One of the issues I run into frequently with my estate planning clients is that they have a child who is disabled that they want to “cut out of the Will” out of fear that an inheritance may jeopardize the child’s benefits.
In some instances, this is a huge concern. In others, however, it’s not a problem. It all depends upon which disability benefit the child is receiving – SSI or SSDI.
SSI – Supplemental Security Income
Supplemental Security Income (SSI) benefits are generally awarded to individuals that were either born with a disability or became disabled early in life. Because of their disabilities, these individuals typically do not have the ability to obtain gainful employment and earn a wage that would allow them to meet their basic human needs of food, clothing, and shelter. Accordingly, the Social Security Administration created the SSI program to help meet these needs.
In addition to being found to be disabled by the SSA, these individuals must also qualify financially. Recipients are very limited in the amount of resources and income they are allowed while still being eligible.
Individuals receiving SSI are also automatically enrolled in Medicaid to cover their medical expenses.
Accordingly, for those families with children receiving SSI and Medicaid, the receipt of an inheritance would almost certainly jeopardize their benefits.
The maximum SSI benefit for an individual in 2020 is $783 per month.
SSDI – Social Security Disability Insurance
Social Security Disability Insurance (SSDI) benefits are generally awarded to individuals who worked for a while and then became disabled and could no longer work.
Eligibility, and the amount of the benefit, is based upon FICA (Federal Insurance Contributions Act) taxes an individual paid throughout their working career. To qualify, you must have earned enough “credits.” For example, in 2020, one credit is earned for each $1,410 in wages or self-employment income, and you can earn up to four credits per year.
The number of work credits needed to qualify depends on the individual’s age when they became disabled. Generally, 40 credits are required, 20 of which were earned in the last 10 years ending with the year of disability. However, younger workers can qualify with fewer credits.
Individuals who have received SSDI for two years are then automatically eligible for Medicare.
Because SSDI is driven by how much is paid into FICA, there are no limits on the amount of assets a person can have and still qualify. Therefore, if an individual on SSDI receives a $1 million inheritance, it would not affect their benefits. Earning income can definitely affect benefits, but an inheritance would not.
The maximum SSDI benefit for an individual in 2020 is $3,011 per month.
If your child is receiving SSDI, they can receive an inheritance and it will not affect their benefits. If they are receiving SSI, an inheritance would impact their eligibility. However, there is no need to cut them out of your Will – you can leave their share into a special needs trust, such as through WisPact (www.WisPact.org). Please see these great blog articles about WisPact.