If you receive Supplemental Security Income (SSI), you know that an increase in your income or resources can reduce or eliminate your benefits. An inheritance, if paid to you directly, can inflate your resources enough to make you ineligible for SSI, thereby potentially doing more harm than good in the long run. But if you transfer the inherited funds to a special needs trust, you can use it to supplement your SSI and still keep your benefits.
How an Inheritance Can Affect Your SSI
SSI is a monthly benefit paid to people with limited resources who are also over the age of 65, blind, or disabled as well as to blind or disabled children. The program is administered by the Social Security Administration (SSA) but is separate from Social Security and not paid for by Social Security taxes. SSI is different from Social Security Disability Insurance (SSDI) because SSDI benefits, unlike SSI payments, are not based on financial need. According to the SSA, an inheritance won't affect your eligibility for SSDI.
To determine your eligibility for SSI, the SSA considers your income and available resources, referred to together as "countable resources." To be eligible, you must have no more than $2,000 in countable resources as an individual or $3,000 as a couple, as of 2019. Your income encompasses more than just what you may be paid for work. It includes any cash or anything received in kind that can be used for food and shelter. The calculation of resources excludes your home, one vehicle, household goods, and personal effects but includes any cash, bank accounts, additional real property or vehicles, or anything you can exchange for food and shelter. An inheritance, combined with your existing income and resources, could easily put you above the limit for SSI eligibility.
Although you may be tempted to solve this problem by keeping news of your inheritance from the SSA, that's a bad idea. You have an affirmative obligation to tell them about any changes in your financial situation within 10 days of the end of the month in which the changes occurred. Otherwise, you could be facing substantial penalties.
How to Keep Your SSI and Your Inheritance
Another bad idea is to disclaim your inheritance—that is, to refuse to accept it. The SSA considers an inheritance a resource even if you never lay hands on the cash. Refusing it means you are giving up control of that resource, which to the SSA is the equivalent of transferring it. If you transfer a resource instead of using it for food or shelter, the SSA can penalize you by canceling your SSI for up to three years. Additionally, transferring a resource can also affect your eligibility for Medicaid coverage. Finally, if you disclaim your inheritance and fail to tell the SSA, you could face additional penalties.
Generally, the most effective solution is to accept the inheritance and transfer it to a special needs trust, which is permissible under the law. A special needs trust holds your inheritance to be managed by a trustee and used for your benefit. With the funds in a trust, they are not under your control and, therefore, aren't counted as a resource. Trust payments supplement your SSI benefits and do not harm your eligibility. Special needs trusts are often used to pay for items such as medical and dental expenses above what Medicaid or insurance provides, personal care attendants, education, and vacations. Instead of making payments directly to you, the trustee pays those providers that provide you goods or services.
Thus, with a special needs trust, you can benefit from your inheritance and not lose your SSI. But because serious consequences can result from mistakes in creating the trust, it's advisable to consult an attorney for help in setting it up.
This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.