Section 8 Housing &
Special Needs Trusts
Introduction: The federal government subsidizes housing for individuals with disabilities. The subsidies come in the form of below market-rent units in public and private housing developments and vouchers for use in the private market. Tenants in federally subsidized housing pay approximately 30% of their income in rent.
Many individuals with disabilities are beneficiaries of Special Needs Trusts created either by third parties (their parents, siblings or others) with the third party’s contributions or created by the disabled persons themselves (or by others on their behalf) with their own assets. Generally, the goal of these trusts is to allow the beneficiary to qualify for income from the Supplemental Security Income program and for Medicaid. How do Special Needs Trusts affect the disabled beneficiary’s eligibility for subsidized housing or the calculation of rent?
Housing Eligibility Rules: To understand the effect of trusts on eligibility, it is essential to understand the housing eligibility rules. Unlike many public benefits programs, the federal housing programs, and especially “Section 8,” determine financial eligibility based only on income, rather than on both income and asset levels. “Income” includes regular income from employment and public benefits such as SSI and SSDI, as well as “income” derived from “net family assets” in excess of $5,000. Net family assets include the value of assets after deducting reasonable liquidation costs, but exclude necessary items of personal property such as furniture and automobiles. To determine the income derived from “net family assets,” the rules require the housing agency to consider the greater of (1) actual income derived from all “net family assets” or (2) a percentage of the asset value based on the current passbook savings rate.
The consequences of giving away assets for federally subsidized housing eligibility are different from the consequences that apply for Medicaid and Supplemental Security Income eligibility. Because assets do not count directly in determining eligibility, the rules do not impose eligibility penalties on individuals who have given away assets. However, “net family assets” include the value of any assets disposed of for less than fair market value during the two years preceding the date of the application for the program. For example, if the current passbook savings rate is 2%, a transfer of $100,000 to a Special Needs Trust will cause income of $2000 per year (or $166.66 per month) to be “imputed to” the beneficiary for two years following the transfer. This is the same result that would obtain if the person with a disability had given assets to another person rather than to a trust. One important exception: if “the assets placed in trust were received through settlements or judgments,” the Department of Housing and Urban Development, in its Occupancy Handbook, provides that income is not imputed when the assets are transferred to the trust. Since assets are not counted, the existence of a trust has no impact on eligibility for subsidized housing. However, regular distributions from a trust may be treated as income, resulting in an increased rent. For example, if the Trustee pays a $200 utility bill every month, that payment may be treated as regular recurring income to the beneficiary/tenant. The tenant’s countable monthly income will thus be $200 higher, which will result in an increased rental payment of approximately $66.
Not All Income is “Income”: Federal regulations exclude temporary, nonrecurring or sporadic income (including gifts) from the definition of income. Thus, to maintain a beneficiary’s lower rent the Trustee of a Special Needs Trust should be advised to make irregular distributions on behalf of the trust beneficiary rather than recurring payments. For example, in one month the Trustee might pay $400 for that $200 current utility bill plus a credit toward the next month’s bill. Then several months later the Trustee might pay for six months of the cable TV bill, or take the beneficiary shopping for clothing. With creative budgeting, it is possible to administer a Special Needs Trust without causing an increase in the beneficiary’s rent — by having the trust pay large one-time expenditures and leaving regularly recurring expenses for the trust beneficiary to pay. This strategy provides more total benefit, maintaining the tenant’s eligibility for the lowest rent and helping this individual’s dollars to stretch farther.