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Trust Law/Level IV · Trusts that care/4.1 Disability/Lesson 1

Why an inheritance can cost someone their benefits

How means-tested US benefits such as SSI and Medicaid can be affected when a disabled person inherits money outright.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Cheapest fix costs nothing beyond drafting: relatives name a third-party supplemental needs trust, not the disabled person, in wills, life insurance, retirement and payable-on-death designations. SSA ignores it if the beneficiary cannot revoke it or direct its use (POMS SI 01120.200).
  2. If money arrives outright, SSI counts it as income that month and as a resource from the next. Spending it within the month on excluded items, such as household goods or a $1,500 burial fund, is lawful; giving it away triggers SSI’s 36-month transfer look-back.
  3. An ABLE account under IRC §529A takes up to $20,000 of contributions in 2026, and SSA disregards the first $100,000. From 2026 the disability must have begun before age 46, and what remains at death can repay state Medicaid.
  4. Larger sums can go into a first-party trust under 42 U.S.C. §1396p(d)(4)(A), which a person under 65 may now set up personally, or a nonprofit pooled (d)(4)(C) account at any age; both must repay state Medicaid at death.
  5. Check award letters first: SSDI and Medicare are not means-tested, so an inheritance does not reduce them; only SSI, SSI-linked Medicaid and other means-tested benefits need protecting, which can make an expensive trust unnecessary.

MaterialsThe person’s most recent letters from the Social Security Administration (SSA) about their benefits, if they are comfortable sharing themYour state Medicaid agency’s information on resource limits and trustsA list of what is in the person’s own name, such as bank accounts and savings

Wonder

  1. Does a gift from a parent count as ‘income’ or a ‘resource’ for SSI purposes?
  2. What happens to SSI and Medicaid if an inheritance pushes my sibling over the $2,000 resource limit?
  3. How does an ABLE account differ from a trust set up by family?

Explore

  1. In the United States, Supplemental Security Income (SSI) is a means-tested federal program run by the Social Security Administration (SSA) for people who are aged, blind or disabled and have limited income and resources. The resource limit is $2,000 for an individual and $3,000 for a couple; SSA notes these limits have not changed since 1989. Countable resources include cash and bank accounts, while some things, such as the home a person lives in, are excluded. If countable resources are over the limit at the start of a month, the person is not eligible for SSI that month.
  2. An inheritance can affect SSI twice. SSA generally treats an inheritance as income in the month it is received, which can reduce or stop that month’s payment, and any part kept into the following month counts toward the resource limit. Medicaid, the joint federal-state health coverage program, matters too: in most states, people who receive SSI qualify for Medicaid, so losing SSI can also put health coverage at risk, although some people qualify for Medicaid in other ways. Rules differ by state, so check with SSA, your state Medicaid agency or a benefits planner.
  3. Not every benefit is means-tested. Social Security Disability Insurance (SSDI) is based on a person’s work record and the Social Security taxes paid, and Medicare is based on age, disability or certain conditions rather than savings; an inheritance does not by itself reduce either. Some people receive both SSI and SSDI, and some have both Medicaid and Medicare. For them, the SSI and Medicaid parts are the ones an inheritance can affect. Knowing exactly which benefits a person receives, from their award letters, is often a family’s first step.
  4. This is why families often look at supplemental or special needs trusts. For SSI, a trust funded by parents or others (a third-party trust) is generally not counted as the disabled person’s resource if they cannot revoke it or direct its use for their own support. A trust holding the disabled person’s own money follows stricter federal rules, such as 42 U.S.C. §1396p(d)(4)(A), which requires the person to be under 65 when it is set up and the state to be repaid from what is left at death. Lessons 4.1.2 and 4.1.3 cover these trusts.
  5. An inheritance can reach a disabled person in more ways than a will. Life insurance, retirement accounts and payable-on-death bank accounts pass to whoever is named as beneficiary, and if a relative dies without a will, state law may give the disabled person a share outright. Some families review these designations with this in mind. A few relatives leave nothing to the disabled person and rely on a sibling to help instead, but that money then legally belongs to the sibling and is exposed to the sibling’s own debts, divorce or death.
  6. ABLE accounts, created by the ABLE Act of 2014 (Internal Revenue Code §529A), are another option. From 1 January 2026, a person whose disability began before age 46 (previously 26) can be eligible. For SSI, SSA disregards up to $100,000 of an ABLE balance. If the amount above $100,000 puts the person over the resource limit, SSI payments are suspended rather than ended, and Medicaid continues in states where it follows SSI. Money withdrawn for housing or non-qualified expenses and kept past the month of withdrawal can count as a resource.

Key facts

  • SSI’s resource limit is $2,000 for an individual and $3,000 for a couple; it has not changed since 1989.
  • SSA generally counts an inheritance as income in the month received; whatever is kept into the next month counts as a resource.
  • In most states, SSI recipients qualify for Medicaid, so losing SSI can also put Medicaid at risk.
  • SSDI and Medicare are not means-tested; an inheritance does not by itself reduce them.
  • SSA disregards up to $100,000 in an ABLE account; if the excess puts a person over the resource limit, SSI is suspended, not ended, and Medicaid continues where it follows SSI.
  • From 1 January 2026, ABLE eligibility requires that the disability began before age 46 (previously 26).

Exercise nine, six, three, one

9CollectList up to 9 ways money might reach your relative in the future (some families have fewer), such as a will, life insurance, a retirement account, a payable-on-death bank account, a gift, or a share if someone dies without a will.
6ClusterSort them into 6 categories: under a will, by beneficiary designation, by joint or payable-on-death account, by gift during life, through a trust, and route unknown.
3DistillReduce the 6 categories to 3 groups: money that would reach your relative outright, money that would go into a trust or ABLE account, and money whose route you are unsure about.
1CrystallizeWrite 1 sentence naming the route most likely to reach your relative outright, and the question you would ask SSA or a benefits planner about it.

Fact check

Dates, figures and claims checked against the published sources listed below.

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