The $84,000 Trust Fund the Government Took From Your Foster Brother

Jul 15, 2026

In 49 states, the same agency that removed a child from home quietly applies to become his Social Security payee — then spends the money on itself. On December 11, 2025, the federal government finally called it what it is: diverting.

A foster child whose father dies in a car wreck is owed something concrete: Social Security survivor benefits, money his father earned by paying FICA taxes across a working lifetime. A foster child with a documented developmental disability is owed Supplemental Security Income — the anti-poverty payment Congress built for the most vulnerable people in the country.

In 49 of 50 states, that child gets none of it.

Instead, the same government agency that removed the child from his home applies to the Social Security Administration to become his representative payee. Once approved — with no notice to the child, no notice to the child’s attorney, and often no notice to surviving family — the agency takes the money and uses it to “reimburse” itself for the cost of the foster care it is already legally obligated to provide.

The child receives nothing. He has no bank account. He ages out at 18 with a trash bag of clothes and a statistical destiny that includes homelessness — while the federal benefits collected in his name have already been spent.

On December 11, 2025, the U.S. Department of Health and Human Services, through its Administration for Children and Families, sent letters to 39 governors demanding they stop. The agency used a single, unambiguous word: diverting.

The Mechanics of a Quiet Seizure

Two distinct federal benefits are at stake, and both were designed to protect exactly the children being stripped of them.

The first is OASDI survivor benefits under Title II of the Social Security Act (42 U.S.C. § 401 et seq.) — an insurance benefit a deceased parent earned by paying into the system, meant to replace lost parental income. The second is Supplemental Security Income under Title XVI (42 U.S.C. § 1381 et seq.) — anti-poverty cash assistance for disabled children in low-income households.

Both programs require an adult representative payee when the beneficiary is a minor, under 42 U.S.C. § 405(j). That payee is a fiduciary. SSA’s own regulations at 20 C.F.R. § 404.2035 require that funds be used “for the use and benefit of the beneficiary,” and that conserved funds be held in a separate account titled to show the beneficiary owns them.

The diversion runs through five steps, and each one moves further from that fiduciary duty.

Identification. When a child enters foster care, the state agency runs the child against SSA records — increasingly through private contractors who data-mine medical, school, and caseworker files to “score” children for likely SSI eligibility. The depression, PTSD, and anxiety stemming from the very abuse that put a child in care all qualify.

Application. The agency applies to SSA to become the child’s payee. SSA’s payee preference list places parents and relatives above government agencies — but in foster cases the agency sweeps in unopposed, because no one who might object is told it is happening.

Receipt. Monthly payments flow into a state-controlled account.

Conversion. The agency applies the money to the cost of foster care — care it must provide anyway, and which is already federally reimbursed at 50 to 83 percent through Title IV-E of the Social Security Act (42 U.S.C. § 670 et seq.). The child’s benefit offsets the state’s own spending, freeing up general revenue.

Concealment. The child is never told.

That last step is not a theory. Pennsylvania’s 2025 “For the Child” investigation by Spotlight PA and Resolve Philly found that of 47 of Pennsylvania’s 67 counties that produced records, only5could show they had directly notified foster youth or their families that the county was taking the money. More than a quarter could not even prove the money was spent on the specific child it was collected for.

The Double-Dip Hidden in the Budget

The most technically damning feature of this system is that the same dollar of “care” gets financed twice.

The federal taxpayer pays first, through Title IV-E reimbursement to the state. Then the federal beneficiary — the child himself — pays again, through his own survivor or disability check. The state pockets the difference.

Daniel L. Hatcher, a law professor at the University of Baltimore and the leading academic chronicler of this practice, calls it the “poverty industry”: the systematic conversion of federal aid intended for vulnerable people into general state revenue, often with the help of contingency-fee contractors. His books —The Poverty Industry: The Exploitation of America’s Most Vulnerable Citizens (NYU Press, 2016) and Poverty Revenue: The Subversion of Fiscal Federalism (2010) — laid the intellectual foundation for the current reform wave.

The Contractor Tax

The diversion is not merely a bureaucratic reflex. It is a business, and there are firms whose profit depends on the volume of children captured.

MAXIMUS, Inc.— a government-services contractor headquartered in Tysons, Virginia, with roughly $5 billion in revenue and traded on the NYSE — has held foster-benefit “revenue maximization” contracts in at least nine states: Alaska, California,

Florida, Illinois, Iowa, Maryland, Nebraska, New York, and South Carolina. Per NPR’s 2021 investigation, MAXIMUS receives approximately $1,600 per child every time SSA approves benefits for a new foster child as a result of the company’s data-mining and application work.

