PS 01810.019 Kansas

A. PS 02-117 Resource Value of a Property Owned by An Individual Who Has Filed for Bankruptcy; John Ray C~, Sr., ~

DATE: June 27, 2002

1. SYLLABUS

This opinion concerns the resource value of home property owned by an individual who filed for bankruptcy under chapter 7 of the U.S. Bankruptcy Code and who later vacated the property. Under Kansas State law, an individual may elect to exempt his residence from inclusion in a bankruptcy estate. In this case, however, the individual elected to surrender his home and subsequently moved from and did not intend to return to the property. When the chapter 7 bankruptcy petition was filed, the property not exempted immediately became part of the bankruptcy estate. At this point, the individual no longer had the authority or right to convert or use any of the property contained in the bankruptcy estate, including his home. Therefore, the property was not a resource to the individual effective the month following the month the petition was filed. Had the property initially been exempted and the individual later moved from the property, then it may have counted as a resource assuming it could no longer be excludable under regulations. In this scenario, SSA would require clear and convincing evidence before determining the individual abandoned his home.

2. OPINION

You have asked us whether a home may be counted as a resource for the purposes of determining eligibility for supplemental security income (SSI) after the claimant has filed for bankruptcy. Based on our analysis of the Bankruptcy Code, the Commissioner's regulations, and Kansas statutes, we believe that the home should not be considered as a resource.

Factual Background

John Ray C~, Sr. applied for disability benefits under Title XVI on April 3, 2000, and his claim was allowed at the hearing level in 2002. At the time that Mr. C~ filed his application, he was living with his wife in a house that they owned in Emporia, Kansas. This home was excluded from being counted as a resource for SSI purposes.

On April 20, 2000, Mr. C~ and his wife jointly filed for bankruptcy under Chapter 7 of the Bankruptcy Code. In Schedule C of his Petition for bankruptcy, Mr. C~ listed his home, among other items, as “exempt” from his estate. On the same date, however, in his Debtor's Statement of Intention, Mr. C~ stated that it was his intent to surrender his home. Mr. C~ and his wife signed the statement, acknowledging that they must perform their intention within 45 days of filing the statement with the court.

On May 28, 2000, Mr. and Mrs. C~ moved out of their home. The Bankruptcy Court discharged Mr. C~'s debts on September 8, 2000. It appears that the home was finally acquired by the lender on July 11, 2001.

Analysis

Section 1602 of the Social Security Act (Act) makes SSI benefits available to claimants whose income and resources do not exceed statutorily prescribed limits. Resources are defined at 20 C.F.R. § 416.1201 as cash and other liquid assets and all real and personal property that a claimant can convert to cash to be used for his support and maintenance. Section 1613 of the Act excludes certain essential items of the claimant's property from treatment as resources. Therefore, in accordance with 20 C.F.R. § 416.1212, Mr. C~'s home was not counted as a resource in determining his eligibility for SSI benefits when he applied on April 3, 2000.

In a proceeding brought under Chapter 7 of the Bankruptcy Code, all of a debtor's assets (with certain exceptions) are collected and ultimately liquidated in order to satisfy in whole or in part the claims of his creditors. A Chapter 7 proceeding commences upon the filing by the debtor of the petition. The commencement constitutes an “Order of Relief” and immediately creates an “estate” comprised of the debtor's property. See 11 U.S.C. § 541. This bankruptcy estate is created for the benefit of creditors and falls within the exclusive jurisdiction and control of the bankruptcy court. The debtor has no right or authority to convert or use the property of the bankruptcy estate. Because the debtor may not convert the property for his own purposes at any time after the creation of the bankruptcy estate, the property does not constitute a resource as defined in the Commissioner's regulations. See 20 C.F.R. § 1201.

Not all, however, of the debtor's property automatically becomes part of the bankruptcy estate. The debtor may elect to exempt certain properties from the bankruptcy estate as outlined in 11 U.S.C. § 522 of the Bankruptcy Code, or as allowed under state law. Under Kansas State law, the homestead may be exempted from inclusion in the bankruptcy estate. See K.S.A. § 60-2301. Property that is exempted from inclusion in the bankruptcy estate typically passes to the debtor free and clear of all encumbrances.

