Inheriting Money on Section 8: Will You Lose Your Benefits?

Inheriting money can affect your Section 8 benefits, but it doesn't automatically disqualify you. Section 8 (Housing Choice Voucher Program) considers income, not assets, for eligibility—meaning a one-time inheritance isn't counted the same as ongoing income. However, any interest, dividends, or income generated from inherited assets IS counted, which can push you over income limits.

Here's what you need to know to protect your housing assistance while managing an inheritance.

How Section 8 Income Limits Work

Section 8 has two key financial tests:

1. Income Limits (Primary Test)

To qualify and stay eligible, your household income must generally be below:

• 50% of Area Median Income (AMI) for initial eligibility
• Income increases during participation are handled case-by-case

Income limits vary significantly by location and household size.

2. What Counts as "Income"

Section 8 counts these as income:

• Wages and salaries
• Self-employment income
• Social Security benefits
• Pension and retirement distributions
• Alimony and child support
• Interest and dividends from assets (including inherited accounts)
• Regular gifts or contributions from others

What Doesn't Count as Income

These are generally NOT counted:

• One-time lump sum payments (including most inheritances)
• Income of live-in aides
• Temporary, nonrecurring income
• Earnings of full-time students (limited)
• Certain adoption assistance

Key point: A lump-sum inheritance is typically NOT counted as income. But if you deposit that money and earn interest, the interest IS income.

How Inheritance Affects Section 8

Scenario 1: Cash Inheritance

What happens: You receive $50,000 cash from an estate.

Initial impact: The $50,000 lump sum is NOT counted as income for Section 8 purposes.

Ongoing impact: If you put the money in a savings account earning 4% interest ($2,000/year), that $2,000 IS counted as annual income for Section 8.

Risk level: Moderate—depends on how you handle the money.

Scenario 2: Inheriting Property

What happens: You inherit a house or rental property.

If you live in it: You might no longer need Section 8 (you have housing). Moving into inherited property may end your voucher eligibility.

If you keep it as investment: Rental income counts against your Section 8 income limits. Owning property may also affect your housing authority's assessment.

If you sell it: Proceeds are treated like a cash inheritance (see Scenario 1).

Risk level: Higher—property creates ongoing income issues.

Scenario 3: Inheriting Retirement Accounts

What happens: You inherit a 401k or IRA.

Impact: Required distributions from inherited retirement accounts count as income. Under current rules, non-spouse beneficiaries must withdraw all funds within 10 years.

Risk level: High—distributions can significantly impact income.

Reporting Requirements

You MUST Report Inheritance

Section 8 requires you to report changes in income and assets. This includes:

• Receiving an inheritance
• Opening new bank accounts
• Changes in household income
• Asset purchases (like real estate)

Timing: Most housing authorities require reporting within 10-30 days of the change.

Failure to report: Can result in termination of benefits and requirement to repay assistance received while over income limits.

What to Report

When reporting an inheritance:

1. Amount received – Total value of inheritance
2. Type of assets – Cash, property, investments
3. Income generated – Interest, dividends, rent
4. Account information – Where money is held

Working With Your Housing Authority

Contact your housing authority proactively:

• Explain the inheritance situation
• Ask specifically how it will be treated
• Get guidance in writing
• Follow their instructions carefully

Housing authorities have some discretion in handling unusual situations. Cooperative communication helps.

Strategies to Protect Your Benefits

Option 1: Spend Down on Allowable Expenses

Using inheritance for certain expenses may reduce the income-generating assets:

Generally acceptable:

• Paying off existing debt
• Medical expenses
• Home repairs (on property you own)
• Education expenses
• Purchasing a vehicle
• Necessary household items

Note: "Spending down" to maintain benefits has limits. Housing authorities may question large purchases or transfers.

