Few things create more panic for disability recipients than learning they're about to inherit money. A loved one meant to help you by leaving you an inheritance, but now you're worried it could cost you your benefits, your healthcare, and your financial stability. The good news is that the impact depends on which benefits you receive—and there are often ways to accept an inheritance without losing everything.
In this article, we'll cover:
- How inheritance affects SSI vs. SSDI differently
- What happens when you receive an inheritance on SSI
- The nine-month grace period for lump sums
- Special needs trusts as a protective option
- How inheritance affects Medicaid and other benefits
- Steps to take when you learn you're inheriting money
SSI vs. SSDI: Very Different Rules
The impact of an inheritance depends entirely on which program you receive.
If you receive SSDI, you can generally breathe easier. SSDI is based on your work history, not your financial situation. An inheritance—whether it's $5,000 or $500,000—does not affect your SSDI eligibility or payment amount. You could inherit a house, a stock portfolio, and a pile of cash, and your SSDI would continue unchanged.
If you receive SSI, an inheritance is a much bigger deal. SSI has strict resource limits—$2,000 for individuals and $3,000 for couples. An inheritance counts as a resource the moment you receive it. If that inheritance pushes you over the $2,000 limit, you become ineligible for SSI.
If you receive both SSI and SSDI (concurrent benefits), your SSDI would continue but your SSI would be affected by the inheritance.
What Happens When You Inherit Money on SSI
When you receive an inheritance while on SSI, Social Security treats it as a resource starting in the month after you receive it. Here's the timeline:
Month you receive the inheritance: The inheritance counts as income for that month, which may reduce your SSI payment.
Following months: The inheritance counts as a resource. If your total countable resources exceed $2,000 on the first of any month, you're ineligible for SSI that month.
For example, if you receive a $10,000 inheritance in March, your March SSI payment might be reduced (income rules), and if you still have more than $2,000 on April 1st, you won't receive April SSI. You'd remain ineligible for each month you're over the resource limit.
You're required to report the inheritance to Social Security within 10 days of receiving it. Failing to report can lead to overpayments you'll have to repay, plus potential penalties.
The Nine-Month Grace Period
There's one important exception that provides some breathing room. When you receive a retroactive SSI or SSDI payment—or certain other lump sums including some inheritances received as a result of a court proceeding—you may have nine months to spend down the funds before they count as a resource.
However, this nine-month exclusion doesn't apply to all inheritances. A straightforward inheritance you receive after a relative passes away typically counts as a resource immediately (the month after receipt). The nine-month rule mainly applies to certain legal settlements and retroactive benefit payments.
If you do have nine months to spend down, you can use the money for things that won't count as resources: paying off debts, prepaying rent or bills, buying household items or a vehicle, making home improvements, or funding an ABLE account up to the annual contribution limit.
Special Needs Trusts: Protecting Larger Inheritances
If you're expecting a significant inheritance, a special needs trust (also called a supplemental needs trust) may be the best way to protect both the inheritance and your benefits.
A special needs trust holds assets for your benefit without those assets counting toward SSI's resource limit. The trust can pay for things that enhance your quality of life—vacations, electronics, education, a nicer living situation—without disqualifying you from SSI or Medicaid.
There are two main types:
First-party special needs trusts are funded with your own money (including an inheritance you receive directly). These trusts require Medicaid payback—when you pass away, any remaining funds must first reimburse Medicaid for benefits paid on your behalf. You typically need an attorney to set one up, and there are costs involved, but for inheritances of $10,000 or more, it's often worth it.
Third-party special needs trusts are funded by someone else's money (like a parent leaving money to a trust for you, rather than to you directly). These trusts don't require Medicaid payback, making them ideal for estate planning. If you have family members planning to leave you money, encourage them to leave it to a third-party special needs trust instead of directly to you.
Pooled trusts are another option, managed by nonprofit organizations. They allow you to join an existing trust rather than creating your own, which can be more affordable for smaller inheritances. The nonprofit manages the trust and makes disbursements for your benefit.
Impact on Medicaid and Other Benefits
Losing SSI often means losing Medicaid too, since SSI eligibility typically provides automatic Medicaid eligibility in most states. This can be even more devastating than losing the cash benefit if you rely on Medicaid for healthcare, prescriptions, or long-term care services.
Some states have Medicaid programs that aren't tied to SSI, so you might be able to keep Medicaid even if you lose SSI. But this varies significantly by state and individual circumstances.
Other benefits may also be affected by an inheritance. SNAP (food stamps) has its own resource limits that vary by state. Housing assistance programs have income and asset requirements. State and local assistance programs each have their own rules.
If you receive multiple types of benefits, an inheritance could create a cascade effect where losing one benefit affects your eligibility for others.
What to Do When You Learn You're Inheriting Money
Don't panic, but do act quickly. The worst thing you can do is nothing—letting an inheritance sit in your bank account while you figure things out can cost you months of benefits.
Contact a special needs planning attorney. If the inheritance is more than a few thousand dollars, legal guidance is worth the cost. Many attorneys offer free initial consultations, and some specialize in disability benefits planning.
Consider disclaiming the inheritance. If you legally disclaim (refuse) an inheritance before taking possession of it, it passes to the next beneficiary as if you had died before the person who left it to you. This is a drastic step, but in some situations, it may make sense if accepting the inheritance would cause more harm than good.
Report it to Social Security. You must report the inheritance within 10 days of receiving it. Don't try to hide it—Social Security has ways of discovering unreported assets, and the penalties for fraud are severe.
Spend down strategically if appropriate. If the inheritance is small enough that spending it down makes sense, do so on allowable expenses: paying off debts, prepaying bills, buying needed items that don't count as resources, or funding an ABLE account.
Fund a trust if necessary. For larger inheritances, work with an attorney to set up or fund a special needs trust before the inheritance pushes you over the resource limit.
Talk to family members about estate planning. If you have relatives who might leave you money someday, have a conversation now about leaving it to a third-party special needs trust instead. This can prevent future problems entirely.
An inheritance should be a gift, not a crisis. If you're on SSI and trying to navigate resource limits, Purple's checking account can help you track your balance and stay compliant—so you always know where you stand.