PR 06705.017 Indiana
A. PR 07-147 REPLY-Indiana-Escheat Account-Robert H~ SSN: ~ Our Ref.: 07-0186-NC
DATE: June 4, 2007
SSA attempted to collect an overpayment from a bank that was holding unclaimed funds of a deceased individual. Under Indiana's law, financial institutions are required to deliver unclaimed deposits to the custody of the State after a certain amount of time with no action on the account. This opinion indicates that SSA should file a claim for the overpaid funds with the State of Indiana.
This is in response to your inquiry regarding the propriety of requesting the Financial Institution or the State of Indiana to return funds paid to Robert H~ after his death. For the reasons discussed below, we recommend that the Agency seek recovery of the funds from the State of Indiana, rather than from the Financial Institution.
According to the information you provided, Mr. H~ received Social Security benefits until September 1991, when they were suspended apparently due to lack of information regarding Mr. H~ current address. In November 2006, Mr. H~ nephew informed the Kokomo, Indiana, field office that his uncle had died in 1979. The Indianapolis, Indiana, field office later obtained a death certificate and verified that Mr. H~ died on August 23, 1979. Based on this information, the record was revised to reflect an overpayment in the amount of $99,246.70 covering the period from August 1979 through August 1991.
Because Mr. H~ nephew informed the Kokomo field office staff that the State of Indiana was holding unclaimed monies associated with his uncle, Agency personnel consulted the Indiana Attorney General's website for unclaimed funds and learned that the State of Indiana was holding $92,744.70 from a Chase Morgan Bank account that had been held in the names of Robert H~ and his deceased wife, Frances E. H~.
Agency personnel contacted Chase Morgan Bank in order to reclaim the funds and was advised to contact the State of Indiana to request the money.
The Agency Should Not Attempt to Recover the Overpayment Directly from Chase Morgan Bank
When a beneficiary dies and the Agency erroneously continues to make electronic deposits into his account, the Department of the Treasury is responsible for reclaiming the overpayments. See 31 C.F.R. § 210.1 et seq; POMS GN 02408.610. Thus, in order to reclaim the funds directly from a financial institution, the Agency must send a request to the Department of the Treasury. The information you provided does not indicate whether the payments the Agency now seeks to recover were electronically deposited in an account at Chase Morgan Bank (the Financial Institution) or whether the funds were deposited by another source. Thus, it is not clear whether requesting that the Department of the Treasury reclaim the funds would be an appropriate means of recovering the overpayment in this case.
In any event, an agency cannot reclaim post-death payments made more than six years prior to the date of the notice of reclamation unless the account balance exceeds the post-death payments made by the agency. See 31 C.F.R. § 210.10(d). Here, the Agency stopped making payments in 1991. Nearly sixteen years have passed since the most recent post-death payments. Additionally, the overpayment of $99,246.70 exceeds the amount of unclaimed property from Chase Morgan Bank, $92,744.70. Thus, any attempt to seek reclamation of the overpayment directly from Chase Morgan Bank through the Department of the Treasury would likely be futile.
The Agency Should Attempt to Recover the Overpayment from the State of Indiana
Under Indiana law regarding unclaimed property, the Agency, as a creditor of Mr. H~ estate, is entitled to recover the overpayment from the funds held by Chase Morgan Bank. This does not appear to be a true escheat situation, where Mr. H~ died intestate without heirs. Rather, it appears that Chase Morgan Bank turned over the funds in the account pursuant to Indiana's Unclaimed Property Act (the Act). The Act requires financial institutions to deliver unclaimed deposits to the custody of the State of Indiana after a certain amount of time elapses with no action on the account such that it appears that the owner has abandoned his interest in the account. See Ind. Code § 32-34-1-1 et seq. The Attorney General of Indiana holds the funds subject to any claims of the apparent owner (account bearer) or his creditors. See Ind. Code § 32-34-1-32 et seq.
The Act allows a "a person, except another state, claiming an interest in property paid or delivered to the attorney general" to "file a claim on a form prescribed by the attorney general and verified by the claimant." Ind. Code § 32-34-1-36. We do not believe that the Agency is considered a "state" under the Act because the Act defines "state" as "a state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any territory or insular possession subject to the jurisdiction of the United States." Ind. Code § 32-34-1-18. In contrast, the Act defines "person" as "an individual . . . a government, a governmental . . . agency." Thus, we believe that, under the Act, the Agency, is a "person" who can file a claim under § 32-34-1-36.
As Mr. H~ (or his estate's) creditor, the Agency can assert an ownership interest in the property held by the State of Indiana under the Act. See 32-34-1-14. Accordingly, we believe that the Agency should file a claim for the funds as soon as practicable.
The Attorney General requires that a claim be filed using the electronic form located at www.indianaunclaimed.com. The Attorney General does not provide another means by which a claimant can assert its claim to the funds. Therefore, we recommend that the Agency utilize the website to produce the forms to file the claim.
In summary, we conclude that the Agency should not attempt to recover the overpayment directly from Chase Morgan Bank but should instead file a claim for the overpayment with the Attorney General for the State of Indiana.
Donna L. C~
Regional Chief Counsel, Region VIII
Mary L. S~
Assistant Regional Counsel
B. R 04-223 In the Matter of the Estate of Mary G. H~, a/k/a Mary H~, Case No. 02PR642, District Court, County of Arapahoe, State of Colorado
DATE: May 20, 2004
The opinion expands on the policy for recovery of an overpayment from an executor of an estate of a deceased debtor.
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
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).
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 27, 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. . . ."
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 (G~ & A~) 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.
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
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.