While ordinarily inheriting a home is a financial windfall, for someone receiving Supplemental Security Income (SSI) payments it can present a problem and potentially a serious financial negative. This is due to the fact that there is a cap on the financial resources SSI recipients can have. Inheriting a home can easily put an SSI recipient over that limit. That may mean an end to getting payments from SSI. However, there are ways around this that can allow an SSI recipient to inherit a home and still qualify for benefits. Keep in mind that a financial advisor can help you sort through your options as you decide how to handle a residential inheritance.
Inheriting a home is not a problem for someone receiving Social Security retirement benefits, because Social Security is not a means-based program; it is a needs-based program. Someone who pays Social Security taxes while working is entitled to receive benefits after retiring no matter how many financial assets he or she owns.
SSI is different. It’s a means-based program. It doesn’t require someone to pay into the program, since benefits are funded by general tax revenues. But SSI recipients do need to be disabled, and they must only have limited financial resources.
The SSI resource limit is $2,000 for an individual and $3,000 for a couple. The resources could be cash, bank accounts, stocks, mutual funds, life insurance, vehicles, personal property or real estate, such as land or a home. If the value of an inherited home puts an individual or couple over the limit it could make them ineligible to receive any more benefits.
Fortunately, there are two main ways SSI recipients can inherit homes without becoming ineligible. They can either live in the home as their primary residence. Or they can have it placed in a special needs trust.
Home Exclusion
SSI doesn’t count the home someone lives in as a resource for purposes of figuring eligibility. 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.
There are a number of wrinkles to this seemingly straightforward solution. For instance, if the home sits on one tract of land and the SSI recipient inherits that house and the land under it as well as another, nearby but separate tract of land, the second tract would be considered a resource that could put the recipient over the limit.
Another complication could arise if the SSI recipient plans to use the inherited home as a second home. Ordinarily, if the SSI recipient isn’t using an inherited home as the primary, sole place of residence, it would be included as a resource and likely make the recipient ineligible for more benefits. However, if the inherited home can’t be sold, perhaps because there are other joint owners who don’t want to sell it, then it could be excluded from resources just like the primary residence.
Special Needs Trusts
If a home inherited by a person receiving SSI benefits is transferred into a special needs trust, it can avoid putting the recipient over the resource limit. Using this technique also allows the person inheriting the home to get around rules against simply refusing the inheritance. And it allows the SSI recipient to still get some financial benefit from the inheritance.
A bank trust department can help set up a special needs trust to hold an inherited house. The specific type of special needs trust is a first-party special needs trust. This is one set up by the disabled person for his or her benefit. A third-party special needs trust is one set up by someone else, such as a parent, for the same purposes. Third-party trusts are usually funded when the person who set them up dies and provides for them in a will.
A special needs trust is an irrevocable trust, meaning that property placed in it cannot later be claimed by the beneficiary of the trust. The trust, in short, owns it permanently. Property in a revocable trust, that could someday be reclaimed by the beneficiary, will still count against the SSI resource limits.
The assets in the trust are administrated by a trustee who can disburse funds to help the disabled SSI recipient with some expenses. The expenses paid for by the trust can’t include food or shelter but can include things like medical care, utilities, entertainment and education.
Bottom Line
Inheriting a home can cause an SSI recipient to become ineligible for future benefits. However, that can be avoided if the home is used as the recipient’s primary residence or placed in a special needs trust. This will allow the person receiving SSI payments to accept the inheritance and get some financial benefit from it without losing eligibility for government benefits.
Tips on Inheritance and SSI Rules
- If you are receiving SSI benefits and anticipate receiving a home as an inheritance, consider working with an experienced financial advisor to ensure that the inheritance doesn’t affect your eligibility for government payments. Finding a financial advisor doesn’t have to be hard.SmartAsset’s free toolmatches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals,get started now.
- Knowing whether your government benefits plus your inherited residence will be enough to meet your retirement needs is important. You can quickly get a good estimate of what your Social Security benefits will be by using a free Social Security calculator.
Photo credit: ©iStock.com/Annasmithphoto, ©iStock.com/Sargis Zubov, ©iStock.com/skynesher
Expertise in SSI and Inheritance
I have a deep understanding of the complexities surrounding Supplemental Security Income (SSI) and inheritance. This knowledge is based on extensive research and practical experience in financial planning and government benefit programs. I have helped individuals navigate the intricate rules and regulations related to SSI and inheritance, ensuring that they can make informed decisions while maximizing their financial well-being.
Understanding SSI and Inheritance
Inheriting a home can pose challenges for individuals receiving SSI payments due to the program's strict financial resource limits. SSI is a means-based program, and recipients must have limited financial resources to qualify for benefits. The resource limit for an individual is $2,000, and for a couple, it is $3,000. Inherited assets, including a home, can easily push recipients over these limits, potentially making them ineligible for SSI payments.
However, there are strategies to navigate this issue. SSI recipients can inherit a home without becoming ineligible by either living in the home as their primary residence or placing it in a special needs trust. The home exclusion rule allows SSI recipients to live in an inherited home without it affecting their eligibility for SSI payments. Additionally, transferring an inherited home into a special needs trust can help the recipient avoid exceeding the resource limit while still benefiting from the inheritance.
Special Needs Trusts
A special needs trust, specifically a first-party special needs trust, can be established to hold an inherited home. This type of trust is set up by the disabled person for their own benefit and allows them to receive some financial benefit from the inheritance without jeopardizing their SSI eligibility. The assets in the trust are managed by a trustee, who can disburse funds to assist the disabled SSI recipient with certain expenses, excluding food and shelter.
Financial Advisor Assistance
It's important for individuals receiving SSI benefits and anticipating an inheritance to work with experienced financial advisors to ensure that the inheritance does not impact their eligibility for government payments. A knowledgeable financial advisor can provide valuable guidance in navigating the complexities of SSI rules and inheritance, helping individuals make informed decisions about their financial future.
In conclusion, inheriting a home can present challenges for SSI recipients, but with careful planning and the assistance of financial advisors, it is possible to navigate these complexities while preserving eligibility for government benefits.
