Coming into some money is normally a cause for celebration – but could an inheritance or other surprise windfall disrupt government benefits that you may count on? Unfortunately, yes.
While receiving an inheritance seems like it should help, not hurt, government program rules can mean extra assets cost you the monthly support checks you rely on. In effect, your inheritance can end up going to the government. It’s not fair—but learning the specifics on handling added money can save your benefits.
As experienced elder lawyers, we’ve seen firsthand how mishandled inheritances lead to painful benefit losses. Our attorneys regularly counsel Social Security supplemental security income beneficiaries on handling inheritances so they don’t lose out.
In this blog, we’ll discuss some proactive steps you can take to keep both your new assets and old benefits intact.
Getting an inheritance can feel like a financial blessing, but if you’re receiving Social Security benefits you might be wondering “Will this windfall mess with my monthly checks?” It’s a common worry and honestly, the answer isn’t always straightforward. As a Social Security planning specialist, I’ve helped hundreds of clients navigate this exact situation, and I’m here to break it down for you in simple terms.
The Quick Answer (For Those in a Hurry)
The impact of an inheritance on your Social Security benefits depends entirely on which type of Social Security benefit you’re receiving:
- Social Security Retirement Benefits: No impact, no reporting required
- Social Security Disability Insurance (SSDI): No impact, no reporting required
- Supplemental Security Income (SSI): Yes, major impact – must report within 10 days
Now let’s dive deeper into what this means for you and your specific situation.
How Inheritance Affects Different Types of Social Security Benefits
Social Security Retirement Benefits & SSDI
Good news! If you’re receiving regular Social Security retirement benefits or SSDI (disability insurance), an inheritance won’t affect your monthly benefit amount at all. These benefits are based on your work history and the contributions you’ve made to the Social Security system throughout your career – not your current financial situation.
This means you can receive an inheritance of any size – whether it’s $5,000 or $5 million – and your monthly benefit checks will remain exactly the same. You don’t even need to report the inheritance to the Social Security Administration (SSA). Pretty straightforward, right?
Supplemental Security Income (SSI)
Here’s where things get tricky If you’re receiving SSI benefits, an inheritance can definitely impact your eligibility and benefit amount Why? Because SSI is a needs-based program designed specifically for people with limited income and resources.
For SSI recipients, there are strict resource limits:
- $2,000 for individuals
- $3,000 for couples
If your inheritance pushes your total resources above these limits, you could become ineligible for SSI benefits. And unlike retirement or SSDI benefits, you must report any inheritance to the SSA within 10 days of the month after you receive it.
What Exactly Counts as an Inheritance?
When the SSA talks about inheritance, they’re referring to anything of value you receive as a result of someone’s death. This includes:
- Cash
- Real estate or property
- Stocks and bonds
- Life insurance payouts
- Personal property (vehicles, collections, etc.)
- Funds distributed from a trust
According to the SSA’s official policy, an inheritance is considered income in the first month it has value and can be used. After that first month, whatever remains becomes a countable resource.
Reporting Requirements: When and How to Tell the SSA
For Retirement Benefits & SSDI Recipients
If you receive retirement benefits or SSDI, you can relax – there’s no need to report an inheritance to the SSA. These benefits will continue unchanged regardless of what you inherit.
For SSI Recipients
If you’re on SSI, you absolutely must report any inheritance within 10 days of the month following receipt. For example, if you receive an inheritance on October 15, you need to report it by November 10.
Here’s how to report:
- Contact your local Social Security office
- Call the SSA directly at 1-800-772-1213
- Submit documentation through your my Social Security account online
Failure to report can result in benefit overpayments that you’ll have to pay back, potential penalties, and in extreme cases of intentional fraud, even criminal charges. Trust me, it’s not worth the risk!
Smart Strategies for SSI Recipients Who Receive an Inheritance
If you’re on SSI and receive an inheritance, don’t panic! There are several legitimate strategies that can help you maintain your benefits:
1. Special Needs Trusts (SNTs)
A properly structured Special Needs Trust can be a lifesaver for SSI recipients. By placing your inheritance in this type of trust, the funds won’t count toward your SSI resource limit. This allows you to benefit from the inheritance without losing your SSI eligibility.
