This Regional Chief Counsel (RCC) opinion discusses the reasons why a self-settled special needs trust is not an asset for making a Title II overpayment waiver determination. Although the property held in trust appears to be liquid or could be liquidated, the number holder (NH) cannot direct the trustee to liquidate the trust to repay the overpayment. Moreover, the NH does not have access to the trust, as the trust is irrevocable and the trustee has the power to distribute so much of the principle or income of the trust to the NH as she deems necessary or advisable for satisfaction of the NH’s special needs. Thus, the trust property is not an asset for making a Title II overpayment waiver determination.

QUESTION PRESENTED

You asked whether a self-settled special needs trust (trust) is S~’s (NH’s) asset for purpose of making a Title II overpayment waiver determination. Specifically, you have asked whether the trust property is liquid and whether the NH has access to the trust assets.

ANSWER

We conclude that the trust property is not an asset for making a Title II overpayment waiver determination. Although the property held in trust appears to be liquid or could be liquidated, the NH cannot direct the trustee to liquidate the trust to repay the overpayment. Moreover, the NH does not have access to the trust, as the trust is irrevocable and the trustee has the power to distribute so much of the principle or income of the trust to the NH as she deems necessary or advisable for satisfaction of the NH’s special needs. Thus, the trust property is not an asset for making a Title II overpayment waiver determination.

BACKGROUND

The NH is a disabled individual entitled to Title II Disability Insurance Benefits. From January 2014 to July 2015, the agency incorrectly paid the NH not only Title II benefits on her own record, but also Title II benefits as a disabled child on a parent’s record. Due to the incorrect calculation of benefits due, the agency overpaid the NH $12,517.00. It is our understanding that the NH did not contest that the agency overpaid her $12,517.00 in Title II benefits, but that on October 1, 2015, the NH submitted a request for waiver of the overpayment.

In December 2014, the NH established an irrevocable, self-settled trust for her own benefit and appointed her sister, L~, as trustee. The NH estimates the trust’s value at $11,000.00. The NH petitioned the P~ County Circuit Court (the Court) for approval of the trust, which the Court granted on February 3, 2015.

Relevant portions of the Trust Document state that the trust’s purpose was to supplement and not supplant the benefits of any public assistance programs, including SSI, Medicaid, Medicare, Federal Social Security Disability Insurance, or other government-funded program offering rehabilitative or other services. See Trust Document at 2-3. The trust gives the trustee discretionary power to distribute such amounts of trust principal or income as she deems necessary or advisable to satisfy the NH’s special needs. The trust provides, “no payment of principal or interest of this Trust shall be made to [NH] if such payment would disqualify or make [NH] ineligible for the programs described in this Trust.” See Trust Document at 3.

The Trust Document also includes a spendthrift provision stating, “No interest in the principal or income of this Trust shall be anticipated, assigned or encumbered, or shall be subject to any creditor’s claim or to legal process, prior to its actual receipt by [NH].” See Trust Document at 4-5. Finally, if the existence of the trust has the effect of rendering the NH ineligible for SSI, Medicaid and Medicare, or any other program of public benefits, the trustee may terminate the trust, subject to the claims of the State of Arkansas and/or the United States government. The remaining funds will be distributed to the trustee “to be hers absolutely and free of trust.” See Trust Document at 5.

ANALYSIS

A. Overpayment Waiver Procedure

The information we received shows that on October 1, 2015, the NH submitted a request for waiver of the overpayment that occurred when the agency incorrectly calculated benefits to which she was entitled. An “overpayment” includes “a payment in excess of the amount due under Title II” of the Social Security Act (Act). 20 C.F.R. § 404.501(a); see also POMS GN 02201.001. The Act requires the Commissioner to adjust or recover a benefit overpayment. See 42 U.S.C. § 404(a)(1); 20 C.F.R. §§ 404.501, 404.502; see also POMS GN 02205.001 (the overpaid person, her representative payee, and any other person receiving benefits on the overpaid person’s earnings record are liable, or responsible, for repayment of an overpayment; it does not matter if the other person lives in a different household), GN 02205.003 (the person who receives the overpayment is primarily responsible for the overpayment). However, the agency may waive the adjustment or recovery of the overpayment of Title II benefits when:

(a) the overpaid individual was without fault in causing the overpayment; and

(b) adjustment or recovery of the overpayment would either:

(1) defeat the purpose of Title II of the Act; or

(2) be against equity and good conscience.

