Finding out you're going to receive an inheritance should be good news — but if you're on SSI, it can quickly turn into a source of anxiety. Even a modest inheritance can push you over the resource limit and put your benefits at risk. The good news is that there are legal strategies to protect your SSI while still benefiting from inherited assets. The key is acting quickly and understanding your options.
In this article, we'll cover:
- How Social Security treats inheritances for SSI purposes
- The timeline for spending down or sheltering inherited assets
- How ABLE accounts can help protect an inheritance
- When a special needs trust makes sense
- What happens if you've already received an inheritance
- Common mistakes to avoid when inheriting money on SSI
How Does an Inheritance Affect SSI?
SSI has a strict $2,000 resource limit for individuals ($3,000 for couples). When you receive an inheritance — whether it's cash, property, investments, or other assets — Social Security counts it as a resource the moment you have access to it. If your total countable resources exceed the limit, your SSI benefits will be suspended, and if you remain over the limit for 12 consecutive months, your benefits can be terminated entirely.
It doesn't matter whether the inheritance is large or small. Even a few thousand dollars can put you over the threshold. And yes, Social Security will likely find out. The SSA conducts periodic redeterminations that review your financial situation, and bank records are part of that process.
One important distinction: if the inheritance comes as a one-time payment (like a check from an estate), the SSA may initially count it as income in the month you receive it. After that first month, any remaining amount becomes a resource. This matters because income and resources are treated differently — but the practical outcome is the same. If the inherited amount pushes you over the limit, your benefits are at risk.
The Spend-Down Timeline
If you've already received an inheritance and your resources are over the $2,000 limit, you have a limited window to bring your resources back into compliance. The SSA generally expects you to spend down excess resources promptly, though there's no official "30-day rule" despite what you may read online.
What does "spend down" mean in practice? You can use the money for things that benefit you but don't count as resources under SSA rules — paying off debt, prepaying rent, buying household items, covering medical expenses, or making home repairs. The key is that the spending needs to be reasonable and for your benefit.
However, simply giving the money away to get under the limit doesn't work. The SSA treats gifts and transfers as resource transfers, and they can still count against you. You need to receive fair value for what you spend.
How an ABLE Account Can Help
If you qualify for an ABLE account (Achieving a Better Life Experience), this is one of the most powerful tools for protecting an inheritance. Money in an ABLE account is generally not counted as a resource for SSI purposes, up to $100,000.
Here's how it works: you can contribute up to $20,000 per year into an ABLE account and use the funds for qualified disability expenses like housing, transportation, health care, education, and assistive technology. As long as the balance stays under $100,000, the money won't affect your SSI eligibility.
To qualify for an ABLE account, you must have a qualifying disability with an onset before age 26 (this was recently expanded from the original age 26 limit, and further expansions are being discussed). Many SSI recipients qualify automatically.
If you're expecting an inheritance, opening an ABLE account in advance and directing funds into it as quickly as possible after receiving them can be a highly effective strategy. You won't be able to shelter the entire inheritance in one year due to the $20,000 annual contribution limit, but it gives you a way to protect a significant portion over time.
When Does a Special Needs Trust Make Sense?
For larger inheritances — or situations where an ABLE account alone isn't enough — a special needs trust (also called a supplemental needs trust) may be the right option. Unlike an ABLE account, there's no annual contribution limit for a special needs trust, and the assets held in the trust are not counted as resources for SSI purposes.
A special needs trust is a legal arrangement where a trustee manages the inherited assets on your behalf. The trustee can use the funds for supplemental needs — things that SSI and Medicaid don't cover — without jeopardizing your benefits. This includes personal care items, vacations, electronics, specialized therapies, and much more.
There are two main types to know about. A first-party special needs trust (also called a d(4)(A) trust) is funded with the beneficiary's own money — which is what you'd use for an inheritance. The downside is that when the trust is eventually dissolved, any remaining funds must first be used to repay Medicaid for benefits received during your lifetime. A third-party special needs trust is funded by someone else (like a parent or grandparent) and doesn't have the Medicaid payback requirement.
Setting up a special needs trust requires an attorney experienced in disability and benefits law. It costs more than opening an ABLE account, but for larger sums, the flexibility and unlimited funding capacity can make it well worth the investment.
What If You've Already Received the Inheritance?
If you've already received an inheritance and you haven't reported it to the SSA or taken steps to protect your benefits, here's what to do. Don't panic, but do act quickly. Report the inheritance to the SSA right away, as failing to report is worse than reporting late. Look into whether you qualify for an ABLE account and open one as soon as possible. Consult with a disability benefits attorney or your local Legal Aid office about setting up a special needs trust. Begin spending down excess resources on legitimate, beneficial expenses and keep detailed records of everything.
If the SSA has already flagged the inheritance and suspended your benefits, you can apply for reinstatement once your resources are back under the limit. The sooner you act, the better your chances of minimizing the disruption to your benefits.
Common Mistakes to Avoid
When inheriting money on SSI, there are a few pitfalls that catch people off guard. Don't give the money away hoping to stay under the limit, as the SSA treats this as a resource transfer. Don't assume the SSA won't find out, as they regularly check bank records during redeterminations. Don't wait to act, because the longer excess resources sit in your account, the greater the risk. Don't try to hide the money in someone else's account, as this can be considered fraud. And do talk to someone who understands benefits law before making any major decisions.
Receiving an inheritance doesn't have to mean losing your SSI benefits — but you need the right tools and information to protect yourself. Purple helps SSI recipients track their resources in real time, so you always know where you stand relative to the $2,000 limit.