The key is that the trust must be set up correctly by an attorney who specializes in this area. The trust can then pay for things that improve your quality of life – like medical care, education, or even vacations – without affecting your SSI benefits.
2. ABLE Accounts
For individuals whose disability began before age 26, an ABLE (Achieving a Better Life Experience) account offers another great option. Similar to a Special Needs Trust, money in an ABLE account doesn’t count toward SSI resource limits (up to certain thresholds).
You can use these funds for qualified disability expenses, which covers a wide range of needs. Just be aware that there are annual contribution limits to ABLE accounts.
3. Spending Down the Inheritance
Another strategy is to “spend down” the inheritance on allowed expenses before the end of the month after you receive it. This means using the money for things like:
- Paying off debts
- Making necessary home repairs or modifications
- Purchasing a vehicle (which may not count as a resource depending on usage)
- Buying household goods or personal items
- Prepaying funeral and burial expenses
The key is spending the money on legitimate expenses that improve your situation without appearing to be deliberately disposing of resources just to maintain SSI eligibility.
Understanding Survivor Benefits vs. Inheritance
It’s important to distinguish between inheriting someone’s Social Security benefits (which isn’t really possible) and receiving survivor benefits based on a deceased person’s work record.
Can You “Inherit” Someone’s Social Security Benefits?
The short answer is no – you don’t directly inherit a person’s Social Security benefits the way you might inherit their house or bank account. However, certain family members can receive survivor benefits after a worker’s death. These benefits are based on the deceased person’s earnings record.
Who Can Receive Survivor Benefits?
Survivor benefits may be available to:
- Surviving spouses (if married for at least 9 months, with some exceptions)
- Ex-spouses (if the marriage lasted at least 10 years)
- Unmarried children under 18 (or up to 19 if still in high school)
- Adult children who became disabled before age 22
- Dependent parents age 62 or older
How Remarriage Affects Survivor Benefits
This is a crucial detail many people miss: if you’re receiving survivor benefits and you remarry before age 60, you’ll generally lose those benefits. However, if you wait until age 60 or later to remarry, you can usually keep receiving survivor benefits based on your deceased spouse’s record.
Real-World Example: How This Works in Practice
Let me share a quick example from my practice to illustrate how this works:
Sarah, age 68, receives $1,800 monthly in Social Security retirement benefits. When her uncle passed away, she inherited $75,000 in cash and a small vacation property worth about $150,000. Since Sarah receives regular retirement benefits (not SSI), this inheritance had zero impact on her Social Security payments. She didn’t need to report it, and her benefits continued without interruption.
Meanwhile, Tom, age 45, receives $841 monthly in SSI due to a disability. When his mother passed away, he inherited $5,000. Because this amount would push him over the $2,000 resource limit for SSI, Tom worked with an attorney to establish a Special Needs Trust for the inherited funds. He reported the inheritance to SSA as required, explained the trust arrangement, and was able to maintain his SSI benefits while still benefiting from his inheritance.
When to Seek Professional Help
The rules around Social Security benefits and inheritance can be complex, and the stakes are high – especially for SSI recipients. Consider consulting with a knowledgeable professional if:
- You receive SSI and have inherited significant assets
- You need help establishing a Special Needs Trust or ABLE account
- You’re confused about reporting requirements
- You’ve failed to report an inheritance and need to address the situation
- You’re unsure about how survivor benefits work in your specific case
A Social Security attorney or financial advisor with expertise in this area can provide personalized guidance based on your unique circumstances.
Final Thoughts
Understanding how inheritance affects your Social Security benefits isn’t always simple, but knowing the basic rules can help you avoid potential pitfalls and make informed decisions.
Remember these key points:
- Retirement and SSDI benefits aren’t affected by inheritance
- SSI benefits can be significantly impacted – report promptly and consider protective strategies
- Survivor benefits follow their own set of rules regarding eligibility and remarriage
- When in doubt, seek professional guidance
Have you dealt with inheritance while receiving Social Security benefits? I’d love to hear about your experience in the comments below. And if you found this article helpful, please share it with others who might benefit from this information!