See 42 U.S.C. § 404(b); 20 C.F.R § 404.506(a); POMS GN 02201.019, GN 02250.001

You indicated that the agency determined the NH was without fault in causing the overpayment. Thus, we do not further examine this requirement for waiver. Because you provided no evidence from which we could give an opinion on whether adjustment or recovery of the overpayment would be against equity and good conscience and did not request a legal opinion on this requirement, we do not further examine this requirement for waiver. Rather, we next consider the remaining issue whether recovery of the overpayment would defeat the purpose of the Title II Social Security program. See 42 U.S.C. § 404(b).

B. Defeat the Purpose of Title II: What Constitutes Income and Financial Resources for Determining Whether Recovery of the Overpayment Deprives the Beneficiary of Income Required for Ordinary and Necessary Living Expenses

Recovery of an overpayment defeats the purpose of the Title II Social Security program when recovery deprives the beneficiary of income and resources required for ordinary and necessary living expenses. 20 C.F.R. § 404.508; see also POMS GN 02250.105 (recovery will not defeat the purpose to the extent the overpaid person has, at the time of the overpayment notice, any part of the overpaid benefits in her possession). The determination of whether recovery defeats the purpose of the Title II Social Security program depends on whether the beneficiary has income or financial resources sufficient for more than her ordinary and necessary needs, or is dependent upon all of her current benefits for such needs. 20 C.F.R. § 404.508. In making this determination, the agency must consider the beneficiary’s overall financial condition including assets and resources, not strictly monthly income and expenses. See Social Security Ruling (SSR) 87-16c, 1987 WL 109202, *5 (1987) (adopting the holding in Posnack v. Sec’y of Health & Human Servs., 631 F.Supp. 1012 (E.D.N.Y. 1986)); POMS GN 02250.115A.4 (“A person’s entire financial situation must be evaluated when making a defeat the purpose finding.”). Accordingly, the agency must consider all of the NH’s financial resource, including her assets, in analyzing whether recovery deprives the NH of income required for ordinary and necessary living expenses.

You indicated that the field office has already determined that the NH’s monthly expenses exceed her monthly income, but that the agency is uncertain whether the NH’s trust valued at $11,000.00 is an asset, or “financial resource,” for determining whether recovery of the trust would defeat the purpose of the Social Security program by depriving the NH of income required for ordinary and necessary living expenses. See 20 C.F.R. § 404.508(a). Therefore, we only look at whether this NH’s trust is an asset for this overpayment waiver determination and do not consider any other income or resources that may be available to this NH.

The POMS explain that the agency considers certain assets to be financial resources in its overpayment waiver determination. The POMS define an “asset” as “a financial resource which may be liquidated to repay an overpayment.” POMS GN 02250.125A. The POMS also explain that if the overpaid person is a beneficiary of a trust, the agency will consider the trust an asset unless the property in the trust is not available to the person. POMS GN 02250.125B.2. Thus, the determination of whether the trust is the NH’s asset depends on (1) whether the trust property can be liquidated to repay the NH’s overpayment, and (2) whether the trust property is available to the overpaid NH.

1. Although the Property Held in Trust Is Liquid or Can Be Liquidated, the NH Cannot Direct the Trustee to Liquidate the Trust to Repay the Overpayment

The POMS test for inclusion of assets as a financial resource in the overpayment waiver analysis requires not only that the trust property be liquid, but that the trust property can also be used to repay an overpayment. See POMS GN 02250.125A. We believe the evidence you provided supports a conclusion that the trust property is liquid or can be liquidated, but that the NH did not retain the power to direct the trustee to liquidate the trust property to repay the overpayment.

