If you're writing your will and don't want the inheritance you leave somebody to affect their benefits, it could be worth seeking professional advice. They might suggest you set up a trust, especially if the person you're leaving money or assets to is vulnerable.
An inheritance is not considered income, federally. It will have no immediate effect on her Social Security or Medicare, since it is not considered income and Social Security and Medicare are not based on assets.
An inheritance can make you ineligible for SSI benefits if you are over the resource limit of $2,000 for individuals or $3,000 for couples. If this happens, you may need to spend down your resources strategically or convert countable resources into excluded resources.
An inheritance doesn't affect Social Security benefits. You can be a millionaire and get Social Security. But SSI is a low-income program, basically the federal welfare program. You have to be below certain limits of income and financial resources to qualify.
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income. Example: You inherit and deposit cash that earns interest income. Include only the interest earned in your gross income, not the inherited cash.
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.
Without a trust, the inheritance you receive may count as extra income or assets that either disqualifies you from receiving government benefits, or results in you getting fewer benefits.
By setting up a special needs trust and depositing the inheritance into it, the beneficiary can continue to receive SSI while also getting the benefit of the inheritance. The funds in the trust are overseen by a trustee such as a parent or family member.
This is done by the person dealing with the estate (called the 'executor', if there's a will). Your beneficiaries (the people who inherit your estate) do not normally pay tax on things they inherit. They may have related taxes to pay, for example if they get rental income from a house left to them in a will.
California stands apart from the other states. In CA, Medicaid (Medi-Cal) recipients can gift inheritance, which is considered “income”, the month in which it is received. Furthermore, Medi-Cal recipients have no asset limit, and therefore, can have unlimited assets and still be eligible for long-term care benefits.
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.
Something an executor generally must do, however, is pay all valid creditor claims and outstanding taxes before making any distributions to beneficiaries. If the estate does not have sufficient funds to fulfill these financial obligations, beneficiaries' inheritances could potentially be reduced or eliminated.
Sign a Prenuptial or Postnuptial Agreement
A prenuptial or postnuptial agreement can provide explicit protection for your inheritance. A prenuptial agreement is signed before marriage, outlining how assets, including any future inheritance, will be handled in the event of a divorce.
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. That said, earnings made off of the inheritance may need to be reported.
The SSA will count your inheritance towards the limit unless it is protected under one of the special types of accounts we discuss in the next section. However, there are various exclusions the SSA allows that could help you qualify.
If the value of your resources that we count is over the allowable limit at the beginning of the month, you cannot receive SSI for that month. If you decide to sell the excess resources for what they are worth, you may receive SSI beginning the month after you sell the excess resources.
Other states, such as California and Texas, prohibit Estate Recovery after the surviving spouse dies. The only exception is if the surviving spouse was also a Medicaid recipient.
Recent court case clarifies how an inheritance affects mean tested benefits. In previous blogs we explained that receiving an inheritance can compromise the recipient's means-tested benefits which, in the case of a person with disabilities, could put their future financial security at risk.
Although an inheritance won't affect your Medicare benefits, it could raise your premiums in the short-term. Medicare is a federal health insurance program for people aged 65 or older, some younger people with disabilities, or people with end-stage renal disease (ESRD).
Social Security might count a gift as income - depending on what the gift is. If you receive cash, that's typically counted as income.
If you inherit money and do not report it, you will be required to pay Medicaid back for the services and benefits that were provided during any period you would have otherwise been ineligible. When a Medicaid recipient receives an inheritance, it is counted as income in the month that it is received.
1. You have little or no income (like wages and Social Security benefits) SSI is generally for individuals who don't earn more than $2,019 from work each month. The income limit increases for couples and when parents apply for children.