In this case, however, Mr. C~ did not choose to exempt his home; rather, he surrendered his home to the bankruptcy estate. Mr. C~ then complied with 11 U.S.C. § 521(2)(B) of the Bankruptcy Code, requiring him to perform his stated intention to surrender the home within 45 days of filing his statement with the court, when he moved out on May 28, 2000.

Although the lender did not acquire the home until July 11, 2001, as noted above, the bankruptcy estate was created immediately upon the filing of the bankruptcy petition on April 20, 2000. As of that date, Mr. C~ had no right or authority to convert or use the property of the bankruptcy estate, including the home that he surrendered. Therefore, Mr. C~'s home may not be counted as a resource for the purposes of determining his eligibility for SSI benefits. See 20 C.F.R. § 416.1201.

You also asked whether bankruptcy has a consistent effect on determining if property is a resource for SSI purposes. Upon court approval of any exemption from inclusion in the bankruptcy estate, property may be counted as a resource in determining eligibility for SSI benefits, unless it is excludable under SSA regulations. Therefore, as you asked, whether a property is exempted from inclusion in the bankruptcy estate clearly affects the property's status as an SSI resource. Obviously, each case must be considered individually.

In addition, you asked whether property that was originally exempt could become nonexempt if a debtor moved out of his home. The burden of proving abandonment of the home is upon the party challenging the exemption, and must be proved by clear and convincing evidence. See Bellport v. Harder, 196 Kan. 294 (1966). For the purposes of SSI, however, if a property continues to be exempt from the bankruptcy estate, but circumstances change so that the resource is no longer excludable under the regulations, then it may be counted as a resource in determining eligibility. See 20 C.F.R. § 416.1201.

Based on the foregoing, we believe it is reasonable to conclude that Mr. C~'s home was not a resource during the relevant period..

Frank V. S~
Chief Counsel, Region VII

By
Melissa M. S~
Assistant Regional Counsel

B. PS 01-023 Proper Valuation of Inherited Property When Such Assets are Part of an Estate and the Heir Seeks SSI Entitlement

DATE: August 2, 1999

1. SYLLABUS

This opinion contains a State-by-State synopsis for the Kansas City Region of when inherited property or property in an unprobated estate is income or a resource to the heir for SSI purposes.

2. OPINION

You requested a legal opinion reviewing Kansas state law on inheritances. Specifically, you sought an explanation as to when title to personal property passes to an heir when an estate is in probate so as to determine eligibility for SSI benefits and if any statutory or common law changes had taken place since 1994 if this response was contrary to earlier advice. You asked for a review of the state laws in Iowa, Missouri, and Nebraska in regard to when title to real and personal property passes to an heir. You further asked if crops could be added to the list of examples of personal property in Kansas. Below is our response to the specific issues raised.

Your request was occasioned by a letter from an attorney who represented an SSI recipient. The recipient's benefits had been withheld when it was learned that she was the beneficiary of her mother's estate, the proceeds of which were later placed in a special needs trust in the interest of the recipient. In his letter, the attorney stated that the Agency's action denying benefits was in error because the SSI recipient did not have a possessory interest in the personal property of her mother's estate before such estate was probated. The attorney stated that Kansas law holds that the personal representative takes title to personal property of the estate of a deceased person. He also stated that unharvested crops were personal property under Kansas law.

Background

Generally, a resource, for SSI purposes, includes assets that an individual owns and could convert to cash to be used for his or her support. See 20 C.F.R. § 404.1201(a) (1998). If the individual has the right, authority, or power to liquidate the property (or his or her share of the property), it is a resource.

See id. Under the Program Operations Manual (POMS), an individual is deemed to have an ownership interest in an unprobated estate when documents such as a will or court records indicate that the individual is an heir to the property of a decedent, or the individual has use of the property or receives income from it, or the individual is related to the decedent such that he or she is entitled to a share of the property under state intestacy laws, and the inheritance, use of income, and distributions are uncontested. POMS SI 01120.215B(2). The interest in an unprobated estate is not considered a resource, however, until the month following the month in which it meets the definition of income. POMS SI 01120.215B(3).

An inheritance is considered income when it is received. See POMS SI 00830.550; see generally 20 C.F.R. § 416.1123(a). Inheritance is generally assumed to be received, absent regional instructions regarding state law to the contrary, at the earliest of either the date the individual alleges receiving the inheritance, or the date the estate is closed. See POMS SI 0083.55B(B)(2).

