DeCambre Reversed

by: Begley Law Group

By Thomas D. Begley, Jr., CELA

Section 8 of the Federal Housing Act of 1937 provides a rental assistance program for low-income families and individuals. HUD pays rental subsidies so eligible families can afford decent, safe and sanitary housing. The programs are generally administered by Public Housing Agencies (PHAs). Generally, the family pays 30% of its adjusted monthly income for rent. Household income must be within the applicable limit established by HUD. The limits are based on family size and locality. Family members must be U.S. citizens or eligible aliens. There are income limits. Income includes Social Security and Disability benefits, pensions, annuities, alimony, some welfare payments, and regular contributions from others. Lump sum acquisitions, such as personal injury settlements, are not counted as income. If the personal injury plaintiff receives a settlement and puts the money under the mattress and spends it over time, the expenditures do not count as income and do not affect Section 8 eligibility. Historically, distributions from trusts, including Special Needs Trusts, have been counted as income, unless they are used for medical purposes or are irregular and sporadic.

Kimberly DeCambre was receiving distributions from an irrevocable Special Needs Trust funded with the proceeds of a personal injury settlement and the Massachusetts Housing Authority disqualified DeCambre from her housing assistance on the grounds that she was no longer income eligible. The Housing Authority held that because the distributions from the Special Needs Trust should be counted as income, the amount of the subsidy provided under Section 8 should be reduced $0. Over a three year period, the distributions from the trust exceeded $200,000. The Housing Authority and the United States District Court[1] held the entire amount of the distributions were income and, therefore, DeCambre lost her eligibility for Section 8 assistance.

The issue on appeal was whether the principal deposited into the Special Needs Trust should be considered principal and only the income earned by investments should be considered income. The Court of Appeals[2] held that DeCambre’s Special Needs Trust was funded exclusively with the proceeds from a series of tort settlements. Had these settlement proceeds been paid directly to DeCambre, the parties agreed that they would have been treated as a lump sum addition to family assets and, therefore, would have been categorically excluded from annual income upon receipt under HUD’s Regulations. The parties agreed that income derived from investments should be considered income. The only issue was when the trust distributes to or for the benefit of the tenant, some or all of principal originally paid into the trust, how should that distribution be characterized. The Housing Authority maintains that even if DeCambre’s settlement proceeds had the character of a lump-sum addition to family assets when they entered the Special Needs Trust, they no longer possess that character once they were disbursed from the Special Needs Trust. The Court of Appeals concluded that distributions of principal from the Special Needs Trust remain principal and only the investment income is considered income.

The decision may be of limited effect. Section 8 is being amended to provide an asset test of $100,000.

[1] Brookline Hous. Auth., 95 F. Supp. 3d (D. Mass. 2015).

[2] DeCambre v. Brookline Housing Authority, Case 15-1458, Document 00117013731 (June 14, 2016).