Updated February 28, 2019
If Social Security says you transferred assets for less than they were worth so that you could qualify for SSI, the agency may penalize you by making you ineligible for SSI for up to 36 months. (Supplemental Security Income is a national program that pays a monthly benefit to needy elderly and disabled people). Here’s how it works.
To qualify for SSI, you can have only $2,000 in assets, or $3,000 for a couple. (But SSI does not count your house or an inexpensive car toward the limit.) You can be penalized for giving away property or assets (Social Security calls them “resources”) or for selling them for less than their market value in order to fall under the asset limit.
Common resources that people have are cars, houses, and money in bank accounts.
If you've recently sold or given away assets, Social Security will investigate these "resource transfers" when you apply for SSI. The agency uses a three-year “look-back period” when evaluating resource transfers. In other words, if Social Security is trying to decide whether you are eligible for SSI at the time you apply, it will look back at all the resource transfers you made in the 36 months before the date that you filed. (Though if you are already getting SSI payments, Social Security can look at any transfers you made since the beginning of the look-back period, from 2000 on.)
To evaluate whether you made a problematic transfer, Social Security will calculate what the "market value" of the resource was at the time of the transfer and what compensation you got for the resource. Market value is what the resource was worth to an outsider (not a friend or relative) at the time of transfer. Social Security will consider all compensation, including intangible things like relatives promising to take care of you for a period of time in exchange for giving them the resource. Social Security has some complicated formulas for figuring out the cash value of things that do not generally have a cash value.
If Social Security finds that you transferred a resource for less than market value, then the agency will make you ineligible for a certain number of months, depending on the value of the uncompensated resource.
Social Security calculates the penalty period by taking the total value of the resource(s) that you were not properly compensated for and dividing that number by the amount of the monthly SSI payment in your state on the date of the transfer (rounded down to the nearest whole number). That number is the number of months you can't receive SSI payments for. The ineligibility period starts with the month following the transfer, and the maximum penalty period is 36 months.
If SSI already paid you for the period for which you were ineligible, Social Security will say you received an overpayment and will try to get paid back. (With SSI, Social Security will generally take 10% of each of your monthly payments until the overpayment is paid back.)
When your period of ineligibility is about to end, you should recontact Social Security to make sure that you start to receive SSI when you become eligible. Social Security will not automatically issue SSI to you at the end of the ineligibility period. You will need to show them that you continue to be disabled and continue to meet the income and resource limits for SSI before the agency will start paying you.
Not every transfer for less than market value will cause a penalty, because Social Security has a list of exceptions to the rule. There are exceptions for:
For the last exception, Social Security presumes that all transfers made for less than market value were made for the purpose of qualifying for SSI, and it is up to you to prove otherwise. Examples of situations where Social Security will accept that a transfer wasn't made for the purpose of qualifying for SSI are transfers ordered by a court or transfers made before something unexpected happened that causes you to become disabled suddenly. If you plan to make a big transfer and need to know more about the above exceptions, talk to a disability lawyer.
Even if you did give away resources or transfer them for less than market value, you can still continue to receive SSI if you can show Social Security that not getting SSI would cause you an “undue hardship.” To meet Social Security’s definition of undue hardship, you have to show that you would not be able to pay for food or shelter without SSI.
To show that you can't pay for shelter, you will need to show that you cannot afford your rent if you don't get an SSI check and that there is no other affordable housing available to you. If you have housing that has some special accommodations for your disability, Social Security will expect you to show that no other affordable housing is available with the accommodations you need. In addition, you must also show that your total available funds (income and liquid resources) is less than the monthly SSI amount for your state.
Learn more about general eligibility for SSI.