Kansas Law

Under section 59-1401 of the Kansas Statutes, the personal representative is instructed to manage a decedent's real and personal property whether the decedent died with or without a will. The personal representative has the right to possession of all property, except the homestead and allowances to the surviving spouse and minor children. Kan. Stat. Ann. § 59-1401(a) (1994); see also 2 S. Bartlett, Kansas Probate Law and Practice § 820 (1953). Possession of real property is permissible, however possession of personal property is mandatory. Riling v. Cain, 199 Kan. 259, 428 P.2d 789 (Kan. 1967); Kan. Ann. Stat. § 59-1401. This principle is in accord with the concept that the title to real property vests in the decedent's heirs while title to personal property passes to the personal representative. 2 S. Bartlett, Kansas Probate Law and Practice § 830 (1953) (cited in Larson, Eric J., Robe, R. Chris, Kansas Estate Administration, "Management and Sale of Decedent's Property" 5-2, (Kansas Bar Association, 1993)). Once the property has been distributed under an order of distribution, the personal representative's right to possession and the collection of income ceases.

On the facts as you describe them, the proceeds of the estate were placed in a special needs trust upon completion of probate and never became the property of the claimant. Therefore, the attorney's contention that the personal property of the estate, after probate, should not have been designated as a resource of his client for SSI purposes is correct. See 20 C.F.R. § 416.1201. However, while personal property is held in probate, an heir has an equitable interest in such property. Because such interests in personal property can be assigned, pledged, or encumbered for personal gain, such property can be considered a "resource" for SSI purposes. Id. (See section below regarding the valuation of such a "resource.")In regard to Kansas law, there have been no statutory or common law changes on this point of law since 1994. A review of past claims is not warranted.

Valuation Problems

Some problems may arise when the agency tries to appraise the fair market value of personal property that is held in probate. It should be remembered by anyone appraising such property that the fair market value of such items is reduced by the fact that the heir has only an equitable interest in such property. True fair market value can only be measured when an heir has legal title to transfer such property.

Determining the fair market value of that interest prior to the distribution of the estate may be difficult in some cases, however, since personal and real property may be sold or the interest in the estate may be expended to cover the obligations of the estate. If the estate has little or no debt, the heir's interest may be fairly easily determinable at the date of death. If the estate is heavily indebted or the amount of indebtedness is unknown, the heir's interest may be so speculative as to render it without any fair market value. Should assistance be required in properly evaluating the value of an estate, you may refer any relevant information to our office for an opinion.

Crops as Personal Property

In Kansas, crops growing on land at the time of death of a decedent pass to the personal representative as part of the personal property of the estate. Lindholm v. Nelson, 264 P. 50 (Kan. 1928). Unharvested crops are also considered personal property in Iowa, Jones v. Hughes, et al., 506 N.W.2d 810 (Iowa Ct. App. 1993), Missouri, Davis v. Cramer, 176 S.W. 85 (Mo. App. 1915) and Nebraska, In re M~'s Estate v. Knicely, et al., 287 N.W. 760 (Neb. 1939). Therefore, POMS SI 01110.100C should include crops as personal property for all four states in Region VII.

Summary

In all states in our region, you may assume that an individual has an alienable property interest in an estate as of the date of death of the testate or intestate. Therefore, an interest would be received and constitute income or a resource as of the date of death.

If the individual has attempted to disclaim his or her interest, or if there are any other unresolved issues that prevent you from determining the income or resource status of an inheritance, we suggest that you refer any relevant information to our office for an opinion.

C. PS 00-463 Proper Valuation of Inherited Property When Such Assets are Part of an Estate and the Heir Seeks SSI Entitlement

DATE: August 2, 1999

1. SYLLABUS

This opinion summarizes the inheritance laws for the four States of Region VII. In all four States an heir is considered to have received an ownership interest in an estate as of the date of death of the decedent. This is true even if the estate's property is in probate. For SSI purposes, receipt of ownership interest in an estate counts as income in the month of death and the ownership interest counts as a resource in the following month. In addition, unharvested crops are considered part of the personal property of the estate in all four States in Region VII.

