How Will Inheritance Affect Your Social Security Disability Benefits?

If you recently received an inheritance while on SSDI, you might wonder how it’ll affect your monthly benefits. Many beneficiaries worry that an inheritance might automatically jeopardize their monthly payouts. However, every case is different, and the types of benefits you receive will determine the outcome. Learn more about how inheritance affects disability benefits and how it may impact your financial situation going forward.

Will Inheritance Impact Your Disability Benefits?

The Social Security Administration (SSA) has two main types of benefits you could receive:

• Social Security Disability Insurance (SSDI): This program benefits individuals who have worked and paid into the Social Security system but can’t work due to their disabilities. The SSA evaluates your payouts based on disability and work credits, not financial need.
• SSI (Supplemental Security Income): SSI is there to help older adults, blind, and disabled individuals without income. Unlike SSDI, SSI is needs-based and does not require the recipient to have a work history. However, it does require meeting strict income and asset limits.

The effect of inheritance on your Social Security disability benefits will ultimately boil down to the type of benefits you receive. If you’re an SSDI beneficiary, inheritance won’t affect your benefits because the program’s funded through payroll taxes you’ve already paid based on your work history. SSI recipients, on the other hand, who receive benefits based on financial need, might go over the SSI’s strict income and asset limits and have their benefits taken away.

Should You Report Your Inheritance To The SSA?

For SSI recipients, you need to report any inheritance to the SSA within 10 days of receiving it. If you don’t, you’ll have to pay back any overpayments and other penalties. If you receive SSDI payments, you don’t need to report anything. However, it’s always advisable to maintain open communication with the SSA to ensure everything is up to date.

Does Inheritance Affect Other Benefits?

Inheritance may impact your government benefits, especially if you qualify for other low-income programs like Medicaid or food stamps. Like SSI, these programs limit how much you make or how many total assets you have. Getting a large inheritance could instantly push you over the threshold, leading to a loss of benefits unless you properly manage everything through legal financial tools.

Inherited Assets That Do Not Count Toward SSI Eligibility Limits

Supplemental Security Income (SSI) imposes strict asset limits: $2,000 for individuals and $3,000 for couples. However, some inherited assets do not count towards the established limits.

1. Primary Residence

SSI resource calculations exclude the value of a home that you inherit if you live in it as your main residence. The exemption remains valid as long as you continue to reside in the home you inherited.

2. One Vehicle

SSI regulations permit households to exclude one vehicle from their asset total, disregarding its market price. For instance, a vehicle inherited by you that you use as your main transportation method will not be included in your asset limit assessment.

3. Personal and Household Goods

SSI resource calculations exclude most inherited items used for everyday living, like furniture and appliances. The items listed are necessary for everyday life activities.

4. Property Essential for Self-Support

You may exclude inherited property used in self-support activities or business operations from SSI resources if it satisfies specific conditions.

5. Burial Funds and Life Insurance

SSI will not count up to $1,500 in burial funds per individual towards resource limits. Life insurance policies with a face value of not more than $1,500 do not count towards resource limits.

Refusing or Giving Away Inheritance to Protect Benefits

Some individuals choose to reject or distribute their inheritance to maintain their eligibility for SSI benefits. The SSA handles refused or transferred inheritances by assuming you received and then disposed of them. The transfer of an asset may result in up to 36 months of SSI benefit ineligibility, depending on the value of the asset.

Make sure you discuss your inheritance decisions with a qualified attorney because incorrect handling could put your benefits at risk.

How Do I Keep SSI Benefits and My Inheritance Money?

Several strategies exist to preserve your SSI benefits while keeping inherited assets. Consider the following:

1. Special Needs Trust (SNT)

A Special Needs Trust lets you put your inheritance into a trust that a trustee will manage. These funds can support particular expenditures while preserving eligibility for SSI benefits. There are two types:

• First-Party SNT: The Special Needs Trust benefits from funding through the beneficiary’s own financial resources, including inheritance.
• Third-Party SNT: Third-Party SNT uses assets from another person to support an individual financially.

These trusts operate under specific legal requirements and serve to maintain eligibility for SSI and Medicaid.

2. Achieving a Better Life Experience (ABLE) Accounts

ABLE accounts enable individuals with disabilities to save money while maintaining their SSI eligibility. Starting in 2025, you will be able to deposit $18,000 yearly. The funds are designated for qualified disability expenses.

3. Spend Down Strategy

An individual can preserve their SSI eligibility by spending the inheritance on exempt assets or settling debts during the first month they receive it. Examples include:

• Purchasing a primary residence
• Buying a vehicle for transportation
• Paying for medical expenses

Documentation of all expenses and consultation with a financial advisor or attorney is necessary to remain compliant with SSI regulations.

Inheritance as Taxable Income: Understanding the Implications

Though inheritances typically do not fall under taxable income classifications, many elements of inherited assets may trigger tax consequences.

1. Federal Estate Tax

The federal estate tax becomes applicable to estates that surpass the $13.99 million mark as of 2025. The federal estate tax requires amounts exceeding the $13.99 million mark to be taxed at rates that reach up to 40%.

2. State Inheritance and Estate Taxes

Certain states require beneficiaries to pay inheritance or estate taxes on inherited properties.

• Inheritance Tax: Beneficiaries typically pay inheritance tax, which has varying rates and exemptions depending on the state.
• Estate Tax: The estate tax payment occurs before beneficiaries receive their distributions.

While New York reserves the right to impose an estate tax prior to beneficiaries receiving their inheritance, the state does not require an inheritance tax to be paid.

3. Capital Gains Tax

The sale of inherited stocks or real estate could result in capital gains tax liabilities for the seller. Inherited assets typically benefit from a “step-up” in basis, which adjusts their value to reflect the fair market value at the time of death, thereby reducing potential taxable gains.

4. Gift Tax

When you decide to distribute parts of your inheritance to others, you must understand the regulations governing gift taxes. The annual gift tax exclusion for 2025 allows you to transfer $19,000 to each recipient without triggering gift taxes. Gifts exceeding this limit will reduce your lifetime exemption, which stands at $13.99 million.

The process of managing inheritance along with SSI benefits requires a great deal of planning and professional guidance. Knowledge of relevant rules and strategies enables you to make smart choices that safeguard your benefits and your inheritance.

Can You Stop The SSA From Taking Away Your SSI Benefits?

Your benefits may be suspended if you go over SSI’s resource limit. However, there are a few ways to avoid this, such as spending your inheritance quickly on non-countable assets like your home, a car, or personal debts. Another strategy is setting up a special needs trust, which can hold your inheritance without directly affecting your benefits if you set it up correctly.

Our Attorneys Are Here To Help

Dealing with inheritance while on disability benefits can be confusing. Our experienced New York social security disability attorneys can help you understand your rights and options. We can help you navigate the process to protect your benefits while maximizing your inheritance. Please contact us online or at 877-693-2529 to schedule a free consultation today.