By Karen B. Mariscal
On June 14th, the First Circuit in the seminal (and very local) case DeCambre v. Brookline Housing Authority, reversed the decision of the lower court, and held that distributions of principal from a special needs trust are NOT counted as income for purposes of Section 8 calculations. This is the correct decision, in our view, and a significant victory for the disabled population, with nation-wide implications.
By way of background, Kimberly DeCambre is a disabled person who had a Section 8 housing voucher, which meant that she only had to pay 30% of her monthly income toward rent, and HUD paid the rest. In September 2013, she reported that she had created a special needs trust funded with money she received as a result of a series of litigation settlements. The Brookline Housing Authority (BHA) determined that the money distributed from her trust was “countable,” as income, and put her over the income limits for the Section 8 program, thereby causing her to be ineligible. The District Court agreed with Brookline. (See our previous blog post about this decision here.
The issue on appeal was how money distributed from a trust should be counted for Section 8 purposes. HUD regulations specifically exclude from income any “lump-sum additions to family assets,” such as a litigation settlement. However, they also state that “income distributed from the trust fund” is countable.
Based on its interpretation of the regulations as a whole, the First Circuit holds that although investment income earned by the trust assets and then distributed is countable, principal is not. Since DeCambre had no gain from her investments in the trust, there was no income to be counted – the only distributions she received were principal.
The BHA also argued that the exclusion of “lump-sum additions to family assets” from income did not apply because the money was in a trust, rather than held by DeCambre herself. The Court found no support for this argument, and in fact identified a number of regulatory provisions to the contrary. Accordingly, the BHA’s decision that DeCambre had too much income to be eligible for Section 8 funding was reversed, and her voucher restored.
If the lower court had been upheld, the ruling would have presented a problem for all trustees of special needs trusts across the country whose beneficiaries are in Section 8 housing. Fortunately that did not happen. However, trustees must continue to handle distributions from special needs trust carefully to make sure that they do not interfere with the beneficiary’s various government benefits.
It should be noted that this case involves a trust created by the Section 8 beneficiary herself with her money, a so-called “first-party” trust. It’s not clear that it would apply to a trust created and funded by someone else for her benefit, a “third-party” trust.
An amicus brief submitted by Worcester attorney Emily Starr and Maryland attorney Ron Landsman on behalf of the National Academy of Elder Law Attorneys proved persuasive. I also helped draft the appellant’s brief.
To learn more about special needs trusts and how they interface with government benefits, including the Section 8 program, feel free to email me at kbm@margolis.com.
