Inheriting money while receiving Supplemental Security Income (SSI) can affect your eligibility and monthly payment amount. SSI has strict resource limits that determine eligibility, so any inherited assets or income could potentially put someone over the resource limit or reduce their payment.
Can You Inherit Money if You Are on SSI?
Yes, it is possible to inherit money while receiving SSI benefits. However, inherited funds are considered either income or resources, depending on the amount, and could affect your eligibility or monthly payment.
Inherited Funds as Income
If you inherit a small amount of money, it will likely be counted as income. SSI counts any inherited cash, like from a life insurance payout or inheritance, as unearned income in the month received.
This means the full amount of the inherited funds will be counted against your Federal Benefit Rate (FBR) that month. The FBR is the maximum monthly SSI payment for an individual or couple. For 2023, the FBR is:
- Individual: $914
- Couple: $1,371
So if you inherit $500 while receiving the individual SSI rate of $914, your payment would be reduced to $414 for that month ($914 – $500 = $414).
Inherited Funds as Resources
If you inherit a large sum of money, it will be considered an asset or resource. SSI has a resource limit of $2,000 for individuals and $3,000 for couples. Resources include things like cash, bank accounts, stocks, and property.
Any inherited funds that remain after the month received will count towards the resource limit. So if you inherit $5,000, the full amount remaining after that first month would put you over the individual resource limit.
Exceeding the resource limit results in suspension of your SSI benefits. Your eligibility would not resume until you spend down the resources below the limit.
Strategies to Minimize Impact of Inheritance on SSI
If you expect to receive a sizeable inheritance, there may be strategies to reduce the impact on your SSI eligibility:
Spend Down Within One Month
If the inheritance is considered income in the month received, spending the full amount within that month would prevent it from counting as an asset/resource afterwards. Quickly spending on allowable expenses like:
- Housing and utilities
- Medical costs
- Education and training
- Assistive technology
- Transportation
Can help minimize the effect on SSI eligibility. Though you still may exceed the FBR and get a reduced payment that month.
Transfer Funds to Exempt Asset
Transferring inherited funds to an SSI exempt asset prevents it from counting towards the resource limit. Exempt assets include:
- Primary residence
- Primary vehicle
- Burial accounts up to $1,500
- Up to $100,000 equity in business/trade property
Paying down a mortgage, buying an accessible vehicle, prepaying funeral expenses, or investing in a small business can protect inherited funds.
Place in Special Needs Trust
A Special Needs Trust allows assets to be held and managed by a trustee for the benefit of a disabled person, without affecting SSI eligibility. Inherited funds up to $100,000 placed into a properly structured SNT will not count as resources.
The trustee can use trust funds to provide for needs not covered by SSI like dental care, medications, recreation, and education. Using an SNT requires creating the trust and working with a knowledgeable trustee.
Disclaiming the Inheritance
Legally disclaiming or refusing an inheritance within 9 months ensures the assets never become yours. The inheritance passes directly to the next beneficiary without affecting SSI eligibility. But you forfeit the inherited funds.
How Inherited Retirement Accounts Affect SSI
Inheriting a retirement account like an IRA or 401(k) also counts as either income or an asset for SSI purposes:
Cash Payouts
If you take an inherited retirement account as a cash payout, those funds are unearned income in the month received. Any remaining funds become a countable resource afterwards.
Rollover to Inherited IRA
Rolling inherited retirement funds into an Inherited IRA (IRA-I) prevents an immediate income hit. But the IRA-I still counts toward the resource limit like a regular bank account.
Required minimum distributions (RMDs) taken each year from the IRA-I become countable unearned income when received.
To avoid SSI eligibility issues, the IRA-I would need to be spent down or transferred into an exempt asset.
Disclaiming the Inherited IRA
As with any inheritance, you can legally disclaim an inherited retirement account within 9 months to avoid having it affect SSI benefits. But again, you lose the inherited funds.
Reporting an Inheritance to the Social Security Administration
Any inheritance, including retirement accounts, must be reported to the Social Security Administration. Failing to report could constitute SSI fraud and require repaying benefits.
An inherited lump sum should be reported within 10 days after the month received. The SSA will send a letter confirming the pay adjustment or overpayment if it affects your eligibility.
Ongoing inheritances like from a trust or RMDs must be reported by the 10th of the following month when funds are received. Prompt and accurate reporting prevents issues like unexpected overpayments or eligibility suspension.
Getting Help with Inheritances and SSI
Receiving an inheritance when dependent on SSI can be confusing. Seeking help from an SSI expert is recommended to understand reporting responsibilities and how inherited funds will impact your benefits.
Assistance is available from:
- Local Social Security offices
- SSI lawyers and advocates
- Financial planners with SSI knowledge
- Disability service organizations
They can provide personalized guidance on spending down an inheritance, using SSI exempt assets, establishing a Special Needs Trust, and disclaiming unwanted inheritances correctly. With proper planning, many inheritances can be managed without losing SSI eligibility.
Frequently Asked Questions
Does inheriting a house affect SSI?
Inheriting a house could affect SSI benefits. If you inherit the home you already live in, it remains an exempt resource. However, inheriting any other real estate that puts your total resources over the $2,000 limit can suspend eligibility. Quickly spending down the equity or transferring title to an exempt heir may avoid this.
Can I inherit money from a trust and keep SSI?
Money inherited from a trust can be kept without losing SSI, by transferring it into a Special Needs Trust within 60 days. Funds placed into an SNT do not count as resources. But any trust funds spent after the 60 day period do get counted as income.
What happens if I inherit money and don’t report it?
Not reporting an inheritance is considered SSI fraud. If discovered, you would have to repay all overpaid benefits received while ineligible and could face criminal charges. Promptly reporting any inheritances prevents problems and allows you to receive guidance on how it affects your SSI.
Can an inheritance put my SSI on hold?
Yes, inheriting funds that exceed the SSI resource limit can result in suspended benefits until the resources are spent down. For example, inheriting $5,000 would put an individual recipient $3,000 over the $2,000 limit and their SSI would be put on hold.
Will I lose Medicaid if I inherit money?
In most states, eligibility for Medicaid is linked to receiving SSI benefits. So if inheriting funds causes your SSI to be suspended due to excess resources, you would likely lose Medicaid coverage as well. Once the resources are reduced below the limit and SSI reinstated, Medicaid eligibility resumes too in these states.
Conclusion
Inheriting money or assets while on SSI can affect your benefits, but does not necessarily mean losing eligibility. Careful planning, reporting, and management of inheritances allows many recipients to retain SSI and Medicaid. Seeking help from an inheritance expert is key to navigating eligibility issues and using strategies like special needs trusts, exempt asset transfers, and spend down plans. With the right guidance, inheritances can often be handled without compromising this critical support system.