|
Special Needs Trusts and
Subsidized Housing Benefits |
PDF VERSION |
By: Barbara A. Isenhour and Sean R. Bleck
Public housing and Section 8 housing are rent subsidy programs for low income,
elderly
and disabled individuals. Many of these programs are administered by local
housing
authorities. The rent subsidy programs are regulated at the federal level by
the
Department of Housing and Urban Development (HUD).
Housing Authorities have discretion in setting an asset limit for eligibility
for some of the
subsidized housing programs. Other programs, including the Section 8 program,
have no
asset limit to qualify for benefits.
If a tenant is the beneficiary of a special needs trust, whether funded with
the tenant’s
own assets or established by a third party, the trust is not an available
asset that will affect eligibility. In some cases, however, funding a special
needs trust or distributions from a special needs trust can affect the amount
of rent the tenant must pay.
How Rent Is Calculated
Rent is calculated as a percentage of the tenant’s adjusted income. Typically
rent for
Section 8 and subsidized housing programs is 30% to 40% of the tenant’s
adjusted
household income. There are deductions from the tenant’s annual income which
are not
discussed in this article but which can help to reduce the tenant’s rent and
increase the
subsidy paid by HUD.
Payments from a Special Needs Trust
If the trustee of a special needs trust makes regular recurring distributions
from a special
needs trust, those distributions will be treated as income to the tenant that
will affect the
amount of rent owing. So for example Susan receives $800 per month of social
security
disability income and a special needs trust established by her grandmother
pays her
monthly utility bill of $200 every month. The housing authority will consider
her
countable income to be $1000 per month instead of $800 per month. Her rent is
one third
of that amount or $333 per month. If the trust did not make that regular
recurring
payment her rent would be one third of $800 or $266 per month.
If the trustee pays for a car repair bill one month, car insurance the next
month and a
utility bill the next month, those payments would not be treated as income if
the
payments are temporary, sporadic or nonrecurring. It may be advantageous for
the
trustee to vary the expenses paid from the trust on behalf of the tenant to
avoid the
appearance that the distributions are regular and recurring.
Transferring Assets to a Special Needs Trust
If a subsidized housing tenant receives a lump sum from an inheritance or
personal injury
settlement, that payment will not affect the tenant’s eligibility for
subsidized housing unless the relevant subsidy program has an asset limit and
the lump sum will exceed that limit.
The tenant may be receiving SSI or Medicaid, however, in which case the lump
sum will
affect the tenant’s eligibility unless the funds are transferred to a special
needs trust. This
type of special needs trust is sometimes referred to as a "Medicaid repayment
trust", a
"d(4)(A) trust" or a "grantor trust." If the tenant transfers assets that he
or she owns to a
special needs trust, HUD will treat this as a transfer for less that fair
market value. The
consequence is that, for two years from the transfer, HUD will impute income
earned on
the principal funding the trust. The income is imputed at a HUD determined
passbook
rate (currently 2% per annum). This imputed income will be included with other
income
in calculating the tenant’s rent.
To illustrate how this works, let’s assume that Robert is a Section 8 tenant.
He receives
SSI income of $623 per month. He rent is calculated as 30% of his adjusted SSI
income
or $187 per month (for simplicity we will not discuss the deductions allowed
to Robert’s
gross income).
Robert receives a settlement from an auto accident of $100,000. In order to
preserve his
SSI eligibility, Robert transfers this settlement to a Medicaid repayment
special needs
trust. The housing authority will treat the transfer to the trust as a
transfer for less than
fair market value and impute income of 2% of $100,000 for the next two years.
This will
result in an additional $2000 per year or $166 per month to Robert’s income.
Rent will
be calculated based upon 30% of the total of his SSI income of $623 and the
imputed
income of $166. The resulting rent will be $236 per month instead of $187, or
an
increase of about $50 per month for the next two years.
Applicable Regulations and Handbooks
For more information on how HUD calculates the
rent subsidy for tenants
For more information on the
Section 8 housing program
Applicable regulations are at 24 C.F.R. Part 5.
|
