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If you receive an inheritance while you are getting federal Supplemental Security Income (SSI) benefits, it could make you ineligible to receive any more benefits. Federal law requires you to report to the Social Security Administration if you are beneficiary of an inheritance – even if you refuse to accept the inheritance. Failing to report an inheritance can result in financial penalties and cause your SSI payments to stop for up to three years. However, there’s a legal way to control and benefit from an inheritance and still keep getting SSI payments. Here’s how that is done.

SSI and Social Security Benefits

SSI is different from Social Security and Social Security Disability Income (SSDI.) Social Security and SSDI are contribution-based programs. They are not means-tested. If you pay into these programs, you are eligible to receive benefits. Income from working at a job or other source could affect Social Security and SSDI benefits. However, receiving an inheritance won’t affect Social Security and SSDI benefits.

SSI is a federal program that pays benefits to adults over age 65 and children who have limited income and resources and are blind or disabled. It is run by the Social Security Administration but is supported by general federal tax revenues instead of Social Security taxes. Eligibility for SSI not is contribution-based like other Social Security programs. That is, you don’t have to pay Social Security or other taxes in order to receive SSI benefits.

Rather than being contribution-based, SSI is means-based. It is specifically intended to help people with limited resources and income. That means a change in your income or assets could reduce or eliminate your SSI benefits. An inheritance could also affect eligibility for other federal benefits, such as the Medicaid healthcare insurance program.

SSI Asset Limits

Social Security form

The SSI means test is strict. To be eligible for SSI, an individual must have no more than $2,000 in assets. A couple can have no more than $3,000. To make this determination, the Social Security Administration considers both income and available resources, which it calls countable resources. The figure includes cash, bank accounts, vehicles and real estate but excludes your home, one vehicle, household goods and personal effects.

Because these countable resource limits are so low, even a modest inheritance could put an SSI recipient over the threshold and cause benefits to be reduced or ended. No matter how small an inheritance is, SSI recipients are required to report it to Social Security within 10 days after the end of the month in which it was received.

The inheritance has to be reported even if the person named as beneficiary refuses to accept it. That’s because Social Security will regard a rejected inheritance as a transfer of assets and treat the same as if it was accepted by the beneficiary.

Failing to report an inheritance, transferred or not, carries a potential penalty of a $25 to $100 cut in benefits for each failure to report or late report. Knowingly failing to report an inheritence or other important change can result in a suspension of payments for six months. If it happens repeatedly, payments could be suspended up to three years.

Special Needs Trusts

Fortunately, there is a simple way to accept an inheritance without risking loss of SSI benefits. By setting up a special needs trust and depositing the inheritance into it, the beneficiary can continue to receive SSI while also getting the benefit of the inheritance. The funds in the trust are overseen by a trustee such as parent or family member. The trustee can use funds in the trust to directly pay providers for medical expenses, dental expenses, personal care, education and even vacations.

Bank trust departments can set these trusts up for disabled recipients and their families. Special needs trusts can hold funds other than inheritances. That includes donations from family members, awards from lawsuits and proceeds of life insurance policies.

Bottom Line

Teen with Down Syndrome painting

If you want to leave an inheritance or a big gift to someone getting SSI benefits, discuss it with that person. A generous impulse could paradoxically result in the beneficiary being denied valuable benefits. That’s because getting an inheritance can cause the Social Security Administration to reduce or stop SSI benefits. Also, not reporting an inheritance can lead to penalties and a benefit suspension of up to three years. However, by depositing the inheritance into a special needs trust the beneficiary can keep getting SSI payments and the inherited funds can be used to pay for medical and other special needs.

Tips on Handling an Inheritance

  • If you are getting SSI benefits and anticipate receiving an inheritance, consider talking it over with an experienced financial advisor. Finding one doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.
  • A Social Security benefit calculator is a quick and easy way to get a solid estimate of what you’re going to be entitled to when you retire.

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Mark Henricks Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
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