Public Consulting Group, Inc. (PCG, Boston) submitted a 2012 status report to Florida describing its use of “data-mining techniques and predictive analytics” to “target” and “score” foster children to maximize the Social Security dollars captured. Hatcher documents that contingency fees can reach 25 percent of recovered benefits — money that would otherwise belong to the child.

The perverse incentive is structural: when a contractor’s profit is tied to the number of children classified as disabled or otherwise eligible, the incentive runs toward over-diagnosing foster youth with mental-health conditions in order to bill SSI

The Law That Made It Legal

Every reform effort of the past two decades has crashed into a single 2003 Supreme Court decision.

In Washington State Dept. of Social and Health Services v. Keffeler, 537 U.S. 371 (2003), a unanimous Court, in an opinion by Justice Souter, held that a state child welfare agency acting as SSA-appointed representative payee may use a foster child’s OASDI benefits to reimburse itself for the cost of foster care without violating the anti-attachment provision of 42 U.S.C. § 407(a). The Court reasoned that reimbursement was not a “legal process” under § 407 because it happened through the payee’s own internal accounting rather than through a court attachment.

Keffeleris the keystone of the entire diversion regime.

Ten years later, Maryland’s highest court confronted the human cost. InIn re Ryan W., 76 A.3d 1049 (Md. 2013), the court reviewed the case of a boy who entered Baltimore City Department of Social Services foster care in 2002 at age 9, after his drug-addicted parents neglected him. Both parents died while he was in care, making him eligible for survivor benefits. The Department applied to SSA — without notifying Ryan, his attorney, or his surviving relatives — was appointed his payee, and used the entire $31,693.50 it received to reimburse itself.

When Ryan reached adulthood and learned what had happened, his attorney filed a motion to control conduct in juvenile court. That court ruled in June 2011 that the Department had violated Ryan’s constitutional rights and struck down two sections of the Code of Maryland Regulations authorizing the practice. The intermediate appellate court reversed, citing Keffeler. The Court of Appeals affirmed that result — but not quietly.

The court characterized the agency’s conduct — applying for OASDI without notice and taking the funds for state reimbursement rather than holding them for the child’s transition needs — as “tantamount to a misappropriation” of the child’s resources.

That phrase has become the rallying cry of the reform movement. Maryland’s legislature responded with one of the nation’s earliest reforms: when a foster youth turns 14, 40 percent of survivor/SSI benefits are escrowed in a trust, rising annually to 100 percent at age 18, with the trust delivered to the child upon emancipation.

Then, in April 2025, the ground shifted. Citing the Alaska Constitution’s enhanced due-process guarantees, the Alaska Supreme Court ruled the state must affirmatively notify foster youth (or their attorneys) before applying to SSA to become payee. The case grew out of a 2014 class action brought by 160 Alaska foster youth, many of them Alaska Native — a group separately protected as federal trust beneficiaries under the Indian Child Welfare Act (25 U.S.C. § 1901 et seq.). A federal judge had earlier ordered the state to pay a token $30 per class member while declining to order full restitution of the roughly $1.8 million a year it was capturing.

It is the first state-supreme-court decision in the nation to require pre-application notice as a matter of state constitutional law. It does not overturn Keffeler. It establishes the procedural beachhead reformers have sought for 20 years.

Two Decades of Federal Silence — Then a Pivot

For 21 years after Keffeler, the federal government looked away.

SSA’s own regulations require representative payees to act “for the use and benefit of the beneficiary” and to conserve funds for the beneficiary’s future. Yet SSA conducted no audits of state child welfare agencies as a class. The 2018 Bipartisan Budget Act (PL 115-123) directed SSA to establish data-sharing arrangements with state agencies so the government would at least know which of its beneficiaries were in foster care. By April 2021, GAO-21-441R found that only 31 of 50state agencies had even signed data-sharing agreements, and only 14 were actively transmitting data. SSA acknowledged it had no statutory power to compel participation.

The agency that approves state agencies as payees had no systematic visibility into how those payees spent the money.

The turn began on November 1, 2024, when SSA and the HHS Children’s Bureau published a joint Request for Information in the Federal Register (89 FR 87042; Document 2024-25462). For the first time in the program’s history, the federal government publicly asked whether the financial incentive to capture children’s benefits was distorting state behavior — framing the question around “whether conserving a child’s SSA benefits would serve as a deterrent for an agency, which should have a child’s best interests at heart (not its own bottom line).”

