Receiving an inheritance can be bittersweet when you're on SSI. While the money can help, it can also jeopardize your benefits. Here's what you need to know.
In this article, we'll cover:
- How inheritances affect SSI
- What counts as an inheritance
- Options for managing inherited money
- Special needs trusts
1. How Inheritances Affect SSI
The basic rule:
- Inheritances count as income when received
- Then count as a resource going forward
- Can push you over the $2,000 limit
- May suspend or terminate SSI
Timing matters:
- Counts as income in month received
- Then becomes a resource
- If over $2,000 on the 1st of the month, ineligible
- Quick action may be needed
What happens:
- SSI suspended if resources too high
- Must spend down to regain eligibility
- May lose Medicaid (state dependent)
- Must report to SSA
The good news:
- Suspension isn't permanent
- Can spend down and regain eligibility
- Planning can help
- Options exist
2. What Counts as an Inheritance
Cash bequests:
- Money left in a will
- Counts in full
- Income when received
Property:
- Real estate (unless it becomes your home)
- Vehicles (beyond one)
- Personal property of value
- Counted at fair market value
Investments:
- Stocks, bonds, mutual funds
- Count as resources
- May generate income
What might not count:
- Household goods and personal effects
- One vehicle for transportation
- Property that becomes your home
- Items in a special needs trust
Important: Report any inheritance to SSA immediately. Failure to report can result in overpayments.
3. Options for Managing Inherited Money
Spend down:
- Use money for allowed purposes
- Before the 1st of the month
- Buy non-countable resources
- Pay off debts
What to spend on:
- Pay off credit cards
- Buy needed household items
- Home repairs
- Vehicle (if you don't have one)
- Prepay expenses
- Funeral/burial fund (up to $1,500)
ABLE account:
- Transfer to ABLE account
- Up to $18,000/year contribution
- First $100,000 doesn't count
- Good for larger inheritances
Spend down timeline:
- You have some time to spend
- But don't let it sit
- Plan purchases quickly
- Be strategic
Don't:
- Give money away (can affect eligibility)
- Hide the inheritance
- Ignore reporting requirements
- Spend recklessly
4. Special Needs Trusts
What they are:
- Legal trust for people with disabilities
- Assets don't count for SSI
- Managed by trustee
- Used for supplemental needs
First-party (self-settled) trusts:
- Funded with your own inheritance
- Requires Medicaid payback at death
- Age limit for establishment
- Complex legal requirements
Third-party trusts:
- Set up by someone else for you
- Can be set up before death
- No Medicaid payback
- Better if family member can plan ahead
When to consider:
- Large inheritance expected
- Money should last long-term
- Want to preserve eligibility
- Need professional management
Getting one set up:
- Need an attorney experienced in special needs
- Significant legal costs
- Must be properly drafted
- Pooled trusts may be cheaper option
Pooled trusts:
- Managed by nonprofit organizations
- Easier and cheaper to join
- Individual accounts within pool
- Good for smaller amounts
Planning Ahead
If you know inheritance is coming:
- Talk to family about special needs trust
- Explain SSI rules
- Help them plan appropriately
- Protect everyone's interests
Discuss with family:
- They may not know the rules
- A direct bequest can hurt you
- Trust planning helps everyone
- Communication is key
Getting professional help:
- Special needs attorney
- Benefits counselor
- Financial planner familiar with disability
- Worth the investment
What to Report
To SSA:
- Report inheritance within 10 days
- Amount received
- When received
- Form or source
Keep records:
- Documentation of inheritance
- How you spent it
- Receipts for purchases
- Bank statements
How Purple Helps
- Track spending and resources
- Monitor balance for SSI
- Connect to ABLE accounts
- Keep clear records
- Stay organized