Many people worry about the estate tax affecting the inheritance they pass along to their children, but it's not a reality most people will face. In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate.
Social Security Disability Insurance (SSDI): Generally, SSDI is not affected by inheritance. Since SSDI is based on your work history and the amount you have paid into Social Security, an inheritance does not impact your eligibility or benefit amount.
However, receiving an inheritance won't affect Social Security and SSDI benefits. SSI is a federal program that pays benefits to U.S. citizens who are over age 65, blind or disabled and who have limited income and resources.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
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.
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.
Immediately after receiving an inheritance, you should notify your local Social Security office. If your inheritance exceeds $963, you'll be ineligible for benefits for at least one month. You'll remain ineligible as long as your resources are more than $2,000.
Disadvantages of Inheritance
Inherited functions work slower than normal function as there is indirection. Improper use of inheritance may lead to wrong solutions. Often, data members in the base class are left unused which may lead to memory wastage.
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.
Therefore, inheritances do not impact eligibility, and no reporting requirements exist for inheritances or assets received. Before assuming an inheritance will forfeit your benefits, check which program you receive—SSI or SSDI.
Set Up a Trust
One of the most effective ways to protect your benefits is to have your inheritance placed in a discretionary trust. This structure ensures that the assets are not directly accessible to you, which can help shield the inheritance from means-testing.
Many states assess an inheritance tax. That means that you, as the beneficiary, will have to pay taxes when you receive an inheritance. How much you'll be assessed depends on the state you live in, the size of your inheritance, the types of assets included, and your relationship with the deceased.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
This means that when the beneficiary withdraws those monies from the accounts, the beneficiary will receive a 1099 from the company administering the plan and must report that income on their income tax return (and must pay income taxes on the sum).
One of the most common issues with inheritance is the dispute over assets. When an estate's value is high, and multiple beneficiaries are involved, this can cause problems.
Beneficiaries may need to pay out-of-pocket for ongoing expenses like property taxes, utilities, insurance and general upkeep. Also, the probate process is a matter of public record. This means that the details of your estate, including information about your home, become accessible to the public.
Inheritance provides several advantages including reusability, saving time and effort, data hiding, extensibility, easy understandability, and reliability.
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.
Within a family, a child can receive up to half of the parent's full retirement or disability benefits. If a child receives survivors benefits, they can get up to 75% of the deceased parent's basic Social Security benefit. There is a limit, however, to the amount of money we can pay to a family.
Although an inheritance won't affect your Medicare benefits, it could raise your premiums in the short-term.
There is no federal inheritance tax. In fact, only six states tax inheritances. There is a federal estate tax, however, which is paid by the estate of the deceased. In 2024, the first $13,610,000 of an estate is exempt from the estate tax.
Medium inheritance ($100,000)
If you receive a larger inheritance, first consider the recommendations above—fund an emergency savings account or pay off credit cards and loans. You can also use a portion of the money to pay off all or part of your mortgage or pay down student loan debt.