For SSI Recipients, Does Inheritance Spell Disaster?

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What is SSI?

SSI stands for Supplemental Security Income, and it is a financial assistance program offered by the US government to low-income United States citizens who are blind, over the age of 65, or otherwise disabled. SSI benefits are available to children who are blind or disabled, as well.

SSI is not to be confused with SSDI (Social Security Disability Insurance), which is available to people who have been working for a significant number of years and have paid “their dues,” so to speak, in the form of Social Security taxes that are deducted from an employee’s paycheck. SSDI can be received by anyone who becomes disabled and is no longer able to work, regardless of their current assets. In comparison, SSI funds are provided by the US Treasury, and recipients must have limited incomes and assets along with specific disabilities.

Can an inheritance affect Supplemental Security Income?

If a family member or loved one bequeaths money to you when they pass away, it’s important to know the possible ramifications so that your financial stability remains intact. Receiving an inheritance does not affect SSDI, as it is based on your earnings as an employee in this country. SSI, however, is distributed on a needs-based system, and because of this, anyone who receives an inheritance can become ineligible for SSI benefits.

Those receiving SSI must be intimately familiar with the strict rules that surround Supplemental Security Income so they don’t risk losing their benefits, which not only provides them with much needed financial assistance, but may also provide them with health care coverage through Medicaid.

Although an inheritance is usually viewed as a positive financial windfall, if it causes you to lose your only steady income and health care coverage, it can definitely spell disaster.

Should all SSI recipients refuse an inheritance in order to avoid losing their benefits?

It would seem unfair to exclude SSI recipients from accepting any inheritance money. After all, people who receive Supplemental Security Income are by definition financially distressed and living with a disability.

In order to help SSI beneficiaries from losing their benefits in order to accept the financial windfall of an inheritance, a Special Needs Trust can be established.

What is a Special Needs Trust?

A Special Needs Trust allows a person with disabilities or special needs to accept their rightful inheritance without jeopardizing their government benefits. Typically, parents or caregivers of a disabled person will create a Special Needs Trust when they are establishing their estate plan (will), although one can also be set up after a person dies.

Instead of inheriting their portion of their parent’s money directly, a person with a Special Needs Trust in place will have a trustee to manage the trust for them. In this way, no (or limited) SSI benefits will be lost due to accepting the money that was left to them.

Special Needs Trusts are complex and have many intricate timing details that must be followed to the letter for them to work as they were intended. Also, each family’s financial situation will determine the type of Special Needs Trust that will best meet their needs.

In order to ensure that your special needs loved one receives their rightful portion of their inheritance, you must work closely with an estate planning attorney who is familiar with all of the details surrounding Special Needs Trusts.

 

Image credit: Chris Dlugosz

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