Neither the Title II regulations nor the POMS define the term “liquid.” However, the Title XVI regulations define liquid resources as “cash or other property which can be converted to cash within 20 days.” 20 C.F.R. § 416.1201(b). It is not entirely clear from the information provided what types of property make up the trust assets. We are basing our opinion upon the limited information provided, including the Trust Document and a letter from the NH’s attorney in the electronic disability folder on eView, which indicates that the trust property consists of cash in a bank account and a mineral interest. We consider whether these are liquid.

a. Cash in a Bank Account: Liquid

Cash in a bank account is generally liquid, as it can be withdrawn and converted to cash within 20 days. See id. Here, the Trust Document indicates the NH initially funded the trust with cash. On her Request for Waiver of Overpayment Recovery on eView, the NH indicated the trust had also subsequently received at least two recent Social Security payments. If after further investigation, the agency determines the trust property includes a bank account with commingled Social Security benefits and other funds, we conclude the bank account would be liquid. See id.

With regard to this bank account, we advise that the agency should further investigate the nature of the funds in the bank account to determine whether the NH is on the signature card for the bank account. The evidence provided does not indicate whether the agency has approved direct deposit into a trust account or whether the NH is referring to a direct deposit into her own bank account. See POMS GN 02402.060. If the agency investigates and determines the NH is on the signature card for the bank account, then, to the extent there are overpaid benefit payments in the account, she must return the payments to the agency. See POMS GN 02250.105. Recovery of overpaid benefits in a NH’s possession will never defeat the purposes of the Social Security program for those amounts. Id.

b.Mineral Interests: Liquid

A letter from the NH’s representative also suggests the trust property includes mineral interests the NH inherited. Real property is an asset for purposes of the overpayment waiver determination, unless the overpaid person has joint ownership of the real property and the other owners will not agree to liquidate the asset. POMS GN 02250.125B.2.b. There is no indication in the record that the NH’s mineral interest is jointly owned property. If the NH transferred her mineral interest into the trust, the trustee now holds the title of the mineral interest for the NH’s benefit. Thus, assuming the trust property also includes a mineral interest, we believe it could be liquidated, although as we explain later that liquidation would not be available to repay the overpayment.

c. The NH Cannot Use the Trust Property to Repay the Overpayment

Although the property in the trust is likely liquid or could be liquidated, the trust fails the second part of the test for inclusion of assets as a financial resource in the overpayment waiver analysis: that the property can be liquidated “to repay an overpayment.” POMS GN 02250.125A. Under the trust’s terms, the NH cannot revoke the trust to use the property to repay the overpayment, and she did not retain any control over the distribution of trust property to permit her to use the property to repay the overpayment. Arkansas law provides that specific terms of a trust agreement generally prevail. See Ark. Code Ann. § 28-73-105(b); see, e.g., Shula v. Bank of America, N.A., 346 F. App’x. 133, 134 (8th Cir. Oct. 8, 2009) (unpublished).

By its terms, the trust is irrevocable. See Trust Document at 1. However, in Arkansas, a trust is revocable, regardless of the trust’s terms, if the grantor of the trust is also the sole beneficiary. See Ark. Code. Ann. § 28-73-505(a)(2); In re Schultz, 323 B.R. 712, 716 (Bankr. E.D. Ark 2005) (supplemented by In re Schultz, 324 B.R. 722 (Bankr. E.D. Ark. 2005)). Although the NH is the grantor of the trust, she is not the sole beneficiary, as the trust lists other potential residual beneficiaries upon the NH’s death or upon the trust’s termination. Thus, because the NH is not the sole beneficiary of the trust and the trust states it is irrevocable, the NH cannot revoke or terminate the trust to use the trust property to repay the overpayment.

Under the trust’s terms, the NH also cannot direct the use of the trust’s property to repay the overpayment. See Trust Document at 3. The Trust Document provides that the trustee has the discretionary power to distribute such amounts of the trust principal or income as she deems necessary or advisable for satisfaction of the NH’s special needs. See Trust Document at 3 Because the NH granted the trustee discretion to decide whether to distribute the trust property, the NH cannot direct the trustee to liquidate the trust property.

