Question

If a person receives a lump sum payment, such as an inheritance or lottery, it is excluded from income, but is it excluded from the asset like a tax return is? The Costello HOTMA Audit toolkit we received at the last Compliance Summit on page 9 shows the tax return HOTMA rule. But what about other lump-sums? 

Answer

Summary: Lump sum receipts are counted as assets unless they are part of an asset excluded explicitly by HOTMA.

Lump sum amounts are excluded from income at §5.609(b)(24)(vii). This is because, as one-time receipts, they are defined in HOTMA as "nonrecurring" income. However, they are assets unless the lump sum type is explicitly excluded in HOTMA (such as tax returns or deferred social security payments). Practically speaking, a lump sum receipt generally becomes part of another verified asset (like checking or a CD), and care should be taken not to double-count the asset. An asset is not often designated as a lump sum asset because the amount has usually been deposited into another asset that is counted. Usually, a positive answer to the question about whether an applicant/tenant has gotten a lump sum receipt leads an owner/agent to ask where the lump sum was deposited. In most cases, it is in another asset, which was also verified. The lump sum is generally counted as an asset on its own only if it was received after the balance of the asset it went into was verified or if it is sitting in an uncashed check or otherwise not verified as part of another asset.

More Information | The HUD Handbook 4350.3 guidance on this matter is still current in the HOTMA era. It says at 5-6 (Q) that, "generally, lump sum amounts received by a family, such as inheritances, insurance settlements, or proceeds from sale of property are considered assets, not income." When discussing the asset at 5-7 (G)(3), it says, "commonly, when a family receives a large amount of money, a lump sum payment, the family will put the money in a checking or savings account, or will purchase stocks or bonds or a CD...A lump sum payment is counted as an asset only as long as the family continues to possess it. If the family uses the money for something that is not an asset—a car or a vacation or education— the lump sum must not be counted."