The RFI was the question. The December 11, 2025 ACF letter was the accusation.

That day, the Administration for Children and Families announced it had sent letters to 39 governors “calling for immediate action.” The HHS release used the word “diverting” — a direct repudiation of the technical-permissibility defense states had leaned on for two decades. Only 11 states had reform in place before the letter; 39 were placed on formal notice. Wisconsin was among the named states. ACF and SSA committed to provide technical assistance to help the remaining states convert their practices.

The political alignment is worth noting. A Trump-administration HHS deployed federal moral authority against state child welfare agencies — a posture historically associated with reformers like Sen. Elizabeth Warren, who raised the issue at a 2023 Senate Finance Committee hearing, and Rep. Danny K. Davis of Illinois. Within weeks of the letter, New Jersey signed legislation stopping the practice.

The Bill That Keeps Not Passing

Congress has a fix drafted and waiting. Reps. Danny K. Davis (D-IL), Jamie Raskin (D-MD), and Don Bacon (R-NE) have repeatedly introduced legislation to end the diversion — most recently H.R. 7529 in the 119th Congress, the Fresh Starts for Foster Youth Act, following the Protecting Foster Youth Resources to Promote Self-Sufficiency Act in earlier sessions (H.R. 9654 in the 117th Congress and H.R. 7296 in the 115th).

The bill would prohibit state agencies from using a foster child’s SSA benefits to pay for the cost of foster care; require notice to the child and the child’s attorney before the agency applies as payee; mandate that conserved benefits be deposited in an account titled to the child and transferred to the child upon discharge; and reimburse states for the administrative cost of compliance.

Despite bipartisan sponsorship, it has never been enacted — a measure of how lucrative the captured revenue has been for state budgets.

The Reform Map as of May 2026

Twelve jurisdictions have enacted comprehensive reform: Arizona (HB 2559, 2022, requiring consultation with the child’s attorney and a ban on the offset), Oregon (2022), Massachusetts (2023), the District of Columbia (2022), New Mexico (2023), California (AB 2906, 2024, notice plus survivor benefits routed directly to youth), Connecticut (2024), New Jersey (2025, after the ACF letter), Hawaii (2023), Nebraska (2023), Maryland (the 2018 escalating trust), and Illinois (2024).

The Children’s Advocacy Institute counts roughly 18 jurisdictions with partial reform, including Alaska (after the 2025 ruling), Colorado, Florida, Minnesota, New Hampshire, Washington State, Kansas, and city-level reforms in New York City and Philadelphia carved out inside non-reform states.

And then there is the outlier. Only one state — historically either South Dakota or New Hampshire, depending on the survey year and methodology — has reportedly never operated a representative-payee diversion program at scale.

The full roster of the 39 states on federal notice is the subject of an active PMC FOIA request to ACF.

What This Means

The dollar figure is small against a federal budget: roughly $165 million a year. The figure against a single child’s life is enormous.

A child receiving $700 a month in survivor benefits from age 8 to 18 should have about $84,000 in principal, plus interest, waiting in a trust at emancipation — enough

for college, vocational training, or a security deposit and six months of independent living. Instead that child receives nothing. A nationwide cohort study found that 22 to 30 percent of these youth experience homelessness during the transition to adulthood. The Annie E. Casey Foundation documents that 65 percent leave foster care at 18 with no place to call home, and that fewer than 3 percent ever earn a college degree.

The system’s defining feature is total information asymmetry. The party with the strongest interest in the money — the child — is structurally excluded from the process. The party with the financial incentive — the state agency — controls all of it. Because the child is never told, no one has the notice or standing to mount the administrative appeal SSA’s own framework would otherwise allow. SSA, the federal trustee, does not even reliably know which of its beneficiaries are in foster care.

Project Milk Carton’s mission sits squarely on this fault line. The children whose photographs end up on milk cartons after they vanish from foster placements are, statistically, the same children whose survivor benefits were quietly captured by the agency that lost them. A reformed representative-payee system is not the whole answer to the foster-care-to-trafficking pipeline. It is a precondition for one.

A child who ages out with $40,000 in his name is a child with options. A child who ages out with nothing is a child the predators have already counted as theirs.

The Maryland Court of Appeals named the practice for what it is. On December 11, 2025, the federal government finally agreed. Thirty-eight states are still doing it.

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