2. OPINION

You requested a legal opinion reviewing Kansas state law on inheritances. Specifically, you sought an explanation as to when title to personal property passes to an heir when an estate is in probate so as to determine eligibility for SSI benefits and if any statutory or common law changes had taken place since 1994 if this response was contrary to earlier advice. You asked for a review of the state laws in Iowa, Missouri, and Nebraska in regard to when title to real and personal property passes to an heir. You further asked if crops could be added to the list of examples of personal property in Kansas. Below is our response to the specific issues raised.

Your request was occasioned by a letter from an attorney who represented an SSI recipient. The recipient's benefits had been withheld when it was learned that she was the beneficiary of her mother's estate, the proceeds of which were later placed in a special needs trust in the interest of the recipient. In his letter, the attorney stated that the Agency's action denying benefits was in error because the SSI recipient did not have a possessory interest in the personal property of her mother's estate before such estate was probated. The attorney stated that Kansas law holds that the personal representative takes title to personal property of the estate of a deceased person. He also stated that unharvested crops were personal property under Kansas law.

Background

Generally, a resource, for SSI purposes, includes assets that an individual owns and could convert to cash to be used for his or her support. See 20 C.F.R. § 404.1201(a) (1998). If the individual has the right, authority, or power to liquidate the property (or his or her share of the property), it is a resource.

See id. Under the Program Operations Manual (POMS), an individual is deemed to have an ownership interest in an unprobated estate when documents such as a will or court records indicate that the individual is an heir to the property of a decedent, or the individual has use of the property or receives income from it, or the individual is related to the decedent such that he or she is entitled to a share of the property under state intestacy laws, and the inheritance, use of income, and distributions are uncontested. POMS SI 01120.215B(2). The interest in an unprobated estate is not considered a resource, however, until the month following the month in which it meets the definition of income. POMS SI 01120.215B(3).

An inheritance is considered income when it is received. See POMS SI 00830.550; see generally 20 C.F.R. § 416.1123(a). Inheritance is generally assumed to be received, absent regional instructions regarding state law to the contrary, at the earliest of either the date the individual alleges receiving the inheritance, or the date the estate is closed. See POMS SI 0083.55B(B)(2).

Kansas Law

Under section 59-1401 of the Kansas Statutes, the personal representative is instructed to manage a decedent's real and personal property whether the decedent died with or without a will. The personal representative has the right to possession of all property, except the homestead and allowances to the surviving spouse and minor children. Kan. Stat. Ann. § 59-1401(a) (1994); see also 2 S. Bartlett, Kansas Probate Law and Practice § 820 (1953). Possession of real property is permissible, however possession of personal property is mandatory. Riling v. Cain, 199 Kan. 259, 428 P.2d 789 (Kan. 1967); Kan. Ann. Stat. § 59-1401. This principle is in accord with the concept that the title to real property vests in the decedent's heirs while title to personal property passes to the personal representative. 2 S. Bartlett, Kansas Probate Law and Practice § 830 (1953) (cited in Larson, Eric J., Robe, R. Chris, Kansas Estate Administration, "Management and Sale of Decedent's Property" 5-2, (Kansas Bar Association, 1993)). Once the property has been distributed under an order of distribution, the personal representative's right to possession and the collection of income ceases.

On the facts as you describe them, the proceeds of the estate were placed in a special needs trust upon completion of probate and never became the property of the claimant. Therefore, the attorney's contention that the personal property of the estate, after probate, should not have been designated as a resource of his client for SSI purposes is correct. See 20 C.F.R. § 416.1201. However, while personal property is held in probate, an heir has an equitable interest in such property. Because such interests in personal property can be assigned, pledged, or encumbered for personal gain, such property can be considered a "resource" for SSI purposes. Id. (See section below regarding the valuation of such a "resource.") In regard to Kansas law, there have been no statutory or common law changes on this point of law since 1994. A review of past claims is not warranted.

Valuation Problems

Some problems may arise when the agency tries to appraise the fair market value of personal property that is held in probate. It should be remembered by anyone appraising such property that the fair market value of such items is reduced by the fact that the heir has only an equitable interest in such property. True fair market value can only be measured when an heir has legal title to transfer such property.

Determining the fair market value of that interest prior to the distribution of the estate may be difficult in some cases, however, since personal and real property may be sold or the interest in t