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.
About
the Author:
Emily S. Starr is an attorney with
Ciota, Starr & Vander Linden with offices in Worcester &
Fitchburg, Massachusetts. Her practice focuses on estate
planning, elder law, and government benefits issues for
families with special needs children. Ms. Starr is a Fellow
of the
National Academy of Elder Law Attorneys, and the 2007
recipient of
The Theresa Award, a national honor recognizing
extraordinary contributions of attorneys to the community of
individuals with disabilities.
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