Thus, while the property in the trust (the cash in the bank account and mineral interests) is likely liquid or could be liquidated, the NH cannot direct the trustee to liquidate the trust property to repay her overpayment. See POMS GN 02250.125A. Therefore, we believe the trust is not the NH’s asset, or financial resource, to defeat the purpose of the agency’s overpayment waiver determination.

2. The Trust Property Is Not Available to the NH

We also conclude that the trust is not an asset, or financial resource, for the purpose of the agency’s overpayment waiver determination because the trust property is not available to the NH to pay for ordinary and necessary living expenses. See POMS GN 02250.125B. Under the trust’s terms, the NH cannot direct the trustee to distribute property from the trust, and she cannot otherwise assign or sell her interest in the trust. The trust contains a spendthrift provision that prohibits anticipation, assignment, encumbering, or creditor claims prior to a distribution to the NH. See Trust Document at 4-5. Arkansas law generally permits trusts to include spendthrift provisions to shield the assets from creditors and assignees. For self-settled trusts such as the NH’s trust, however, Arkansas law follows the general policy explained in Restatement (Third) of Trusts § 58, “[a] restraint on the voluntary and involuntary alienation of a beneficial interest retained by the settlor of a trust is invalid.” Thus, under the Arkansas Code, a spendthrift provision does not protect trust property from the settlor’s creditors or assignees to the extent the settlor retains a beneficial interest in the trust. See Ark. Code Ann. § 28-73-505. Therefore, we must consider whether, under Arkansas law the trust property is available to the NH for purposes of the agency’s overpayment waiver determination.

Although the NH’s creditors may have a right under Arkansas law to access the trust property through legal process, the test for inclusion of assets as a financial resource in the overpayment waiver determination is whether the NH, not a creditor, has access to the trust property. As discussed above with regard to the NH’s inability to direct the trustee to liquidate the trust property to repay her overpayment, the NH cannot revoke the trust. Under the trust’s terms, she did not retain any power to direct the trustee to distribute trust property, but rather gave the trustee discretionary power to decide when to make distributions. The NH’s interest that could be assigned therefore has no significant market value. Thus, the NH does not have access to the trust property, and it is not available to her. For this reason, we believe the trust is not the NH’s asset, or financial resource, for the agency’s defeat the purpose overpayment waiver determination. See POMS GN 02250.125B.

CONCLUSION

Based upon the facts available to us, we conclude that the NH’s trust property is not the NH’s asset, and thus, not a “financial resource,” for determining whether recovery of the trust would defeat the purpose of the Social Security program by depriving the NH of income required for ordinary and necessary living expenses. Although the property held in trust appears to be liquid or could be liquidated, the NH cannot direct the trustee to liquidate the trust to repay the overpayment. In addition, the NH lacks access to the trust property. The trust is irrevocable and the trustee has the power to distribute so much of the principle or income of the trust to the NH as she deems necessary or advisable for satisfaction of the NH’s special needs. Because the NH does not have the power to direct the trustee to distribute the assets and because the NH cannot revoke the trust, she does not have access to the trust. Thus, the trust property is not an asset, or financial resource, for making a Title II defeat the purpose overpayment waiver determination. See 20 C.F.R. § 404.508(a); POMS GN 02250.125.

However, as noted above in discussing whether the bank account was liquid, we recommend further development to determine whether the NH has possession of any overpaid Social Security benefits. We advise that the agency should further investigate whether the NH is on the signature card for the bank account into which the agency deposits her Social Security benefits. The evidence provided does not indicate whether the agency has approved direct deposit into a trust account or whether the direct deposit is into the NH’s own bank account. See POMS GN 02402.060. If the agency investigates and determines the NH is on the signature card for the bank account, then, to the extent she is in possession of overpaid benefit payments in the account, she must return the payments to the agency and recovery will not defeat the purpose of Title II. See POMS GN 02250.105.

