Planning for Life

Section 8 and Special Needs Trusts: Confusing Massachusetts Federal Case Could Cause Problems

Posted by Karen Mariscal on May 20, 2015

By Karen B. Mariscal

Special Needs Trusts are designed to allow disabled beneficiaries to supplement their income without causing them to be financially ineligible for certain government programs.  Unfortunately each program is different, and HUD’s Section 8 housing assistance program does not expressly recognize or protect Special Needs Trusts.  A federal district court has recently ruled that the Brookline  local housing authority properly counted payments from a special needs trust as income when it determined that a Section 8 beneficiary was no longer eligible for a housing voucher.  DeCambre v. Brookline Housing Authority (D.Mass., No. 14-13425-WGY, March 25, 2015).
The lengthy decision is confusing, partly because the underlying Section 8 regulations are confusing:  HUD does not consider lump-sum monetary awards (such as inheritances or litigation settlements) to be income, but “any income distributed from a trust fund” is counted as income.  The Brookline Housing Authority (“the BHA”) interprets the regulations to mean that if the holder of a Section 8 voucher receives a lump sum settlement and puts it under her mattress, using the money whenever she wants, the settlement money does not affect her Section 8 benefit.  But if she puts it into a trust and receives distributions, the distributions are considered income, decreasing or eliminating any Section 8 rent subsidy. 

The Court holds that, based on the wording of the regulations, the BHA’s interpretation was not unreasonable—the standard for overturning an agency policy.  The Court was "unable to find any regulatory support for DeCambre's argument that her Trust expenditures must be excluded from annual income and that her Trust corpus remained a lump-sum settlement.  To the extent BHA treated DeCambre's expenditures as spending from an irrevocable trust, rather than from a personal settlement fund, the Court holds that their determination was a reasonable one." 

The Court then discusses the regulations’ exclusion from the calculation of income “temporary, nonrecurring or sporadic income” under Sec. 5.609 (c)(9).  The Court does not decide what distributions from Decambre’s trust should fall into this exception, but it gives guidance to the BHA that payments made by the trust for telephone, cable and internet expenses should not be considered income, because the expenses were something an SNT should normally cover, and were not “extravagant.”  We find the Court’s reasoning to be puzzling, because in our view extravagance is not the issue- the question is  whether they payment was “temporary, nonrecurring or sporadic” – which presumably does not describe the regular payments of telephone, cable and internet bills. 

So what should clients and trustees do in response to this decision? Putting money under a mattress is generally not an option, because recipients of Section 8 vouchers tend to rely on SSI for income, and in order to qualify for SSI, a person cannot have more than $2,000 in assets.  Rather, we recommend that trustees of special needs trusts do everything they can to make distributions that are truly “temporary, nonrecurring and sporadic,” such as the purchase of a television rather than the payment of a monthly cable bill.  If you would like further suggestions on how to handle distributions to a recipient of a Section 8 housing voucher, please call Rebecca Benson or Karen Mariscal at Margolis & Bloom, LLP, 617-267-9700.

Topics: special needs planning

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