New York Estate Planning & Elder Law Blog
CERTAIN LIMITATIONS ON SPECIAL NEEDS TRUSTS
Last year a case out of the Western District of Massachusetts Federal District Court dealt with the interplay of a special needs trust and eligibility for certain governmental benefits that the special needs trust was supposed to address. The case of DeCambre v. Brookline Housing Authority dealt with the beneficiary of a valid special needs trust who applied for a section eight housing voucher but was denied because of income that she received from a third party special needs trust, established by a Court. Ms. DeCambre was involved in a catastrophic accident which resulted in a series of settlements, with the proceeds directly deposited into the special needs trust. She received a total of $330,000.
The trust did not earn any income of it’s own, the truste only distributed the income in line with the terms of the trust and charged the normal and typical trustee fees. Ms. DeCambre did not have any control over the distribution of the income or money in the trust. The Court noted that the special needs trust was indeed valid and in conformity with the special needs trust enabling statute, found at 42 U.S.C. ยง 1396p(d)(4)(A) and (C). Indeed, the Court noted that Ms. DeCambre benefited from this trust insofar as she received Supplemental Security Income of approximately $850 per month and validly received Medicaid. These programs, the Court noted, specifically excluded the income from the a valid special needs trust. Ms. DeCambre applied for a section eight housing voucher through the Department of Housing and Urban Development (HUD) in 2005. The voucher was approved and provided from 2005 through to 2012, when HUD reduced it by approximately $1,000 per month, based on her income from the special needs trust. Ms. DeCambre sued HUD in Federal Court on several statutory grounds, based on HUD’s decision to reduce the amount of her housing voucher.
The Court thoroughly reviewed the facts of the case and law involved. The Court had to address a case out of California State Court that found that income from a special needs trust should be excluded for purposes of section eight housing voucher eligibility purposes. Since the California Court was not a sister federal Court and decided the matter on equitable issues, as was its right, it was not binding on the Federal Court in Massachusetts. The problem that existed for Ms. DeCambre vis-a-vis HUD was that HUD promulgated regulations that specifically excluded lump sum awards for personal injury settlements as income for purposes of determining eligibility for section eight housing vouchers and to calculate the amount of benefits once approved, while specifically excluding the income under a trust funded by such lump sum awards in a personal injury matter. In order for the Court to overturn the HUD regulations, Ms. DeCambre had to show that the regulations in issue were arbitrary and capricious. On a related matter, Ms. DeCambre argued that she had a property right to the previous section eight housing voucher award amount. The Court also ruled against her on that.
The ruling and HUD’s regulations calls into question the full extent that a special needs trust can be relied upon by a beneficiary. Given the statutory language, there is not likely any issue with income received from the trust and eligibility for Supplemental Security Income or Medicaid. It is fairly certain that short of a revision in HUD regulations, income from a special needs trust does impact eligibility for section eight benefits.