Michael McGaughran

Regional Chief Counsel

By: James D. Sides

Assistant Regional Counsel

The opinion expands on the policy for recovery of an overpayment from an executor of an estate of a deceased debtor.

Issue

Whether the Agency may recover an overpayment in the amount of $22,574.00 from Vincent V. H~, Jr. (Mr. H~), the personal representative of the estate of Mary G. H~ (Mrs. H~)._1

DISCUSSION

Short Answer

Mr. H~ received notice of the overpayment prior to final distribution of the estate assets on April 21, 2004. Therefore, he is in violation of the Federal Priority Statute, 31 U.S.C. § 3713(b), and could be found personally responsible for repaying the overpayment. Referral of this matter to the Department of Justice (DOJ) for enforced collection, however, is premature because Mr. H~ did not receive proper notice of the overpayment. Specifically, the initial notice does not comport with Agency policy regarding overpayment notices, which includes informing the legal representative of the right to reconsideration and waiver of recovery, as well providing detailed information explaining the overpayment calculation. Because the December 14, 2004 notice (see Tab 3) is the only notice Mr. H~ has received regarding the overpayment, and this notice is deficient, we recommend the Great Lakes Program Service Center (GLPSC) reissue a notice that includes the requisite information noted in the Program Operations Manual System (POMS).

FACTS

According to information you have provided, at the time of her death, the decendent, Mrs. H~, owed $22,574.00 to the Agency for an overpayment of benefits due to excess income. In a notice date December 14, 2003 (see Tab 3), the GLPSC informed Claire D~ (Ms. D~), the attorney for the estate, that "[b]ased on [Mrs. H~] receiving a government pension, her Social Security benefits should have been reduced. Therefore[,] an overpayment of $22,574.00 resulted" (id.)_2 The notice also informed Ms. D~ that according to Agency records, she was appointed as executor of the estate, and that pursuant to 31 U.S.C. § 3713, she would become personally liable for the overpayment if the estate's debt to the United States was not satisfied first and there were insufficient funds to pay all debts. The notice did not include, for example, "the monthly amount, if any, which should have been paid, . . . the months for which the different amount should have been paid, and the amount which was paid for those months." POMS § GN 02201.009B.1. (What Notice Includes). Nor did the notice mention the right to reconsideration of the overpayment determination or the right to request waiver of recovery. See id.

In a letter dated December 22, 2003 (see Tab 2), Ms. D~ informed the GLPSC that Mrs. H~ died on June XX, 2002, and that Mr. H~ was appointed personal representative of the estate on July 18, 2002. Ms. D~ also noted that following Mr. H~'s appointment as personal representative, a "Notice to Creditors" was published three times in a local newspaper, beginning August 1, 2002, and ending August 15, 2002, and the "[the Agency] did not file a claim within this time period . . ." (id.) Ms. D~ noted further that "the personal representative of the Estate of Mary G. H~ is denying the request by the Social Security Administration for repayment of $22,574.00," and that the estate would be closed 60 days from the date of her letter. Thus, despite the defective notice, Mr. H~, through the attorney for the estate, arguably requested reconsideration in December 2003, and the Agency has not responded to that request.

Statements from USBank, which are attached to the "Final Accounting-For Period From: July 24, 2002 To April 11, 2003" (see Tab 4) reflect that on December 31, 2002, the "customer," presumably, Mr. H~, withdrew $145,000 from a USBank account in the name of "The Estate of Mary H~." On March 26, 2004, approximately three months after he received notice of the overpayment through the attorney for the estate, Mr. H~, in his capacity as Trustee of the H~ Family Trust (the Trust), filed a "Receipt and Release" (see Tab 5), attesting that he had received cash in the amount of $146,362.98, and securities valued at $3,205.10 and $1,134.66 from himself as the personal representative of the estate. The "Receipt and Release" does not reflect the exact date Mr. H~ "contingently" distributed these assets to the Trust; however, as explained further below, the "final" distribution date, which in this case is April 21, 2004, is the relevant date for purpose of determining his liability for the overpayment under the Federal Priority Statute.

