A client called our office last month with a common, urgent question. His mother, who lived in Brooklyn, had passed away, leaving him a modest inheritance. While grateful, he was also worried. He relies on monthly government assistance, and he feared this inheritance would disqualify him from the benefits that pay his rent and food. His concern is one we hear often. The answer depends entirely on which type of benefit he receives.
The term “Social Security” covers several distinct federal programs. Whether an inheritance affects your benefits hinges on which program sends you a check. This distinction is critical.
The Critical Distinction: Earned vs. Needs-Based Benefits
For most people, Social Security means one of two things: retirement benefits or disability insurance. Social Security Retirement benefits are an entitlement you earned by paying into the system throughout your working life. The amount you receive is based on your earnings record, not your current financial need. Similarly, Social Security Disability Insurance (SSDI) is paid to individuals who have a sufficient work history but can no longer work due to a disability.
For these two programs—retirement and SSDI—an inheritance has no impact. You can receive a million dollars from an estate, and it will not reduce your monthly check by a single cent. An inheritance is not considered earned income; it is a transfer of assets. Since eligibility for these benefits is based on past work contributions, not current asset levels, the Social Security Administration does not count inherited assets against you.
This is a relief for many. But for those on a different type of benefit, an inheritance creates a problem requiring immediate action.
Supplemental Security Income (SSI) and Asset Limits
The rules change completely for recipients of Supplemental Security Income, or SSI. Unlike retirement benefits or SSDI, SSI is a needs-based program. It is not funded by Social Security taxes but by general U.S. Treasury funds. It provides a financial floor for aged, blind, or disabled individuals with extremely limited income and resources.
Because it is needs-based, SSI has strict financial eligibility requirements. In 2024, an individual recipient cannot have more than $2,000 in “countable resources.” For a couple, the limit is $3,000. These thresholds are absolute. An inheritance—whether cash, real estate, or stock—is considered a resource. Receiving an inheritance that pushes you over that very low limit will result in the immediate suspension or termination of your SSI benefits, and often your associated Medicaid benefits as well.
This was my client’s exact predicament. His inheritance, while modest, was enough to disqualify him from the benefits he needed for daily life. Fortunately, New York law provides a tool for families who plan ahead.
A Prudent Strategy: The Supplemental Needs Trust
When I work with families planning their estates, I always ask if any of their intended beneficiaries receive needs-based government assistance. If the answer is yes, we immediately discuss establishing a Supplemental Needs Trust (SNT), sometimes called a Special Needs Trust.
This is a specific type of trust authorized under New York Estates, Powers and Trusts Law (EPTL) § 7-1.12. It is designed to hold assets for the benefit of a person with a disability without those assets being counted against them for eligibility purposes for programs like SSI and Medicaid. Instead of leaving an inheritance directly to the individual, the assets are left to the trust.
A trustee, chosen by the person creating the trust, manages the funds. The trustee has a fiduciary duty to act in the beneficiary’s best interest but cannot give them cash directly. Instead, the trustee can use trust funds to pay for goods and services that improve the beneficiary’s quality of life—things like rent, utilities, education, transportation, and medical care not covered by Medicaid. The funds supplement government benefits; they do not replace them.
By structuring an inheritance this way, a parent or grandparent can provide for a loved one’s future without unintentionally stripping them of the essential public benefits they rely on. It is an act of deliberate and thoughtful legacy planning.
If you inherit assets while on SSI and no trust was created for you, there may still be options, such as creating a first-party SNT or strategically spending down the funds. These contingencies are more complex and often less favorable than planning ahead. The most effective planning happens before the inheritance is ever received.
If you are drafting your will or trust and one of your heirs relies on government benefits, how you structure their inheritance is a critical decision. To understand how a Supplemental Needs Trust fits into your family’s legacy, our firm can schedule a confidential review of your estate plan and your beneficiary’s circumstances.
