Few things create more panic for SSI recipients than learning they're about to receive an inheritance. Whether it's a modest sum from a grandparent's estate or a larger payout from a family trust, an inheritance can push your resources over the $2,000 limit and put your SSI and Medicaid at risk. But losing your benefits isn't inevitable — if you know the rules and act quickly, you can protect both the inheritance and your eligibility.
In this article, we'll cover:
- How SSI treats inherited money and whether it counts as income or a resource
- The timeline you have before an inheritance affects your SSI
- How to use an ABLE account to shelter inherited funds
- When a special needs trust might be the right option
- What to do if you've already received an inheritance and are over the limit
- How SSDI recipients are affected differently by inheritances
Does an Inheritance Count as Income or a Resource for SSI?
This is the critical first question, and the answer determines your timeline. When you first receive an inheritance, SSA treats it as unearned income in the month you receive it. After that first month, whatever remains becomes a countable resource. This distinction matters because income reduces your SSI payment dollar-for-dollar (after the $20 general income exclusion), while resources can make you completely ineligible if they push you over the limit.
Here's a practical example. If you receive a $10,000 inheritance in March, SSA counts it as $9,980 in unearned income for March (after the $20 exclusion). Your SSI payment for March would be reduced to $0 since $9,980 exceeds your $994 benefit. Starting in April, the $10,000 becomes a countable resource. If your total resources (including bank accounts, the inheritance, and anything else of value) exceed $2,000 ($3,000 for couples), you lose SSI eligibility until you get back under the limit.
How Quickly Do You Need to Act?
The short answer: immediately. From the moment you learn an inheritance is coming — ideally before you actually receive the money — you should be developing a plan to shelter or spend down the funds. You have until the end of the month after the month you receive the inheritance before it starts counting as a resource. So if an inheritance lands in your account on March 15, you have until April 30 before the remaining amount becomes a countable resource.
That said, don't wait until the last minute. Banks, ABLE account programs, and trust attorneys all take time to process things. The sooner you start, the more options you have.
Option 1: Deposit Into an ABLE Account
If you have an ABLE account (or can open one quickly), depositing inherited funds into it is one of the fastest ways to protect them. Up to $100,000 in an ABLE account is excluded from the SSI resource limit. However, remember the annual contribution limit of $20,000 — you can only put $20,000 into an ABLE account per calendar year.
If your inheritance is $20,000 or less, an ABLE account can shelter the entire amount. If it's larger, you'll need to combine the ABLE strategy with other approaches for the excess.
The money in your ABLE account can then be used for qualified disability expenses — housing, transportation, education, medical care, assistive technology, and more — giving you access to the funds while protecting your benefits.
Option 2: Special Needs Trust
For inheritances larger than what an ABLE account can absorb, a special needs trust (also called a supplemental needs trust) may be the right tool. A properly drafted special needs trust holds assets for your benefit without them counting as SSI resources. There's no annual contribution limit and no cap on how much the trust can hold.
There are two main types. A first-party special needs trust (also called a d(4)(A) trust) is funded with your own money — like an inheritance you've already received. It must be established by a parent, grandparent, legal guardian, or a court, and it must include a provision that pays back Medicaid after your death for any benefits you received during your lifetime. A third-party special needs trust is funded by someone else's money — this is the type that estate planners often recommend family members set up in their wills and estate plans so the inheritance goes directly into a trust rather than to you individually.
If a family member is still alive and planning their estate, the best outcome is for them to direct the inheritance into a third-party special needs trust in their will, bypassing you entirely and avoiding the resource problem altogether.
Option 3: Spend Down
If the inheritance is relatively small or you have immediate needs, spending down is a legitimate strategy. You can use inherited funds to pay off debts, buy needed items (furniture, appliances, clothing, a vehicle), prepay rent, cover medical expenses, or make other purchases that improve your quality of life. The key is to get your countable resources back under $2,000 before the end of the month after you receive the inheritance.
Keep receipts and records of everything you purchase during a spend-down. If SSA questions your resources later, you'll want documentation showing where the money went and that it was spent on legitimate needs.
What If You've Already Gone Over the Limit?
If an inheritance has already pushed you over the $2,000 resource limit and your SSI has been suspended, don't panic — but do act quickly. SSI can be reinstated once your resources drop back below the limit. You won't need to file a brand new application if the suspension has lasted less than 12 consecutive months. Spend down the excess by purchasing needed items or depositing funds into an ABLE account (up to the annual contribution limit), and then contact SSA to report that your resources are back in compliance.
How Inheritances Affect SSDI
Here's some reassuring news for SSDI recipients: inheritances do not affect SSDI benefits at all. SSDI is not a means-tested program — it's based on your work history and disability status, not your financial resources. You can receive an inheritance of any size without it changing your SSDI payment.
The one exception is if you receive both SSI and SSDI (concurrent benefits). In that case, the inheritance affects your SSI portion but not your SSDI portion. You'd still want to shelter the inherited funds to protect the SSI component of your benefits.
An inheritance shouldn't mean losing your SSI. Purple helps you track your resources and stay under the $2,000 limit with a checking account built specifically for disability benefit recipients.