How Inheritances Impact Your Social Security Benefit Eligibility

Receiving an Inheritance While on Benefits

Coming into some money is normally a cause for celebration – but could an inheritance or other surprise windfall disrupt government benefits that you may count on? Unfortunately, yes.

While receiving an inheritance seems like it should help, not hurt, government program rules can mean extra assets cost you the monthly support checks you rely on. In effect, your inheritance can end up going to the government. It’s not fair—but learning the specifics on handling added money can save your benefits.

As experienced elder lawyers, we’ve seen firsthand how mishandled inheritances lead to painful benefit losses. Our attorneys regularly counsel Social Security supplemental security income beneficiaries on handling inheritances so they don’t lose out.

In this blog, we’ll discuss some proactive steps you can take to keep both your new assets and old benefits intact.

How Inheritances Impact SSI vs. SSDI: Know the Key Differences

If you receive disability benefits, it’s important to know whether you get Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI). Check your benefit statements or cards to confirm which program you use.

SSI has strict eligibility requirements, including caps on earned income and assets (resource limits). Inheritances and other unearned income easily push recipients over this threshold, putting benefits at risk. SSI recipients must report inheritances within 10 days to avoid allegations of fraud.

In contrast, SSDI does not have resource limits or caps on unearned income. This is because SSDI eligibility depends on your work history and disability status, not income or assets. Therefore, inheritances do not impact eligibility, and no reporting requirements exist for inheritances or assets received.

Before assuming an inheritance will forfeit your benefits, check which program you receive—SSI or SSDI. Understanding which rules apply to your specific benefits can help you plan ahead for any future financial windfalls.

Could An Inheritance Endanger Your SSI?

For SSI recipients, inheritances demand immediate attention and strategic thinking. Supplemental Security Income depends on very low-income levels (currently under $1,913/month) and extremely strict asset limits of $2,000 for individuals or $3,000 for couples.

With such a slim margin for error already, just about any inheritance could tip the scales toward ineligibility.

Even relatively small inheritances often exceed those low asset thresholds, forcing hard conversations about how to respond.

Alternatively, parking inheritance assets in specially designed trusts buys time for strategic decisions before losing SSI payments. Trusts also avoid complications from suddenly receiving lump sums that could disrupt other program benefits related to medical care or food assistance. The key is acting decisively when inheriting because few feasible options exist to regain lost SSI eligibility once relinquished due to excess assets.

Not All Inheritances Are Treated Equally for SSI Eligibility

It would be nice if the government greeted every inheritance simply with congratulations rather than paperwork. But in the realm of needs-based benefits, officials make distinctions based on the form inheritances take.

What Inheritances Do NOT Count Towards SSI Resource Limits

The following inherited assets do not count toward the $2,000 individual or $3,000 couple resource limits for SSI eligibility:

  • Distributions from properly structured special needs trusts
  • Contributions to ABLE accounts, up to $100,000
  • The home the beneficiary lives in
  • One vehicle for household transportation
  • Household goods and personal effects
  • Burial plots spaces for the beneficiary or their family
  • Burial funds, up to $1,500 apiece for the beneficiary and spouse
  • Property used as part of one’s trade or business
  • Money or assets set aside as part of an approved PASS plan

Inheriting Money While on SSDI

In comparison, SSDI benefit qualifications involve some different considerations. Social Security Disability Insurance depends on applicants making a strong enough case that physical or mental health conditions prevent engaging in “substantial gainful activity” through full-time work.

This emphasis on health factors means SSDI lacks income and asset limits that could threaten eligibility following inheritance receipts. The inheritance itself does not jeopardize SSDI qualifications since unearned income from gifts or windfalls does not factor into eligibility formulas.

Can You Refuse or Give Away an Inheritance to Protect Benefits?

When an inheritance risks causing benefit disruptions, some beneficiaries consider refusing assets or signing rights over to trusted friends or family members instead. While legally possible in some cases, both choices come with potentially major drawbacks.

Outright rejecting gifts redirects funds back into estates for redistribution to secondary heirs per will or state law instructions. This protects short-term income streams. But beneficiaries permanently forfeit assets donors intended to enrich their lives. Plus strained family relations often follow.

Alternatively, hastily signing over inheritances avoids mandatory reporting while placing property and cash in others’ hands. Yet beneficiaries lose control of gifts that could aid better living.

Rather than refuse or blindly hand off assets coming your way, legal counsel helps structure inheritance receipt gracefully. Proactive planning leaves enough handling time even for significant estates.

Planning Ahead for Inheritances Secures Your Safety Net

Rather than declining wanted inheritance money out of fear of aid disruption, proactive planning allows beneficiaries to accept assets without worry. Long before receipt, designating third-party Special Needs Trusts as gift recipients offers protection.

Properly structured SNTs legally shelter any assets transferred inside from factoring into eligibility resource tallies. While restricting usage only for benefitting the trust beneficiary directly, money kept within these accounts remains accessible for countless disability-related costs.

Working with experienced elder law attorneys well-versed in estate and disability programs simplifies setup and administration for lasting security.

In particular, explore specialized trust structures ahead of inheriting that buys crucial time while retaining eligibility as decisions unfold.

For SSI recipients, properly established third-party special needs trusts provide the gold standard for inherited asset protection. With the right planning, inheriting money does not inevitably jeopardize your safety net, even when on disability benefits.

We Listen First, Then Guide Carefully: Making Your Inheritance Work For You

We understand feeling torn about what an inheritance really means. Perhaps this sudden gift sparks visions of a life stabilized on your own terms, with more freedom from ongoing benefits reliance. That kind of independence could be incredibly empowering after years of struggle.

Alternatively, stability and security may still depend profoundly on retaining those income streams only existing programs can reliably provide in tough times. What a blessing to supplement them with newfound assets!

There are no universally ‘right’ answers here – just individual choices made with careful thought to what matters most in your life.

With the benefit of professionals guiding informed decisions about available options, accept inheritances as the blessing they can be. Do not allow fear of losing qualification for support to keep you from embracing whatever added financial empowerment inherited assets may offer. By putting plans in place for smart money management, benefiting from inheritances, and retaining eligibility stands well within reach.

To discuss your unique questions about balancing inheritance decisions with needs-based benefits interests, do not hesitate to schedule a consultation. Our attorneys stay well-versed on the intersection of estate matters with disability programs. We make it our role to protect your interests.

Contact us today for a consultation.


Author Bio

Margaret Barrett is the Founder and Owner of Safe Harbor Estate Law, a Saint Paul, MN, estate planning law firm she founded in 2013. With almost 15 years of combined experience in litigation and Minnesota estate law, she is dedicated to representing clients in a wide range of estate law matters. Her practice areas include estate planning, asset protection, elder law, and more.

Margaret received her Juris Doctor from the William Mitchell College of Law and is a member of the Minnesota State Bar Association and the Ramsey County Bar Association.

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