Note: The details in this article have been provided by attorney and the Academy of Special Needs Planners National Director, Kevin Urbatsch, during the organization’s 2023 meeting.

Some Background: On July 29, 2016, the Housing Opportunity through Modernization Act of 2016 (HOTMA) was signed into law. HOTMA makes numerous changes to several section of the United States Housing Act of 1937 (1937 Act), including changes to income calculation and reviews regarding HUD’s Section 8 Housing eligibility. More to follow.

Section 8 Recipients

Through Section 8, a public benefit program that provides rental assistance, low-income individuals can obtain affordable housing. The amount of assistance an individual receives is based on their income.

“It’s really key to a lot of clients who are struggling to find ways to get as many dollars as possible to enhance their quality of life for as long as possible,” Urbatsch said.

Unfortunately, for many people with disabilities, Section 8 is not a given. Limited funding combined with high demand means that not every public housing agency can accept applications, while yearslong waiting lists continue to grow. In addition, local public housing agencies can vary widely in how they enforce the program guidelines.

“Knowing the right people who can advocate for your clients is essential,” Urbatsch said.

They’re ‘Not Friends’

For individuals with special needs trusts, Section 8 can create additional hurdles. As Urbatsch put it during his conference session, “Guess what: Section 8 and special needs trusts are not friends. They’ve never really had a good relationship.” Unlike SSI or Medicaid, there is no statute that exempts special needs trusts from being counted as Section 8 income or as an asset.

When a new Section 8 law, the Housing Opportunity Through Modernization Act of 2016 (HOTMA), entered the picture in 2016, it was intended to streamline the administrative process for landlords as well as tenants. However, its proposed regulations, introduced in 2019, “effectively eliminated the use of special needs trusts” to preserve Section 8 by counting each special needs trust distribution as income. The proposed rules offered no room for exceptions.

This would inevitably put special needs planners between a rock and a hard place, Urbatsch explained. “You’re going to have your clients come to you with Section 8,” he said. “They might have a special needs trust, but you can’t use it … So you have to make a choice: They’re going to use their special needs trust, or they are going to continue with Section 8.”

‘The Big Save’

Attorneys and advocates waited years for the final official guidelines. In February 2023, HUD finally issued them. In what Urbatsch calls “the Big Save,” the final version now includes language that will ultimately allow individuals to use special needs trusts while remaining eligible for Section 8.

While these final regulations are slated to go into effect at the start of 2024, there are a number of outstanding questions. For example, public housing agencies are often unfamiliar with special needs trusts, Urbatsch pointed out. It remains to be seen whether these agencies will become more likely to place the onus on the trustee or resident to verify whether they have received any income from a trust, and whether such agencies would start to withhold recertification of eligibility.

Insights and Resources

For special needs planners who have clients in Section 8 housing, Urbatsch shared several pieces of advice as well as resources attorneys may find helpful. Among them are the following:

  • Have a plan in place to monitor the beneficiary’s income.
  • Manage income tax consequences.
  • If necessary, amend the trust to manage trust income and allow distribution of all principal before income distribution.
  • Use ABLE accounts for ‘income’ distributions from the special needs trust.
  • Check out Section 8 Made Simple from the Technical Assistance Collaborative, which offers many of the technical details.
  • Visit HUD’s dedicated resource page on HOTMA.