5 Dos & Don'ts for Treating Household Lump-Sum Payments Correctly
When a household gets a one-time payment such as an inheritance or a settlement award you must follow special HUD rules for such payments when certifying and recertifying household income. In general, you must treat these payments, known as “lump-sum payments” or “lump-sum receipts,” as part of a household’s assets. But you must count certain types of lump-sum payments as income. And in certain situations, you don’t include lump-sum payments in your calculations at all. We’ve put together five dos and don’ts about lump-sum payments. Following them will help you handle these payments correctly.
DO Generally, Treat Lump-Sum Payments as Assets
In general, consider households that get one-time payments, such as inheritances, capital gains, insurance settlements, real estate sale proceeds, or lottery winnings as gaining assets. So you must treat these lump-sum payments as part of a household’s assets [HUD Handbook 4350.3, par. 5-7(G)(3)(a)].
Sometimes lottery winnings are distributed to a household through periodic payments instead of as one lump sum. In these cases, you would treat these periodic lottery payments as part of household income [HUD Handbook 4350.3, par. 5-6(Q)(5).
If the cash value of all the household’s assets, including the value of any lump-sum payments, total $5,000 or less, you must include the actual income those assets generate when determining the household’s income [HUD Handbook 4350.3, par 5-7(E)]. And if a household’s assets total more than $5,000, you must compare the assets’ actual income with their “imputed” value, then count the greater of these two amounts as part of the household’s income [HUD Handbook 4350.3, par. 5-7(F)].
DO Count as Income Lump-Sum Payment of Delayed Periodic Benefits
Periodic payments to households of unemployment, welfare, or similar benefits can sometimes get delayed. This can happen, for instance, if the government takes several months to process a household’s application for benefits and then sends a lump-sum check to cover the benefits due to the household for the processing period.
In general, if a household gets a lump-sum payment for periodic benefits that were delayed by processing, count the payment as income. Even though the delayed payment is technically a lump-sum payment, HUD requires you to count it as income because it really represents one or more periodic payments that the household should have gotten.
If a household gets a settlement payment from claim disputes over welfare, unemployment, or similar benefits, this payment may be counted as assets, but lump sum payments caused by delays in processing periodic payments for unemployment or welfare assistance are included as income [Handbook 4350.3, par. 5-6(Q)(4)].
DON'T Count as Income Lump-Sum Payment of Delayed Social Security and SSI
If a household gets a lump-sum payment of a delayed Social Security or SSI benefit, exclude that payment from the household’s income [Handbook 4350.3, par. 5-6(Q)(2)]. This is an exception to the rule that delayed periodic benefit payments are treated as income. But a household’s regular monthly Social Security or SSI benefit payments are still considered periodic payments. So you must count those payments as part of a household’s income.
Also, for Section 8 tenants only, any deferred Department of Veterans Affairs (VA) disability benefits that are received in a lump sum or in prospective monthly amounts are excluded from annual income [Handbook 4350.3, par. 5-6(Q)(3)].
DO If Household Member Gets Full Value of Trust in One Payment, Count It as Asset
If a household member is the beneficiary of a trust and gets the trust’s full value in one payment, that’s a lump sum payment and you must treat it as an asset [HUD Handbook 4350.3, par. 5-7(G)(1)(b)(5)]. But if the household member gets interest or principal from the trust on a periodic basis, you must treat these payments as regular income or gifts and count them as part of the household’s income.
DON'T Count as Asset Lump-Sum Payment Spent on Non-Asset
If a household gets a lump-sum payment that you would normally count as an asset, and then spends that money on a non-asset, don’t count the payment as an asset [HUD Handbook 4350.3, par. 5-7(G)(3)(b)]. A lump sum payment is counted as an asset only as long as the household continues to possess it. If the family uses the money for something that is not an asset, such as a car or a vacation or education, the lump sum must not be counted.
For example, suppose a household member gets an inheritance of $1,000. He spends $300 of it on a family vacation and uses the remaining $700 for his son’s education expenses. Because he spent his lump-sum payment on non-assets, he no longer has the lump-sum payment, and it doesn’t count as an asset.