) tax and connected all three taxes [estate, gift, and generation-skipping transfer taxes] into a single estate and gift tax,” according to the Tax Policy Center, with the objective of eliminating the estate tax loophole.

Accordingly, by moving assets to the trust that falls under the exemption amount, the trust can be established to take advantage of the GST tax exemption. If the assets appreciate in value, the proceeds can be distributed to the trust's beneficiaries. Furthermore, because the trust is unchangeable, your estate will be free from paying GST even if the value of the assets exceeds the exemption limit. This is also true for any asset appreciation because all profits are transferred directly to beneficiaries. This means you will not have to pay the generation-skipping transfer tax if the value of the trust's assets totals to an amount exceeding the exemption maximum.

The estate tax exemption was increased through 2026 by the Tax Cuts and Jobs Act, which was passed into law in 2017. Because of the large barrier, most people will not be subject to the generation-skipping transfer tax. However, beneficiaries who receive assets in excess of the $11.58 million inflation-indexed exemption would be subject to a 40% top tax rate on the taxable amount.

Gift Tax

The individual gift tax for 2019 was $11.4 million. As a result, you and your spouse will be able to exchange $11.4 million over the course of your lives. Through 2025, the yearly lifetime gift tax exemption has been raised by the Tax Cuts and Jobs Act of 2017. The gift tax increased  to $11.58 million per person in 2020.

Determining Whether a Generation-Skipping Trust is Right For You

Since a generation-skipping trust is a complex legal structure, it is a good idea to think about it as soon as possible—preferably when you are starting to plan your retirement.

A generation-skipping trust is an excellent concept for capital preservation if you have a significant estate that is likely to be affected by the federal estate tax, and where, barring any catastrophic circumstances, your children will also have to pay the estate tax. It can also prove to be a sufficient resource in preserving your personal assets to those you wish to desire. Nonetheless, you must keep in mind that trusts are irreversible.

If you are in need of a highly qualified and experienced attorney for advice on how to build a trust, please contact the Law Office of Inna Fershteyn at (718) 333-2394 to have all of your authorization questions answered.

Why Should You Avoid Buying and Executing a Power of Attorney Form Online?

A Power of Attorney (POA) legal document is signed by an individual (principal) who grants authority to a trusted individual (agent) to carry out transactions on their behalf. The instances during which this may occur are specified within the content of the document, so it is important to pay attention to every detail. The principal may grant the agent power over medical decisions, asset/property transactions, and their bank account. Clearly, this is a matter that must be presided over with extreme care.

Avoid an online POA form

Most individuals hire an attorney to help understand the process and create clauses that are tailored to their wishes. However nowadays, many people also resort to purchasing an online POA form by finding downloadable templates and forms. Yet, these forms are generic and most times will not cater to your specific needs. They are filled out without a present attorney and witnesses. As a result, they are frequently liable to mistakes that can easily be challenged in court at a later time. 

Reasons to Avoid Using a POA Template

  • No Customization

With a predetermined “one size fits all” online form, there is no interview process tailored towards your financial, medical, and legal needs. This information is crucial to determine which clauses are appropriate to add to your document, and which should be excluded. This often includes deciding whether the document executor should have the authority to distribute gifts to family members, and placing limitations on such transactions. In other instances, assets may need to be distributed accordingly one day. Lastly, perhaps the individual may need to be placed in the hands of a caregiver or nursing home. A clause may need to be added that determines who presides over this decision. 

  • No Professional Counsel

It is crucial to have someone with legal experience assist in important documentation execution. You must have an attorney present to assist in naming an agent and their successor. An attorney will also decide when the document’s power goes into effect: is it effective immediately or do its clauses go into effect when the principal administrator is no longer mentally capable? Additionally, an attorney has the knowledge to determine the specific wording that tends to your needs. 

  • No Legal Witnesses

It is important to have witnesses present when signing an important legal document. These witnesses may especially play a critical role in the future if the document’s validation is challenged in court. Witnesses can attest to the fact that the signee was in a capable state of mind to make decisions for themself. 

  • No Quality Assurance

Most importantly, an online POA form does not guarantee a well thought out high quality document. It also does not provide access to a professional source that will guide you through every step and explain the importance of each clause. When writing a POA, it is important to approach the process with a thorough understanding of its importance, and accordingly, the necessity to craft every clause with extreme detail and attention. When put into effect, these documents have the power to transfer assets and/or property, transfer money out of your bank account, and make medical decisions for you. It is a process that is not to be taken lightly. 

As of June 13, 2021, NY has adopted a new POA form. It is important to note that if you already have a POA form in effect, you don’t need to fill out a new one. You simply need to update the one you already have. The new POA form clarifies some confusions and, to some extent, makes the process more reassuring: 

  1. Substantial Conformance

The wording in the POA form does not have to be identical to the wording used in the statutory short form. The old form allowed for any mistake to be rendered as a reason for challenging a POA in court. The new form only needs to “Substantially conform” to the content of the statute . This makes it harder for a POA to be invalidated in court. 

  1. No Gifts Rider

The old form limited an agent’s gift authorization to $500 a year. Any gifts over the $500 limit had to be authorized by a gift rider. A gift rider modifies a POA to allow for such transactions and when notarized, must be witnessed by two witnesses. With the newly implemented change, the gift limit has been increased to $5000 a year and the gifts rider has been eliminated. Gifts that exceed the $5,000 maximum can be accounted for with a modification section on the POA form. 

  1. Signature at Direction of Principal

The new POA can be signed by someone, other than an agent, on behalf of the principal. However, the principal might be present at the time of signature. 

  1. Sanctions for Bank Refusal to Honor Power of Attorney

The new law protects principals from third parties, such as banks, from refusing to accept their POA without reason. Additionally, it protects third parties when proving a POA is valid. It also gives a third party ten business days to decide whether they will accept or refuse the POA they are presented with. 

An Elder Care Attorney will help you with all of your POA drafting needs. An attorney will guide you through the process step by step, while emphasizing and explaining the importance of each clause. An elder care attorney is also most up to date on the recent changes the NY government has made to the POA form and will guide you through these changes whether you are updating an old form or writing a new one. For further information on how to draft a POA form, please contact the Law Office of Inna Fershteyn at (718) 333-2394 to obtain aid in legal document drafting.