Managing inheritances and estate planning are invariably emotional undertakings, particularly for those who have loved ones receiving Supplemental Security Income (SSI) benefits due to special needs or disabilities. When receiving an inheritance, SSI recipients shouldn’t have to worry about losing their benefits in addition to their grief over a loved one’s passing. In the event that you wish to leave an inheritance to a loved one with a disability or special needs child, you must make the necessary preparations and handle the process properly.
When receiving SSI benefits, a person’s monthly benefit allowance may change if they become financially successful. Recipients of SSI are only permitted to keep a few thousand dollars’ worth of assets, and their monthly and annual income is strictly limited. This includes gifts of money as well as in-kind income (such as free or significantly discounted housing or food).
To put it briefly, being overly wealthy while receiving SSI benefits can result in losing eligibility, and in many situations, this could include inheriting money. However, this does not imply that your loved one will forfeit their SSI benefits or be left out of your will. You can arrange for them to inherit while continuing to receive their SSI benefits; all you need to do is take some precautions to ensure that the inherited funds are managed appropriately.
Let’s examine how you can leave an inheritance that will contribute to a stable future without compromising your eligibility for SSI benefits.
Inheritances can be a source of financial security and opportunity, but for individuals receiving Supplemental Security Income (SSI) benefits, they can raise concerns about potential impacts on their eligibility. This guide will delve into the relationship between inheritances and SSI benefits, providing clarity on how inheritances can affect eligibility and exploring strategies to preserve benefits while still receiving an inheritance.
Understanding SSI Eligibility and Resource Limits
SSI is a federal program designed to provide financial assistance to low-income individuals who are aged 65 or older, blind, or disabled. Eligibility for SSI is based on strict income and resource limits. Individuals are only allowed to have a limited amount of countable resources, which include cash, bank accounts, investments, and certain types of property. The current resource limit for an individual is $2,000, and $3,000 for a couple.
Inheritances are considered countable resources, meaning they can affect SSI eligibility. If an inheritance exceeds the resource limit, it can result in a reduction or termination of SSI benefits. However, there are important exceptions and strategies to consider.
Reporting Inheritances to the Social Security Administration
It is crucial to report any inheritance to the Social Security Administration (SSA) within 10 days of the end of the month in which it was received. Failing to report an inheritance can lead to penalties and potential suspension of benefits.
Strategies for Preserving SSI Benefits While Receiving an Inheritance
Fortunately, there are ways to receive an inheritance without jeopardizing SSI benefits. One effective strategy is to establish a special needs trust.
Special Needs Trusts
A special needs trust is a legal arrangement that allows individuals with disabilities to receive inheritances or other assets without affecting their eligibility for SSI or Medicaid. The trust is managed by a trustee, who is responsible for using the funds in the trust to cover qualified expenses related to the beneficiary’s disability, such as medical care, education, and housing.
There are different types of special needs trusts, each with its own rules and regulations. It is essential to consult with an attorney specializing in special needs trusts to determine the most suitable option for your situation.
Other Strategies
In addition to special needs trusts, other strategies can help preserve SSI benefits while receiving an inheritance:
- Refusing the inheritance: Individuals can choose to refuse an inheritance, but this may not be the best option in all cases.
- Gifting the inheritance: Individuals can gift the inheritance to a family member or other eligible recipient. However, there are gift tax implications to consider.
- Using the inheritance for qualified expenses: Individuals can use the inheritance to pay for qualified expenses that do not count as countable resources, such as medical bills or home modifications.
Inheritances can be a valuable source of financial support, but for SSI recipients, they can raise concerns about eligibility. By understanding the impact of inheritances on SSI benefits and exploring strategies like special needs trusts, individuals can preserve their benefits while still receiving an inheritance. It is crucial to consult with a financial advisor and an attorney specializing in special needs trusts to determine the best course of action for your specific situation.
Frequently Asked Questions
Q: Can I lose my SSI benefits if I receive an inheritance?
A: Yes, receiving an inheritance can affect your SSI eligibility if it exceeds the resource limit. However, there are strategies to preserve your benefits, such as using a special needs trust.
Q: Do I have to report my inheritance to the Social Security Administration?
A: Yes, it is mandatory to report any inheritance to the SSA within 10 days of the end of the month in which it was received.
Q: What is a special needs trust, and how can it help me preserve my SSI benefits?
A: A special needs trust is a legal arrangement that allows individuals with disabilities to receive inheritances or other assets without affecting their eligibility for SSI or Medicaid. The trust is managed by a trustee, who uses the funds to cover qualified expenses related to the beneficiary’s disability.
Q: Are there other strategies I can use to preserve my SSI benefits?
A: Yes, other strategies include refusing the inheritance, gifting it to an eligible recipient, or using it for qualified expenses that do not count as countable resources.
Q: Who should I consult with to discuss my options?
A: It is advisable to consult with a financial advisor and an attorney specializing in special needs trusts to determine the best course of action for your specific situation.
How can inheritance affect SSI eligibility?
SSI benefits have extremely strict limits on the amount of assets, or countable resources, you can have. The countable resource limit is $2,000 per individual or $3,000 per couple. Countable resources might include cash, bank accounts, financial assets like stocks and mutual funds, land, vehicles or other personal property that could be converted to cash.
Keep in mind that countable resources do not include:
- A home
- A vehicle
- Household goods and personal effects
- Any burial plots/funds (up to $1,500)
- Other assets like life insurance (up to $1,500 or less)
SSI benefits are “means-tested. They are only meant for those who meet certain requirements (pass a “test”) and have restricted financial resources (or “means”). An individual receiving SSI benefits may “test out” of the program if their income starts to rise or if they inherit money that is greater than the countable resource limit.
Because an inheritance is considered a change in resources, its required that people receiving SSI benefits have to report inheritance to the Social Security Administration (SSA)—and they must do so no later than the first 10 days of the month that follows the month that they received the inheritance. For instance, if the inheritance was received on September 16, the recipient would have to report it to the SSA no later than October 10. The SSA will recalculate the SSI monthly benefit based on this new information. If they dont report the inheritance to Social Security, they could face a monthly SSI benefit reduction of up to $100 or even lose the benefit entirely for up to three years.
A person’s eligibility for SSI is based on a very low asset cap, so receiving an inheritance of any size could put them over the cap. But thats not always the case. There are ways to give your loved one financial security without keeping them off of SSI, depending on the amount of the inheritance or your estate plan.
Note that SSI is not to be confused with SSDI, or Social Security Disability Income. While both come from the SSA and are for people with disabilities—and a person may qualify for both—these two benefits have different rules for inheritances. Because SSDI is based on how long someone paid into the Social Security system rather than income limits, SSDI is not affected by any inheritance they may receive.