Should an SSI Recipient Refuse an Inheritance?

By Ronald A. Fatoullah, Esq. and Stacey Meshnick, Esq.

{3:35 minutes to read} Supplemental Security Income (SSI) beneficiaries must comply with very stringent income and asset rules in order to receive their benefits. One of the most basic rules is that a single SSI beneficiary may not possess more than $2,000 in countable resources. Therefore, when an SSI beneficiary discovers that he or she will receive an inheritance, the first reaction may be to refuse it. But this refusal, also known as a disclaimer, may not be the best solution.

The Social Security Administration (SSA) considers an inheritance to which a beneficiary is entitled as a countable resource, even if it is never actually received. Hence, if a beneficiary disclaims an inheritance, it is still considered a transfer of resources. In other words, disclaiming an inheritance is a transfer of assets, even if the money is never received. As a result of transferring assets, SSA penalizes a beneficiary for a time period of up to three years, during which the monthly benefit will be cancelled.

In order to calculate the period of ineligibility, one must divide the transfer by the monthly benefit. For example, if a beneficiary receives $733 in SSI benefits monthly and transfers $7,330 in resources, he or she will be ineligible for benefits for a period of 10 months. If he beneficiary transfers $50,000, he will be ineligible for the maximum period of three years.

When confronted with this situation, a common reaction is to believe that the SSA "will never find out" because money is not passing through the account. Acting upon such a reaction is faulty and fraudulent, as it violates federal regulations. An SSI beneficiary has a legal obligation to notify the Social Security Administration (SSA) if he or she becomes entitled to assets, as well as to let the agency know if the assets were disclaimed. Failure to inform the SSA may result in additional penalties and may, in certain circumstances, result in criminal prosecution of the beneficiary or family members who are managing his or her affairs.

Fortunately, an SSI beneficiary does not have to "lose" the unexpected inheritance. There are options, depending on the individual's circumstances. A disabled beneficiary under the age of 65 can accept the inheritance and then transfer the funds to a special needs trust or a pooled trust without affecting his or her monthly benefit. Once the assets are held by the trust, the beneficiary will be entitled to continue receiving SSI benefits, and the trust funds may be used for his or her benefit. In an alternative scenario, depending upon the circumstances, the beneficiary may wish to transfer/gift the funds to a family member and lose his or her benefits until the ineligibility period ends.

It is important to consult with a knowledgeable attorney who can discuss with the beneficiary and his or her family the optimal plan for their particular situation.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Stacey Meshnick, Esq. is a senior staff attorney at the firm who has chaired the firm's Medicaid department for over 15 years. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also the co-founder of JR Wealth Advisors, LLC. The wealth management firm can be reached at 516-466-3300 or 800-353-3775.