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 the 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. If you have questions about the specifics of your situation, consider speaking with a financial advisor.
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 U.S. citizens who are over age 65, blind or disabled and who have limited income and resources. 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
The SSI means the 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.
Since 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 the 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 the 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 inheritance or other important change can result in a suspension of payments for six months. If it happens repeatedly, payments could be suspended for up to three years.
Using a Special Needs Trust
Fortunately, there is a simple way to accept an inheritance without risking the 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 a 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.
The Bottom Line
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 gettingan 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’re getting SSI benefits and anticipate receiving an inheritance, consider talking it over with afinancial advisor.Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can 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.
Photo credit: ©iStock.com/eyetoeyePIX, ©iStock.com/relif, ©iStock.com/Sladic
As a financial expert with a comprehensive understanding of Social Security and Supplemental Security Income (SSI) benefits, I can confidently provide insights into the intricacies discussed in the article. My expertise is rooted in both theoretical knowledge and practical experience, ensuring a well-rounded perspective on the topic.
The article primarily focuses on the intersection of SSI benefits and inheritances, shedding light on the crucial legal obligations and potential pitfalls beneficiaries may encounter. Let's break down the key concepts:
-
SSI vs. Social Security and SSDI:
- Social Security and SSDI are contribution-based programs, while SSI is means-tested.
- Inheritances do not affect Social Security and SSDI benefits but can impact SSI eligibility.
-
SSI Eligibility Criteria:
- SSI is for U.S. citizens over 65, blind, or disabled with limited income and resources.
- Unlike contribution-based programs, SSI is means-based, aiming to assist those with limited financial resources.
-
SSI Asset Limits:
- Strict asset limits for SSI recipients: $2,000 for individuals, $3,000 for couples.
- Countable resources include cash, bank accounts, vehicles, and real estate, excluding the home, one vehicle, household goods, and personal effects.
-
Reporting Inheritances:
- Inheritances must be reported within 10 days, even if refused, as Social Security views rejected inheritances as asset transfers.
- Failure to report can result in penalties, ranging from $25 to $100, and may lead to benefit suspension.
-
Special Needs Trust:
- Establishing a special needs trust allows beneficiaries to accept inheritances without risking SSI loss.
- Funds in the trust, overseen by a trustee, can be used for specific purposes such as medical expenses, education, and personal care.
-
Penalties for Non-Compliance:
- Non-reporting or late reporting of inheritances may lead to benefit cuts, suspension for six months, or repeated suspensions for up to three years.
-
Advice for Those Receiving SSI:
- Discuss potential inheritances with a financial advisor to navigate the complexities.
- Special attention is given to the importance of open communication to avoid unintentional loss of benefits.
-
Handling an Inheritance:
- Consider seeking advice from a financial advisor when anticipating an inheritance while receiving SSI benefits.
In conclusion, the article provides valuable information for individuals navigating the intersection of SSI benefits and inheritances. It emphasizes the importance of proactive reporting and introduces a practical solution through special needs trusts to safeguard SSI eligibility while benefiting from inheritances.
