Key Takeaways. Special needs trusts help you to manage inheritance money so it won't count toward income-based benefits like Medicaid and Supplemental Security Income (SSI). The money in special needs trusts must pay for expenses your government benefits don't cover.
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.
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.
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.
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.
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.
In other words, although you must report any money you receive, once you have spent the money, you can be eligible again. Transfer of Asset Rule: DO NOT GIVE THE MONEY AWAY: If you want to continue receiving benefits, you should not give any of the money away. This includes voluntarily placing the money into a trust.
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.
Gifts Don't Affect SSDI At All
You don't even have to report them to Social Security. So, if the only Social Security payment you get is SSDI (or a Childhood Disability or Disabled Widow Benefit) you can let Santa know that there's no limit to what he can leave under your tree.
This is called the home exclusion. It means that if a benefits recipient moves into an inherited home and occupies it as their sole place of residence, the inheritance would not have to affect their ability to keep getting SSI payments.
If the value of your share in inheritance is below $100K, you do not have any reporting requirements before the IRS. If it is $100K or more, you must file Form 3520 while filing your U.S. tax return. The form is informational only. You will not owe tax.
Although an inheritance won't affect your Medicare benefits, it could raise your premiums in the short-term.
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.
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.
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.
Reporting to SSA: It is a mistake to not inform SSA about receiving an inheritance, and authorities crack down on those who defraud Social Security disability programs. In most cases, you must report your receipt of an inheritance to SSA within 10 days of the following month.
Federal tax laws do not consider most inherited assets to be taxable income.
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.
Can IRS seize inherited property? Yes, the IRS can seize inherited property for unpaid taxes after following its standard process of notices. Can the IRS take inheritance money? Yes, the IRS can take inheritance money for unpaid taxes.
If you receive income from an inheritance, providing documentation such as a will or a letter from the estate executor can prove your financial resources. This documentation should outline the amount inherited and any distribution schedule, giving landlords a clear understanding of your long-term financial stability.
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.
Deposit the money into a safe account
Your first action to take when receiving a lump sum is to deposit the money into an FDIC-insured bank account. This will allow for safekeeping while you consider how to make the best use of your inheritance.
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.
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.