During a telephone conversation with Ms. D~ on April 19, 2002, she informed our office that Mr. H~ had distributed the assets to the Trust before he received notice of the overpayment from the Agency in December 2003. Ms. D~ also continued to assert that the Agency had missed the deadline to file a claim and had failed to prove the estate's liability for the overpayment. On April 21, 2004, Ms. D~ forwarded to our office a copy of the "Decree of Final Discharge" (see Tab 6) issued by the probate court, purportedly releasing and discharging Mr. H~ "from any and all liability arising in connection with the performance of [his] fiduciary's duties. . . ."

Legal Analysis

The Federal Priority Statute provides that, "A representative of a person or an estate . . . paying any part of a debt of the person or estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government." 31 U.S.C. § 3713(b). "The statute is to be 'liberally construed so as to effect the public purpose of securing debts owed to the United States.'" United States v. Idaho Falls Assocs. Ltd. P'ship, 81 F. Supp.2d 1033, 3713 (D. Idaho 1999) (quoting United States v. Whitney, 654 F.2d 607, 609 (9th Cir. 1981) (citing Bramwell v. United States Fid. & Guar. Co., 269 U.S. 483 (1926)); see also United States v. Moore, 423 U.S. 77, 81-86 (1975).

"'The basic elements of § 3713(b) and of its predecessor statutes is that (1) a fiduciary (2) make a distribution which (3) leaves the estate with insufficient funds to pay (4) a debt owing the United States where (5) the fiduciary had knowledge or notice of the debt due to the United States at a time when the estate had sufficient assets with which to satisfy the debt owing to the United States.'" United States v. Bartlett, 186 F. Supp.2d 875 (C.D. Ill. 2002) (citations omitted).

Mr. H~, as the personal representative for the estate, is a fiduciary. He distributed the assets of the estate to the H~ Family Trust, leaving the estate with insufficient funds to pay the overpayment. While Mr. H~ contends he had already distributed the estate assets to the Trust before he received notice of the overpayment, "[t]he distribution by [Mr. H~] prior to the closure of the estate was not a final distribution pursuant to a final decree, but a contingent distribution." Ferri v. Bowen, No. C-85-505-SPM, 1986 WL 373, at *2 (E.D. Wash. July 16, 1986) (noting that "[i]t is 'distribution' which is controlling"). The date Mr. H~ made a final distribution of the estate assets is the determining factor in this case with respect to his personal liability under the Federal Recovery Statute. See id. Therefore, even if Mr. H~ did distribute the assets of the estate into the Trust before he received notice in December 2003, he received notice of the overpayment prior to the closure of the estate in April 2004 and is in violation of the Federal Priority Statute. See id.

Mr. H~, through the attorney for the estate, also continues to dispute the Agency's right to recover the overpayment from the estate assets on the basis that the Agency missed the deadline to file a claim. However, "[a]s it undisputed that state probate nonclaim statutes do not bar claims of the federal government, the status of the probate proceedings cannot be deemed controlling." Id. (citing United States v. Summerlin, 310 U.S. 414 (1940)).

In construing the predecessor statute to 31 U.S.C. § 3713(b),[ ] the courts have uniformly held a personal representative liable who, having actual notice of the debt due the Government, distributed the estate pursuant to a decree of distribution without first paying the debt due the Government even though the Government had not submitted a claim in the probate proceedings.

United States v. Boots, 675 F. Supp. 550, 551 (E.D. Mo. 1987) (citations omitted). Mr. H~ has "the burden of proving the statute does not apply" to him. Ferri, 1986 WL 373, *2 (citing United States v. Cole, 733 F.2d 651, 654 (9th Cir. 1984)).