Option 2: Special Needs Trust

If you or a household member has a disability, a Special Needs Trust can hold inheritance without affecting benefits:

• Assets in the trust don't count toward income/asset limits
• Trust pays for supplemental needs (not food/housing)
• Must be properly structured by an attorney
• Works for SSI, Medicaid, AND Section 8

Important: Special Needs Trusts must be set up correctly. Improper trusts can disqualify you from all benefits. Consult a special needs planning attorney.

Option 3: ABLE Account

If the beneficiary became disabled before age 26, an ABLE account may help:

• Can save up to $100,000 without affecting Section 8
• Tax-advantaged savings for disability expenses
• Simpler than a Special Needs Trust
• Annual contribution limits apply

Option 4: Disclaim the Inheritance

You can legally refuse (disclaim) an inheritance. The assets then pass to the next beneficiary as if you had died first.

Consider if:

• Benefits are worth more than the inheritance
• Another family member could use the money
• Inheritance would create significant complications

Caution: Disclaiming may be seen as transferring assets to maintain benefits. Discuss with a benefits counselor first.

What Happens If You Lose Section 8?

If Income Goes Over Limits

Housing authorities typically:

1. Recalculate your rent – Your portion increases based on new income
2. Issue warning – Notification that benefits may end
3. Provide transition period – Usually 1-2 years before voucher terminates
4. Review annually – If income drops, you may retain benefits

Getting Back on the Program

If you lose Section 8 and later qualify again:

• You may need to reapply
• Waiting lists can be years long
• Previous participation doesn't guarantee priority
• Some authorities have policies for returning participants

Other Programs Affected by Inheritance

Section 8 isn't the only means-tested program. Also consider impact on:

Medicaid

• Has both income AND asset limits
• Inheritance can disqualify you immediately
• Special Needs Trusts may protect benefits

SSI (Supplemental Security Income)

• Strict $2,000 asset limit ($3,000 for couples)
• Inheritance directly affects eligibility
• Spend-down rules are more restrictive

SNAP (Food Stamps)

• Some states have asset limits
• Income from inheritance affects benefits
• Usually less restrictive than SSI

TANF (Temporary Assistance)

• Varies significantly by state
• Both income and asset limits apply

Getting Professional Help

Given the complexity, consider consulting:

Benefits Counselor

• Free or low-cost through disability organizations
• Understands multiple benefit programs
• Can help coordinate decisions

Special Needs Planning Attorney

• Essential for trust creation
• Understands benefit rules
• Protects against costly mistakes

Financial Planner (Benefits-Aware)

• Helps manage inheritance appropriately
• Understands investment choices that minimize benefit impact
• Long-term planning perspective

Frequently Asked Questions

Will inheriting money make me lose Section 8?

Not automatically. Section 8 primarily looks at income, not assets. A one-time inheritance is usually not counted as income. However, any interest or dividends earned from inherited money IS counted as income and could affect your benefits.

Do I have to report an inheritance to Section 8?

Yes. You must report changes in income and assets to your housing authority, typically within 10-30 days. Failure to report can result in loss of benefits and requirement to repay assistance.

Can I put inheritance in a trust to protect Section 8?

Possibly. A properly structured Special Needs Trust can hold assets without affecting benefits if you or a household member has a disability. The trust must be set up by an attorney familiar with benefit rules.

What if I inherit a house while on Section 8?

It depends on what you do with it. Moving into the inherited house may end your voucher. Keeping it as a rental creates income that counts against you. Selling it gives you cash (which generates interest/income). Discuss options with your housing authority.

How much money can I have and keep Section 8?

Section 8 doesn't have a strict asset limit like some programs. However, income generated from assets (interest, dividends) counts toward income limits. The more assets you have earning income, the more it affects your eligibility.

Should I refuse (disclaim) an inheritance to keep benefits?

It depends on the amounts involved and your situation. Disclaiming may be appropriate if the benefits are worth significantly more than the inheritance. However, it may be seen as an improper asset transfer. Consult a benefits counselor first.

Plan Before You Receive

If you know an inheritance is coming, planning ahead gives you more options. Talk to your housing authority, a benefits counselor, or an attorney BEFORE the money arrives.