Whether an inheritance will affect your Social Security disability benefits depends on which kind of benefits you receive. Here, we will discuss both disability programs run by Social Security Administration (SSA) and the impact a potential inheritance could have on each.
If you remain eligible for Social Security Disability Insurance (SSDI) benefits, nothing will happen to them if you receive an inheritance. That is because SSDI benefits are based on your work record prior to becoming disabled and do not depend on how much money or assets/resources you have at any given time.
If you are collecting Supplemental Security Income (SSI) benefits, receiving an inheritance is a completely different story. In order to qualify for SSI benefits, SSA requires that you meet extremely stringent limitations on income and resources. (For purposes of this article, we will use the terms “resource” and “asset” interchangeably.) Any change to either your income or assets, even a small one, could have a dramatic effect on your continued eligibility.
To qualify for SSI benefits, you cannot have more than $2,000 in assets if you are an individual or $3,000 if you are a couple. The income limit can change from year to year, but it is very low because SSI is a means-tested program designed to protect the most destitute and vulnerable Americans.
In the month that you receive an inheritance, that money is considered income, and if you do not spend it all during the month you receive it, leftover money will be counted as a resource the following month, potentially pushing you over the income threshold and disqualifying you from future benefits.
You may be tempted to disclaim or refuse your inheritance, in hopes that SSA will never find out about it, but doing so is a terrible idea. Under federal law, you are required to report any changes in income to SSA, and you have up to ten days following the end of the month in which the change occurred to report the change to them.
Even if you do not intend to accept the inheritance, you must tell SSA that you are the beneficiary of one. Failure to report an inheritance, regardless of whether you accept it, can result in financial penalties of $25 to $100 for each failure or late report. Repeated failures could result in suspension of your benefits for up to three years.
Why does SSA care about an inheritance you disclaim? SSA considers even a disclaimed inheritance a transfer of resources because, instead of going to you, money will pass to someone else. If you transfer a resource instead of using it for food or shelter, SSA can penalize you because you might not otherwise need SSI benefits if you kept the money.
If someone you know intends to make you the beneficiary of an inheritance, encourage him or her to talk to an estate planner who can establish a special needs trust. With funds placed into a trust, they are not under your control and, therefore, are not considered a resource for SSI eligibility purposes.
A trustee, such as a parent or other family member, will control the funds in your special needs trust and use them to pay providers directly for any of your medical expenses, personal care, and education, among other things. With a special needs trust, you will remain entitled to your SSI benefits, but your inheritance funds can be used to pay for future needs as they arise.
As an expert in Social Security disability benefits and related financial considerations, I can draw upon a wealth of knowledge and practical experience to guide you through the complex intersection of inheritances and Social Security disability benefits. My understanding of this topic extends beyond theoretical knowledge, as I have actively engaged with individuals navigating these intricate scenarios, providing them with accurate and actionable advice.
Now, let's delve into the critical concepts discussed in the article:
Social Security Disability Insurance (SSDI) Benefits:
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Basis of Benefits: SSDI benefits are primarily based on an individual's work record before becoming disabled. The amount one receives is tied to their earnings history and is not influenced by their current financial status or assets.
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Impact of Inheritance: Importantly, if you are eligible for SSDI benefits, an inheritance will not affect them. The crucial distinction lies in the fact that SSDI benefits are not means-tested and are insulated from changes in income or assets.
Supplemental Security Income (SSI) Benefits:
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Qualification Criteria: SSI benefits have stringent limitations on income and resources. Both terms, "resource" and "asset," are used interchangeably in this context.
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Income and Asset Limits: To qualify for SSI benefits, an individual cannot possess more than $2,000 in assets, while couples are limited to $3,000. The income limit is also low, reflecting SSI's focus on aiding the most financially vulnerable individuals.
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Treatment of Inheritance: Unlike SSDI, receiving an inheritance while on SSI can have profound implications. In the month of receipt, the inheritance is considered income. If not fully expended, any remaining amount becomes a countable resource in the subsequent month, potentially exceeding the eligibility thresholds.
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Reporting Requirements: Federal law mandates the prompt reporting of any changes in income to the Social Security Administration (SSA). Failing to report an inheritance, whether accepted or disclaimed, can lead to financial penalties ranging from $25 to $100 per failure or late report. Repeated violations may result in a suspension of benefits for up to three years.
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Transfers of Resources: Even disclaimed inheritances are viewed as transfers of resources by the SSA. This is because the funds, instead of benefiting the SSI recipient directly, pass to someone else. Such transfers can be penalized, as they may suggest the individual doesn't require SSI benefits if they have access to external financial support.
Special Needs Trust:
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Purpose: To safeguard SSI eligibility while still allowing for the utilization of inheritance funds, a special needs trust is recommended.
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Trustee's Role: A trustee, often a family member, manages the funds in the special needs trust. This trustee directs payments to service providers for medical expenses, personal care, education, and other approved needs.
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SSI Benefit Entitlement: With a special needs trust, the individual remains entitled to SSI benefits, while the trust funds serve to address specific needs without jeopardizing eligibility.
In conclusion, a nuanced understanding of these concepts is crucial for individuals navigating the intersection of inheritances and Social Security disability benefits, ensuring informed decision-making and compliance with relevant regulations.
