Receiving inheritance while on SSI benefits: Rules to know

Estate planning and dealing with inheritances are always emotional processes, and this is especially true for people who have loved ones with special needs or disabilities who receive Supplemental Security Income (SSI) benefits. People receiving an inheritance while on SSI benefits shouldn't have to worry about losing their benefits while also grieving the loss of a loved one. If you have a special needs child or other loved one with a disability, and you want to help provide for their financial future by leaving them an inheritance, it's important to plan ahead and manage this process the right way.

When people receive SSI benefits, coming into some money can affect their monthly benefit allowance. With SSI, recipients are only allowed to maintain a few thousand dollars worth of assets, and there are strict limits on any monthly and annual income they may receive—including in-kind income (such as food or housing given for free or for less than fair market value) or monetary gifts.

In short, having, earning or receiving too much money while on SSI benefits can cause a loss of eligibility—and in many cases, this might include receiving inheritance. But this doesn't mean your loved one will have to give up those SSI benefits or be excluded from your will. If you want them to receive an inheritance while keeping their SSI benefits, you can make it happen—but you just need some careful planning to make sure the inherited money is handled the right way.

Let's take a closer look at how you can leave an inheritance that will help provide a secure financial future without sacrificing SSI benefits.

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.

• 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 intended only for people with limited financial resources ("means") and an income that remains below a certain level (passes a "test"). If someone receiving SSI benefits begins to make too much money or inherits a sum that exceeds the countable resource limit, they could "test out" of SSI benefits.

Because an inheritance is considered a change in resources, it's 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 don't 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.

With such a low limit on the number of assets that a person can own in order to qualify for SSI, an inheritance of almost any size might put them over. But that's not always the case. Depending on the size of the inheritance or your estate plan, there are options for providing financial security for your loved one without making them ineligible for SSI.

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.

Yes, a person who receives SSI benefits can choose not to accept an inheritance to continue qualifying for SSI. However, it's wise to think this through.

If someone refuses an inheritance, they won't have a choice or influence over where those assets go—the money will be given to someone else either based on the will or be disbursed according to state probate laws.

Also, if your loved one accepts the inheritance but then gives it away, the SSA may consider this "transferring the resource," which may make them ineligible for SSI benefits for up to three years.

Consider talking with a local Thrivent financial advisor if you or a loved one find yourself deciding between maintaining your SSI benefits or accepting an inheritance. The Thrivent advisor can walk through the possible ramifications of what happens if someone receives an inheritance. Additionally, consult a legal advisor as it relates to these decisions.

With some planning ahead, it is possible for you to set up a legal structure known as a special needs trust that allows you to provide an inheritance without affecting SSI benefits. A special needs trust is often used by those who want to pass on money or assets after their death to a family member who receives SSI benefits—for instance, parents who want to leave an inheritance for their disabled or special needs child. When a trust has been prepared in alignment with the SSA's rules, the assets in it will not be included as countable resources.

When a trust is set up for the person who will receive the inheritance, it's usually managed by someone else on their behalf—often an attorney, financial services company, family member or professional trust manager. They administer the funds in accordance with the terms and objectives established by the creator of the trust, i.e. you. Typically, money in a special needs trust is limited in its use for particular expenses, such as health care bills or living costs.

The rules for setting up a special needs trust vary from state to state. For example, some types of special needs trusts are required to reimburse the state Medicaid program after the beneficiary's death for any healthcare costs that were covered by Medicaid during the person's lifetime. But other special needs trusts do not have to reimburse Medicaid. There are also different types, such as a third-party special needs trust, that can be structured in certain ways depending on how you want the inheritance distributed.

To determine which type of special needs trust is best for your situation and which state rules need to be followed, you should consult with an attorney who has experience in special needs trusts and estate planning. Depending on the trust you choose, you can include the trust as a beneficiary of your life insurance policy or as a recipient of funds from your will, which is a great way to leave an inheritance to your loved one without reducing their SSI benefits. You don't have to use special needs trusts only for estate planning or only to leave money after you're gone; you can also have multiple family members (or friends) help to give money to the special needs trust during your lifetime.

Having a loved one with special needs is a lifelong commitment, and you want to ensure they are taken care of even after you are gone. With careful planning, you can take the right steps to make sure they are provided for. Professional financial advisors and attorneys can help you understand how to leave an inheritance to your loved one while protecting their SSI benefits. Reach out to a local Thrivent financial advisor to learn more.