14.5.5.1 Separate Accounts or Special-Purpose Accounts

There are a number of steps that recipients can take to protect exempt funds in a bank account. They should avoid placing the funds in a joint account, where the funds may be vulnerable to the other account holder’s creditors. If someone else needs to have access to the funds because of the beneficiary’s illness or absence, a power of attorney is a better approach. It is also best to avoid commingling the exempt benefits with non-exempt funds.

If the exempt benefits belong to someone else—for example, if the account holder is the representative payee for another person’s Social Security benefits—the account should be unambiguously labeled, i.e., as an account held in trust for the other person.

If a debtor receives exempt benefits, but also has some non-exempt income or savings, the protection for the exempt benefits can be maximized by setting up two bank accounts, one to receive the exempt benefits and the other for the non-exempt funds. The debtor should then spend the non-exempt funds first.