Kevin Urbatsch, Esq. San Francisco, California

 Public Housing - In general, units are owned and managed by local public housing authorities or agencies (PHAs).  Section 8 Vouchers - The most popular program for persons with disabilities is the Section 8 voucher program.

 Congress makes housing laws and appropriates funds;  Department of Housing and Urban Development (HUD) develops the regulations that form the basic framework for the program; and  Local Public Housing Agencies (PHAs) establish discretionary policies that address the needs within the PHA’s jurisdiction.

 Section 8 housing assistance programs fall into two general categories: ◦ Tenant-based assistance (vouchers); and ◦ Project-based assistance.  Project-based assistance is linked to a specific federally-subsidized apartment. The assistance does not travel with a tenant and, if a tenant moves, it is lost.

Tenant-based assistance is rental assistance that is not attached to a structure or particular rental unit. Tenants are given rental assistance vouchers and then find landlords willing to accept them. The vouchers are “portable” and tenants may move to different rental units owned by landlords willing to accept the vouchers.

 Section 8 is not an entitlement benefit. Because of funding limitations, many households that are eligible for vouchers do not receive any form of federal housing assistance.

 Because the demand for Section 8 is so high, a PHA may or may not be accepting applications depending on the length of its waiting list.  Most areas have long and growing waiting lists for vouchers, and many PHAs have even stopped accepting new applications because of the size of the backlog.  Generally, waiting times can vary between several months and several years.

 Federal fair housing laws require that HUD and PHAs make reasonable accommodations in their policies, procedures, and programs to ensure active participation by people with disabilities.  Accommodations can include allowing applications to be mailed rather than delivered in person, exceptions to screening criteria, extending housing search times, or granting exceptions for higher rents (including exceptions for accessible and barrier free units).

There are many special set-aside vouchers for persons with disabilities. Most common are:  Mainstream vouchers. Persons with disabilities are selected from the regular waiting list and do not have to wait.  Designated housing vouchers. This kind of special admission may occur when HUD allocates funding to provide alternatives for non-elderly families who would be eligible for public housing if occupancy in the project or building were not restricted to elderly households.

 Three tests: ◦ Income Test ◦ Asset Test ◦ Transfer for Less than Fair Market Value

 Annual income is defined as all earnings, and includes employment wages, public benefits, and disbursements from any investments or pension plans.

 Examples of income not counted are ◦ Lump-sum additions to assets (e.g., inheritances and insurance settlements for losses); ◦ Amounts received specifically for medical expenses; ◦ Temporary, nonrecurring or sporadic income (including gifts); ◦ Amounts received by an SSI recipient that are disregarded as income by SSI because they are set aside for a PASS; and ◦ Income received of a live-in aide such as a personal care attendant who provides necessary support services for a tenant with disabilities.

 The adjusted annual income is computed by reducing the family’s gross annual income by any applicable standard deductions for seniors, persons with disabilities, and dependent children.  For example, $400 is deducted from income for any family whose head, spouse, or sole member is a person with disabilities.

 Unlike SSI and Medicaid, the Section 8 program does not have resource limits. However, resources indirectly affect eligibility because income generated by resources is counted.

Income from assets is treated differently depending on the amount of assets on hand.  Assets less than $5,000. If an assets are worth less than $5,000, all income derived from the assets is counted toward “annual income.” Assets greater than $5,000. If assets are worth more than $5,000, the family must count toward annual income the greater of either (1) all income derived from the assets, or (2) a percentage of the total value of the assets based on the passbook savings rate, as determined by HUD each year. Generally this amount is 2%.

Assets disposed of for less than fair market value during the 2 years preceding Section 8 certification or recertification of eligibility are counted. Interest at the HUD passbook rate will be imputed for the transferred asset.

 Example: Emilia Alarcon receives $100,000 as an inheritance. Emilia gifts the inheritance to her nieces who do not live with her. For the next 2 years, the Section 8 program will count $2,000 of annual income as part of Emilia’s calculation for her total tenant payment. After 2 years, Section 8 will no longer count income from the asset.  This assumes a 2-percent HUD passbook rate.

There is no special treatment for special needs trusts (SNTs) in the Section 8 rules or regulations. However, there are two main ways an SNT may affect a Section 8 recipients benefit: ◦ (1) Establishing a first party SNT will require analysis under the Section 8 rules for Transfers for Less than Fair Market Value; and ◦ (2) Distributions from a first or third-party SNT on behalf of the Section 8 recipient may be counted as income

A First Party SNT is established when a beneficiary receives assets, generally from an inheritance or litigation recovery. The receipt of these types of assets alone will not interfere with Section 8 benefits because of express income exclusions for lump sum additions to assets. However, when the assets are transferred to a First Party SNT, it is counted under Section 8 Rules as a transfer for less than fair market value, i.e., imputed income at 2% for 2 years.

 Brian Marcus is a person with a disability who receives Section 8. His father left him $100,000, which he transferred to a (d)(4)(A) SNT. The trust produced income of $8,000 in 2007, which was reinvested into the trust. ◦ Section 8 will not count the $8,000 as Annual Income because nothing was distributed from the trust. ◦ Section 8 also will not count the cash value of the trust ($100,000) as a current asset.  Instead, because Mr. Marcus disposed of this asset for less than fair market value, ◦ Section 8 will count the asset by imputing income at 2 percent for a period of 2 years. This means that for 2 years after establishment of the SNT, Mr. Marcus must count as income $2,000 per year or $167/month. ◦ Mr. Marcus would be required to pay approximately $55 more for his 30-percent share of Section 8 housing for the 2-year period.

Any distribution from a SNT for a Section 8 recipient will COUNT as income and will affect Section 8 benefits unless the distribution meets one of Section 8’s income exclusions. For example, is non- recurring (i.e, a gift) or is for medical expenses.

 Mitsie O’Brien is a person with a disability living on Section 8 housing. She received $100,000 inheritance. A (d)(4)(A) SNT was established for the assets.  The first year, the trustee distributes $250 a month to pay transportation costs and $1,000 for purchase of a television.

 The regular recurring $250/month for transportation will be counted as part of Ms. O’Brien’s income because there is no income exception for this distribution. The result is a rental increase to Ms. O’Brien of $75 per month ($250 recurring payment of which 30 percent is used to pay her share of rent).  The $1,000 for the television will not count towards income as it is exempt from Section 8 income because it is a temporary, non- recurring distribution. See materials Section 1.11(m).

 Remember: Most PHAs do not understand these rules and have NOT been enforcing them in any meaningful way.  However, some PHA’s, most notably in California have begun taking the position that each and every distribution from a SNT is counted as a tenant’s income.  It is important to know what income is not counted by Section 8 when advising trustees on making distributions for a Section 8 recipient.

 Section 8 and Special Needs Trusts can be used in combination to provide safe, clean, and affordable housing to persons with disabilities.  However, the two strategies are an imperfect fit and it is important that the practitioner understand how distributions from an SNT and establishment of a First Party SNT may affect the beneficiary’s Section 8 benefits.