Disclaimer: This article is intended for informational purposes only and should not be construed as legal or financial advice. Social Security regulations can change, and individual situations vary. Always consult with a qualified professional regarding your specific circumstances.
Inheriting Money While on SSDI
In comparison, SSDI benefit qualifications involve some different considerations. Social Security Disability Insurance depends on applicants making a strong enough case that physical or mental health conditions prevent engaging in “substantial gainful activity” through full-time work.
This emphasis on health factors means SSDI lacks income and asset limits that could threaten eligibility following inheritance receipts. The inheritance itself does not jeopardize SSDI qualifications since unearned income from gifts or windfalls does not factor into eligibility formulas.
How Inheritances Impact SSI vs. SSDI: Know the Key Differences
If you receive disability benefits, it’s important to know whether you get Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI). Check your benefit statements or cards to confirm which program you use.
SSI has strict eligibility requirements, including caps on earned income and assets (resource limits). Inheritances and other unearned income easily push recipients over this threshold, putting benefits at risk. SSI recipients must report inheritances within 10 days to avoid allegations of fraud.
In contrast, SSDI does not have resource limits or caps on unearned income. This is because SSDI eligibility depends on your work history and disability status, not income or assets. Therefore, inheritances do not impact eligibility, and no reporting requirements exist for inheritances or assets received.
Before assuming an inheritance will forfeit your benefits, check which program you receive—SSI or SSDI. Understanding which rules apply to your specific benefits can help you plan ahead for any future financial windfalls.
Does An Inheritance Affect My Social Security Benefits? – Making Politics Simple
FAQ
Does inheritance money affect Social Security benefits?
If you receive Social Security retirement benefits or SSDI, inheritance money generally won’t affect your benefits. These programs are based on your work history and prior contributions to the Social Security system, not your current income or resources. You can receive an inheritance of any amount without impacting these benefits.
Can I get SSI If I get an inheritance?
If you are receiving federal Social Security Income (SSI) benefits and get an inheritance you could become ineligible for more benefits.
Do I need to report an inheritance to the SSA?
Understanding your reporting obligations to the Social Security Administration (SSA) is crucial to maintain your benefits and avoid potential complications. Whether you need to report an inheritance to the SSA depends primarily on the type of Social Security benefits you receive:
Do inheritances affect SSDI eligibility?
This is because SSDI eligibility depends on your work history and disability status, not income or assets. Therefore, inheritances do not impact eligibility, and no reporting requirements exist for inheritances or assets received. Before assuming an inheritance will forfeit your benefits, check which program you receive—SSI or SSDI.
What is a social security inheritance?
Social Security Act as amended, Section 1612 (a) (2) (D), 1612 (a) (2) (E); 20 CFR 416.1121 (e), 416.1121 (g) 1. Definition An inheritance is cash, a right, or a noncash item (s) received as the result of someone’s death. 2. Inheritance as Income An inheritance is a death benefit. See SI 00830.545.
Is receiving an inheritance a good idea?
Receiving an inheritance can be both a blessing and a source of confusion, especially if you’re currently receiving Social Security benefits. Understanding your reporting obligations to the Social Security Administration (SSA) is crucial to maintain your benefits and avoid potential complications.
Will I lose my Social Security if I get an inheritance?
What benefits do I lose if I inherit money?
While inheriting money or assets might provide financial relief, it can also affect eligibility for means-tested benefits, such as Universal Credit, Housing Benefit, or Income Support.
Is receiving an inheritance considered income?
In general, any inheritance you receive does not need to be reported to the IRS. You typically don’t need to report inheritance money to the IRS because inheritances aren’t considered taxable income by the federal government.
Do you have to report inheritance to Medicare?
While Medicare does not require you to report an inheritance directly, it is crucial to understand that it could raise your AGI, thereby affecting your monthly premiums. For example, if your total income, including the inheritance, surpasses the IRMAA threshold, you may be subject to additional charges.