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Receiving an inheritance while collecting federal Supplemental Security Income (SSI) benefits can make a recipient ineligible for continued payments. Federal law requires beneficiaries to report any inheritance to the Social Security Administration, even if they choose to refuse it. Failure to report an inheritance may lead to financial penalties and a suspension of SSI payments for up to three years. However, certain legal strategies can allow individuals to retain the value of an inheritance while remaining eligible for SSI benefits.
If you have questions about the specifics of your situation, consider speaking with a financial advisor.
SSI vs. Social Security: What’s the Difference?
SSI pays benefits to U.S. citizens who are over 65, blind, or disabled, and have limited income and resources. The Social Security Administration (SSA) runs the program, and general federal tax revenues support it
SSI is different from Social Security and Social Security Disability Insurance (SSDI). Social Security and SSDI are contribution-based programs that aren’t 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.
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.
Qualifying for SSI
Applicants must be U.S. citizens or certain eligible non-citizens and reside in one of the 50 states, the District of Columbia or the Northern Mariana Islands.
In addition, they must meet one of three qualifying categories: age 65 or older, legally blind, or disabled according to Social Security’s definition, which includes a long-term physical or mental impairment that significantly limits daily activities.
The SSI means test is strict. To be financially 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. However, it excludes your home, one vehicle, household goods and personal effects.
Reporting an Inheritance
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. Social Security regards a rejected inheritance as a transfer of assets
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.
How to Keep Your SSI When Receiving an Inheritance
To keep your SSI after receiving an inheritance, the key is to avoid direct ownership of the assets. Timing also matters. If you receive the inheritance and deposit it into your personal bank account, it will be counted as a resource and could make you ineligible for SSI. To prevent this, you may consider having the inheritance transferred directly into a trust or ABLE account.
Using a Special Needs Trust
A special needs trust holds assets for someone with a disability while keeping their eligibility for programs like SSI intact. Instead of giving an inheritance directly to the individual, the money is transferred into the trust and managed by a trustee. he trustee spends the funds on the beneficiary’s behalf, covering expenses such as personal care, therapy, education or transportation—items not typically paid for by government benefits.
There are multiple types of special needs trusts. Some trusts are funded by others, while others use the beneficiary’s own money, such as an inheritance or legal award. In either case, the trust must follow specific rules to avoid jeopardizing SSI eligibility.
Typically, the trust must be irrevocable, and the beneficiary cannot have direct control over how the money is used. When structured correctly, the assets in the trust do not count toward SSI’s asset limits, allowing the individual to continue receiving benefits while also having access to additional support.
ABLE Accounts
ABLE accounts are tax-advantaged savings accounts created under the Achieving a Better Life Experience Act. To qualify, the beneficiary must have become disabled before age 26, and the account owner must meet the SSA’s definition of disability. Contributions can be made by the beneficiary, family members or others, up to $20,000 in 2026. If the beneficiary is employed and not enrolled in a retirement plan, additional contributions may be allowed.
ABLE account funds can cover disability-related expenses like education, housing, healthcare, transportation and basic living costs. The first $100,000 in an ABLE account does not count toward SSI’s $2,000 asset limit, preserving eligibility even as savings grow. Qualified withdrawals don’t affect federal benefits.
How Medicaid Eligibility Is Affected By an Inheritance
Receiving an inheritance while enrolled in Medicaid carries many of the same risks as receiving one while on SSI, because Medicaid is also a means-tested program with strict income and asset limits. Depending on your state and the type of Medicaid coverage you receive, even a modest inheritance can reduce or eliminate your eligibility.
Medicaid asset limits vary by state but are generally very low. In many states, an individual can have no more than $2,000 in countable assets to remain eligible. An inheritance that pushes your resources above that threshold must be reported and can result in a loss of coverage until your assets are spent down below the limit. Most states require beneficiaries to report changes in income or assets within 10 to 30 days of receiving them.
One important consideration specific to Medicaid is the lookback period. When applying for certain types of Medicaid, particularly long-term care coverage, the program reviews financial transactions made in the five years prior to the application. If assets from an inheritance were transferred or given away during that window rather than spent on qualifying expenses, Medicaid may impose a penalty period during which benefits are withheld.
The same protective strategies used to preserve SSI eligibility can also apply to Medicaid. A properly structured special needs trust can hold inherited assets without counting them toward Medicaid’s resource limits. ABLE accounts offer similar protection for individuals who became disabled before age 26. However, Medicaid rules around trusts and asset transfers are complex and vary significantly by state, making professional guidance particularly important before taking any action with an inherited asset.
Bottom Line
If you plan to leave an inheritance to someone receiving SSI benefits, talk to them first. A large gift or inheritance can cause the Social Security Administration to reduce or stop their benefits, and failing to report it can lead to penalties or a suspension lasting up to three years.
There are ways to structure the gift so it does not affect eligibility. “An inheritance won’t automatically disqualify someone from receiving SSI benefits, but the giver should definitely consider other avenues for gifting the money either during their lifetime or through their will. Examples include a specialized trust or an ABLE account, which may preserve the inheritance without impacting SSI or Medicaid eligibility,” said Tanza Loudenback, CFP®.
Tanza Loudenback, Certified Financial Planner™ (CFP®), provided the quote used in this article. Please note that Tanza is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.
Tips on Handling an Inheritance
- If you’re getting SSI benefits and anticipate receiving an inheritance, consider talking it over with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel 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.
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