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Do You Have a Beneficiary Receiving Section 8 Housing Assistance? How to Address That Issue in Your Estate Plan

by | May 30, 2024 | Firm News

If you have a beneficiary who is or may receive housing assistance under Section 8, formally known as Housing Choice Voucher Program, you should be aware of the new asset and income restrictions that went into effect on January 1, 2024.  The new provisions were implemented by the U.S. Department of Housing and Urban Development (HUD) as parts of the Housing Opportunity Through Modernization Act of 2016 (HOTMA).

The prior rules determining eligibility were income based and not asset based.  And there was an exclusion for lump-sum additions like an inheritance as those were not treated as income.  This meant that a beneficiary could receive an inheritance and it would not necessarily affect their Section 8 eligibility.  I say “not necessarily” because income from those assets was considered to determine eligibility and income could be imputed on assets.  So, if a beneficiary received real property as an inheritance, the value of the real property is not considered, but the actual income or the imputed income from renting the real property is considered.  The imputed income was calculated using a HUD passbook savings rate.

The new rules do consider the value of assets in determining eligibility for Section 8 housing assistance. Under 24 C.F.R. §5.618(a), if a family member owns either assets that exceed $100,000 in value or owns real property that is suitable for a family residence regardless of value.  There are the following exceptions discussed in HOTMA that are applicable to trust and probate administrations:

*              Residential real property jointly owned by the Section 8 recipient or family and one non-household member that is not a Section 8 recipient.  The value of the share owned by a Section 8 recipient may be counted as part of the net family assets.

*              Any residential real property that the Section 8 recipient lacks the legal authority to sell.  The nuances with this exception involve whether the Section 8 recipient is a personal representative, a trustee, or a co-trustee with the authority to sell the real property. In that capacity, the real property may affect eligibility.  And obviously once the real property is distributed to the Section 8 recipient and is titled in just their names, then it will count against them.  But, if the Section 8 recipient is a beneficiary of an irrevocable trust where they are not the trustee and they do not have the authority to demand that the property be sold, then the real property will not count towards eligibility.

*              Real property that is not suitable for the disability related needs for all family members.

*              Real property that is insufficient size for the size of the family.

*              Real property that is geographically located so as to be a hardship for the family.

*              Unsafe because of the property’s physical condition or otherwise not suitable for use as residential property under the state or local laws where the real property is located.

The next consideration is whether the value of the real property will affect Section 8 eligibility.  There are similar exceptions as discussed above in considering the value.  Most importantly, if the Section 8 recipient lacks the legal authority to sell the real property.  Or if the asset is held in an irrevocable trust that the Section 8 recipient does not control.  Or a revocable trust where the grantor/settlor is not a member of the family or household receiving Section 8 assistance.  There are other excluded assets listed at 24 U.S.C. §5.603, “Net family assets”, (3)-(4).

The takeaway from the new Section 8 eligibility rules is that if you have a beneficiary who is or will be receiving Section 8 housing assistance, be careful not to name them as trustee or executor and have their interest distributed through a sub-trust instead of an outright distribution.