Mr. H~ also continues to dispute the validity of the overpayment, and therefore, may contest whether the Agency actually had a "claim," i.e., whether the estate was indebted to the Agency within the meaning of the Federal Priority Statute before the assets were finally distributed ._3 "The terms of the . . . statute are to be construed liberally so as not to frustrate its purpose in securing sufficient revenue for the payments of public debts." United States v. Moriarty, 8 F.3d 329 (6th Cir. 1993) (holding that "although the United States may be precluded by the applicable statute of limitations from brining an action for money damages, it continues to have a 'right to payment' against the debtor in this case and thus may enforce that right in other ways") (citing Bramwell v. United States Fidelity & Guar. Co., 269 U.S. 482, 487 (1926); United States v. State Bank of N.C., 31 U.S. (6 Pet.) 29, 34, 8 L.Ed. 390 (1832)). Furthermore, "[i]n interpreting the term 'claim' under the federal priority statute, we look for guidance to the Bankruptcy Code." Moriarty, 8 F.3d at 334 (citing United States v. Moore, 423 U.S. 77, 84 (1975)). "In the Bankruptcy Code, 'claim' is defined broadly as a 'right to payment, whether or not such right is reduced to judgment, . . . contingent, . . . [or] disputed. . . ." Moriarity, 8 F.3d at 334 (emphasis in original) (citing 11 U.S. C. § 101(5)). Here, we believe the estate's debt arose on or about September 27, 2002, the date the Agency discovered and manually posted Mrs. H~'s overpayment in its computer system. "Once a determination of overpayment is made, the overpaid amount is a debt owed to the United States Government." POMS GN 02201.001._4 See Memorandum, Florida - Recovery of Overpayment Incurred Subsequent to Chapter 7 Bankruptcy, CC IV (Granger & Adams) to Assistant Regional Commissioner, Program Operations and Systems (May 5, 1993) (noting "[t]he debt to SSA is not created until [the beneficiary] reports the amount of her 1990 earnings or until as here, an investigation reveals that there were excess earnings for 1990).

Thus, we believe that Mr. H~ is in violation of the Federal Recovery Statute and, therefore, liable in his personal capacity as the representative of the estate for the $22,574 overpayment. However, we caution that DOJ may be reluctant to initiate a recovery action_5 against Mr. H~ in his capacity as personal representative if the Agency cannot demonstrate he received proper notice of the overpayment.

The December 2003 notice that Mr. H~ received through the attorney for the estate (see Tab 3) does not comport with Agency policy. POMS GS 02201.009 (Notification of Overpayment) requires that written notice be sent and requires that the notice include the "[o]verpayment amount and how and when it occurred (i.e., the overpaid amount, the monthly amount, if any, which should have been paid, why the different amount was due, the months for which the different amount should have been paid, and the amount which was paid for those months)." The December 2003 notice simply states the following: "Based on [Mary G. H~] receiving a government pension, her Social Security benefits should have been reduced. Therefore[,] an overpayment of $22,574.00 resulted" (see Tab 3). Additionally, the notice must inform the claimant of the "[r]ight to reconsideration of the overpayment determination," as well as the "[r]ight to request waiver of recovery and the automatic scheduling of a personal conference if a request for waiver cannot be approved." Id. § GN 02201.009B.1. The December 2003 notice does not mention reconsideration or waiver.

POMS GN 02215.055, which specifically pertains to estates administered by a legal representative, states that "[a] legal representative must be notified of how and when an overpayment was made and the estate's liability for repayment." Moreover, these procedures also require the Agency to inform the legal representative of "[t]he right to reconsideration and waiver" and "[t]reat any protest/appeal of the estate's liability for repayment . . . as a request for reconsideration of that issue." Id. GN 02215.055 B.1.a.& e. Again, the notice Mr. H~ received through the attorney for the estate in December 2003 does not meet these requirements. "If notification is deficient (e.g., notice is not sent, . . . content is inadequate), a new notice must be sent." Id. § GN 02201.009B.8._6 Furthermore, as noted above, the Agency has not responded to Mr. H~'s request for reconsideration.

