Receiving an inheritance can be bittersweet—especially when you're on disability benefits and worried about how it might affect the income you depend on. The impact varies dramatically depending on whether you receive SSI or SSDI, so understanding the rules before the money arrives is crucial.
In this article, we'll cover:
- Why inheritances affect SSI but not SSDI
- How SSI's resource limits apply to inherited money
- The timeline for spending down an inheritance on SSI
- Special needs trusts and ABLE accounts as protective options
- Steps to take when you know an inheritance is coming
SSDI: Inheritances Don't Affect Your Benefits
If you receive Social Security Disability Insurance (SSDI), you can breathe easier. SSDI is based on your work history and has no asset or resource limits. Inheriting money—whether $5,000 or $500,000—has absolutely no impact on your SSDI eligibility or payment amount.
You can deposit the inheritance in your bank account, invest it, or use it however you wish without reporting it to Social Security or worrying about losing benefits. The only thing that affects SSDI is earned income above certain thresholds, not unearned income like inheritances.
SSI: Inheritances Can End Your Benefits
Supplemental Security Income works very differently. SSI is a needs-based program with strict resource limits: $2,000 for individuals and $3,000 for couples. An inheritance that pushes you over these limits will cause your SSI benefits to stop.
Even worse, an inheritance is first counted as income in the month you receive it, which can eliminate that month's SSI payment entirely. Any remaining funds then become a countable resource the following month.
The Spend-Down Reality
If you're on SSI and receive an inheritance, you have limited options. You can spend the money quickly on non-countable items—paying off debt, buying a car, making home repairs, purchasing household items—to get back under the resource limit.
However, this forced rapid spending often means you can't use the inheritance for its intended purpose or save it for future needs. Many SSI recipients end up making hasty purchases just to stay eligible, losing the long-term benefit the inheritance could have provided.
Protective Options: Special Needs Trusts
If you know an inheritance is coming, a Special Needs Trust (SNT) can protect both the funds and your benefits. When properly structured, assets in a special needs trust don't count toward SSI's resource limit.
There are different types of SNTs. A third-party special needs trust, funded by someone else's assets (like a parent's estate), offers the most flexibility. A first-party or self-funded trust, created with your own assets, must include a Medicaid payback provision but can still protect your benefits.
Working with an attorney who specializes in special needs planning is essential—trust requirements are complex and mistakes can be costly.
ABLE Accounts: Another Option
If you're eligible for an ABLE account, you can deposit up to $100,000 of an inheritance without affecting SSI. While this won't protect very large inheritances, it's a simpler and less expensive option than a trust for moderate amounts.
You can use ABLE funds for qualified disability expenses including housing, transportation, healthcare, and education—giving you flexibility while maintaining benefits.
Planning Ahead
If a family member is considering leaving you an inheritance, talk to them about your benefits situation. They may be able to leave assets directly to a special needs trust rather than to you personally, avoiding the problem entirely.
Estate planning attorneys can help your family structure bequests in ways that support you without jeopardizing the benefits you depend on.
Protecting your benefits takes planning. Purple helps SSI and SSDI recipients manage their finances with tools designed to keep you compliant.