In March 2015, a federal court ruled that distributions from a special needs trust that held a litigation settlement were countable as income that terminated HUD housing assistance.  In June 2016, the federal Circuit Court of Appeals reversed this ruling and found that since HUD regulations do not count a litigation settlement received outright, they cannot count the payments from a trust that holds such a settlement.
Kimberly DeCambre is a participant of the Section 8 Housing Choice Voucher Program, which provides housing vouchers to low-income families, the elderly, and people who are disabled.  The program is funded by the Department of Housing and Urban Development (HUD) and administered by the Brookline Housing Authority (BHA).  Kim, a Medicaid and Supplemental Security Income (SSI) recipient, is the beneficiary of a Special Needs Trust (SNT) resulting from a personal injury damage award.  The trust made distributions for cell phone and cable bills, veterinary costs, dental and medical costs, as well as travel expenses, which were considered countable income on Kim’s annual recertification process.  As a result of the $200,000 trust distributions over the course of two years, BHA terminated Kim’s voucher subsidy.  Kim sued BHA.
The court upheld BHA’s decision to include SNT distributions as income for purposes of Section 8 eligibility.  While a lump-sum settlement is exempt from calculation of annual income for eligibility purposes, the court held that distributions from an irrevocable trust may be counted as annual income unless the distributions are specifically excluded for some other reason (i.e. medical expenses).  The court stated that deference is owed to HUD’s interpretive rules when they are reasonable. Because the SNT distributions may be considered as countable income the court remanded the matter to BHA for consideration of whether certain trust distributions could be considered exempt income because they were either medical in nature or sporadic and irregular.  DeCambre v. Brookline Housing Authority, 14-13425-WGY (March 25, 2015).
Ms. DeCambre appealed and the 1st Circuit ruled on June 14, 2016, reversing the federal district court.  Her main claim focused on whether the housing authority made an error under the relevant regulations when calculating her income.  She argued that SNT monies were from lump-sum payments and thus any SNT distribution was excluded from her annual income.  (She also argued in the alternative that some payments were misclassified and should have been treated as medical expenses or another exclusion).
After a lengthy discussion regarding the applicable regulations and a HUD advisory letter, the court concluded that “’income’ in section 5.603(b) does not include the principal that initially funded the trust” and then turned to the question of whether putting DeCambre’s money into the SNT somehow changed the character of the money.  After again looking at the regulation and considering the parties’ arguments, the court rejected the housing authority’s position, finding “no reason to exclude from annual income (as the regulations clearly do) lump-sum personal injury settlement proceeds paid directly to a tenant, . . . yet not exclude those same proceeds merely because they “[g]o to, or on behalf of” a tenant, . . . through a trust of which the tenant is the beneficiary.”
The court held that the defendant was wrong to count “the distributions from the principal of DeCambre’s settlement funded irrevocable trust toward her annual income.”  In the opinion, the 1st Circuit acknowledged the work of the National Academy of Elder Law Attorneys, the Special Needs Alliance, and the National Housing Law Project in briefing the issues.
Contact our experienced Mississippi Special Needs Attorneys for further help on this and other issues by calling 601-987-3000.