Thus, while the December 2003 notice was sufficient to alert Mr. H~ that the Agency has a claim against the estate,_7 this notice is insufficient for the purpose of establishing the estate's liability for the overpayment because it does not contain the requisite information.

CONCLUSION

For the reasons discussed above, we believe Mr. H~ could be found liable in his personal capacity under the Federal Priority Statute for the overpayment because he received sufficient notice of the Agency's claim prior to final distribution of the estate assets._8 However, we do not believe DOJ will institute recovery action if the Agency cannot prove the fact and amount of the debt, which will require to Agency to show that that it followed its internal policies with regards to notice of the overpayment._9 Therefore, we recommend the Agency reissue a notice to Mr. H~ in his capacity as personal representative that contains the requisite information noted in the POMS.

Deana R. E~-L~

Regional Chief Counsel, Region VIII

By: Yvette G. K~

Assistant Regional Counsel

_1 On April 13, 2004, you submitted a "Notice of Hearing on Petition for Final Settlement and Distribution (Non-Appearance)" (see Tab 1), scheduled for April 20, 2004, to the Office of the General Counsel, Region V, in Chicago, Illinois, which referred the matter to our office because a Colorado State Court has jurisdiction over the probate proceedings. After consultation with the Colorado U.S. Attorney's Office, we did not send an attorney to the non-appearance hearing. We determined that since the assets had been "contingently" distributed, it was unlikely the court would delay the final settlement and distribution of the estate, and, if warranted, the Agency could refer this matter to the Department of Justice (DOJ) for a civil suit to recover the overpayment from Mr. H~ at the conclusion of the administrative proceedings.

_2 The GLPSC sent a similar notice to the probate court.

_3 Sections (a) and (b) of 31 U.S.C. § 3713 provide, in part, as follows:

(a)(1) A claim of the United States Government shall be paid first when-(b) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor.

_4 In this context, we believe "determination" is synonymous with "discovered," as opposed to the term of art, "initial determination," which requires written notice. See POMS GN 02201.009 ("When the debt is discovered, the fact, amount and liability for repayment must be communicated as soon as possible. If the overpayment is discovered because of an oral communication (telephone call or interview), the liability for repayment is communicated during the first oral contact. Written notice is always sent.")

_5 POMS § GN 02215.170.A (Handling of Overpayment Claims for Referral to DOJ) notes that "[t]he ARC, POS is responsible for either reporting or not reporting an outstanding debt to the U.S. Department of Justice (DOJ) Central Intake Facility for possible civil suit." Referrals must be submitted to the Department of Justice on a "Certificate of Indebtedness" and a Claims Collection Litigation Report pursuant to the instructions set forth in the POMS. See id. § GN 02215.170B.4.

_6 "Whenever there is a delay of more than 1 year between the time overpayment occurs and the time a determination is made (i.e., notice sent), a complete explanation and evidence to support the delay must be provided by the PC when the debt claim is referred to DOJ." POMS§ GN 02215.150.B.2.

_7 "The knowledge requirement of ... 31 U.S.C. § 3713 may be satisfied by either actual knowledge of the liability or notice of such facts as would put a reasonably prudent person on inquiry as to the existence of the unpaid claim of the United States. To be chargeable with knowledge of such a debt, the executor must be in possession of such facts as to put him on inquiry." Bartlett, 186 F. Supp. 2d at 886-87.

_8 This opinion does not address recovery actions that could be taken against the beneficiaries (distributes) of the trust. "When an overpaid person (e.g., beneficiary or representative payee) dies, the person's estate becomes liable. If the estate is closed, the distributees or legatees are liable to the extent of the proceeds of the estate (or property attributable to such proceeds) which are in his/her possession when notified of the overpayment." POMS 02205.001.B.2.

_9 To ensure that civil suit is not barred, the complaint must be filed within:

a. Six years after the right of action accrues (i.e., within 6 years after the time an overpayment determination has been made); or

b. One year after a final decision has been rendered in an administrative proceeding (i.e., reconsideration, hearing, and/or review by the Appeals Council), whichever is later.

POMS § GN 02215.159B.2.