Relationship Between Special Needs Trust and Federally-Subsidized Housing (Section 8)

by: Thomas D. Begley, Jr.

Section 8 of the Housing Act of 1937 provides a rental assistance program for low-income families and individuals.  Persons with disabilities often qualify.  In fact, people receiving SSI receive only the federal benefit rate of $637 and, in some states, a small supplement, typically $25 – $50.  Section 8 Housing is the only housing they can obtain, unless they are families or a trust provides the housing for them.

Generally, the applicant must be a “family,” must be income-eligible, and must be a citizen or non-citizen who has eligible immigration status.[1]

Income Eligibility

As a general rule the income of an applicant for Section 8 Housing may not exceed 50 to 80% of the median income in the area adjusted for family size. Countable income includes: Social Security and Disability benefits, pensions, annuities, alimony, and some welfare payments and regular contributions from others.[2] Noncountable income includes: temporary, one-time, or infrequent income, including gifts, reimbursements for medical expenses, and lump-sum acquisitions, such as inheritances, insurance payments, and capital gains.[3]

Imputed Income

While there is no resource test for Section 8 Housing, income is imputed if the applicant’s assets exceed $5,000. Income would be imputed at the larger of the actual income or the HUD-determined present passbook savings rate.[4] If the family’s assets are $5,000 or less, the actual income that the family receives from the assets is included. If the family’s assets are more than $5,000, then the amount of income included is the actual income from assets or a percentage of the value of family assets based on the current passbook savings rate as established by HUD. Currently, the passbook rate is 2%.[5]

Family Size

Income limits are based on family size based on the annual income the family receives. Various programs have various income limits. There are four income categories: below market interest rate (BMIR), low-income limit, very low-income limit, and extremely low-income limit. They are based on the median income for the area.

Income Limit Median Income for the Area
BMIR Income Limit 95%
Low-Income Limit 80%
Very Low-Income Limit 50%
Extremely Low-Income Limit 30%

The extremely low-income limit is not used to determine eligibility, but is rather used for income targeting. The larger the family, the higher the income limit.

Special Needs Trusts

Income from a trust is not counted, so long as it is not regular.  The key to utilizing a special needs trust in connection with a beneficiary who is receiving Section 8 Housing is to be sure that the distributions from the trust are irregular and sporadic.  For example, if the trustee pays a $200 utility bill on a monthly basis, the payment may be treated as regular income and increase the rental payment of the tenant by approximately $66 per month.  By budgeting creatively, a special needs trust can be administered by paying large one-time expenditures and leaving the regular recurring expenses for payment by the trust beneficiary.  For example, if the apartment needed to be refurnished, the trustee could pay for all of the furniture in one check.  This would not be a recurring item.  If the tenant needed a vehicle, the trustee could purchase a vehicle.  Again, this is not a recurring expenditure.

[1] 24 C.F.R. §982.201(a).

[2] 24 C.F.R. §5.609(b).

[3] 24 C.F.R. §5.609.

[4] 24 C.F.R. §5.609(b)(3).

[5] Section 8 Housing Choice Voucher Program Guidebook, Occupancy Requirements of Subsidized Multi Family Housing Programs, §5.7F 1b, available at www.hudclips.org (Nov. 12, 2005).