PS 01815.017 Indiana
A. PS 07-119 SSI - Indiana - Review of the Inheritance of Gail J~, Parent Deemor for Jacque J~, ~ Your Reference: S2D5G6 SI-2-1-IN (J~)
DATE: April 25, 2007
The issue is whether a parent's inheritance in an estate should be treated as a resource or income for the purpose of determining a child's SSI eligibility in the state of Indiana. All states in Region V consider an inheritance as income as of the date of death and a resource in subsequent months.
The mother of an SSI child was one of the heirs to the Decedent's estate, and had an inheritance interest in the property (condo) of the estate and title in Decedent's property. The mother's share of the interest in the condo is income up to the presumed maximum value in the month of Decedent's death, and an excludable resource in the following months, since it served as the principal residence for herself and SSI child prior to the decedent's death.
You asked when Gail J~'s interest in an inheritance in an estate should be treated as a resource or income for the purpose of determining SSI eligibility for her son, Jacque G. J~. We have reviewed the account documents and, for the following reasons, we conclude that Ms. J~'s inheritance interest should be treated as income on the date of Shirley W~' death and a resource beginning the following month.
Gail J~ became one of four heirs to the estate of Shirley W~ ("Decedent") after her death, on August 31, 2006. On September 14, 2006, the Decedent's Last Will and Testament was probated and an estate was established. On that same date, Ms. J~, along with the three other heirs, created a "Family Settlement Agreement" ("Agreement"). Ms. J~ was appointed as a co-executor of the estate. The Agreement set forth terms on the distribution of some of the estate assets. The relevant terms of the Agreement stated that the following assets would be contributed to the proceeds of the Decedent's estate: a Certificate of Deposit in the amount of $35,480.62, minus $16,500.00, and a checking account in the amount of $35,877.68. Other assets in the Decedent's estate are a condominium; two transfers from checking accounts in the amount of $413.00 and $554.42; a life insurance policy in the amount of $4,000; an automobile; and furniture. Prior to the Decedent's death, Ms. J~ and Jacque moved into the condominium, and it is currently being used as their principal residence. The estate is currently in probate and has not yet been settled or closed.
Under SSA's Program Operations Manual System (POMS), inheritance is an interest in a decedent's estate either under a will or under the laws of intestacy. POMS SI CHI 00830.550. In all states in Region V, an inheritance constitutes income as of the date of death, and a resource in subsequent months. See POMS SI CHI 00830.550(F); Memorandum from Reg'l Chief Counsel, Chicago, to Assistant Reg'l Comm'r-MOS, Chicago, Regional Supplement on When Inheritance Property Becomes Income (Mar. 4, 2003, Update Mar. 13, 2007).
Under Indiana law, title to the real and personal property vests immediately with the heirs, but is subject to possession of the personal representative, who is responsible for paying expenses and administering the estate. See Ind. Code Ann. § 29-1-7-23 ("[w]hen a person dies, his real and personal property, passes to persons to whom it is devised by his last will, or, in the absence of such disposition, to the persons who succeeded to his estate as his heirs; but it shall be subject to the possession of the personal representative and to the election of the surviving spouse and shall be chargeable with the expenses of administrating the estate, the payment of other claims . . .").
In Indiana, as an heir, Ms. J~'s interest is transferable prior to final settlement of the estate, since the law provides that, although the final decree in probate is the final adjudication of the transfer of the property to distributees, "no transfer before or after the decedent's death by an heir or devisee shall affect the decree, nor shall the decree affect any rights so acquired by grantees from the heirs or devisees." Ind. Code Ann. § 29-1-17-2(d); see also Helvey v. O'Neill, 288 N.E.2d 553, 557 (Ind. Ct. App. 1972) (sale of real property by heir prior to final settlement of estate passed title and right of possession to purchaser); Boice v. Mallers, 96 N.E.2d 342, 345 (Ind. Ct. App. 1950) (trustee effectively passed title to stock by transferring it prior to settlement of the estate).
As such, on August 31, 2006, when Ms. J~ became one of four heirs to the Decedent's estate, she had an interest in the property of the estate and title in Decedent's property vested immediately in Ms. J~. The amount of income would be determined by the market value of her right to inherit as of the date of Decedent's death. See POMS SI CHI 00830.550(F). Although Ms. J~ had an inheritance interest in the condominium, it is being used as the principal residence for Ms. J~ and Jacque. Therefore, her share of the interest in the condominium constitutes income up to the presumed maximum value rule in the month of Decedent's death. POMS SI 00830.550 (A)(4). However, in the following months it would be excluded as a resource. See 20 C.F.R. § 416.1212.
In sum, we conclude that Ms. J~'s inheritance was income as of the date of Decedent's death and a resource beginning the following month.
B. PS 02-135 Review of a Resource Needed for SSI Claimant's Physical Condition Alicia W~, SSN ~
DATE: September 16, 2002
This opinion addresses whether a personal effect (in this case, a piano) owned by an SSI recipient, should be considered a countable resource for SSI purposes, or whether it can be excluded as a resource required by her physical condition under the household goods and personal effects exclusion. This is essentially an evidentiary issue; i.e., the key is whether the fact finder in the FO has sufficient evidence to determine that the piano is required by the individual's physical condition. Under 20 CFR 416.1216(c), certain household goods and personal effects are excluded from SSI resource counting if they are "required because of a person's physical condition." As long as there is sufficient evidence for the fact finder to determine that the piano (or similar item) is required as treatment or therapy for the individual's physical condition, then the item could be excluded as a resource. If the fact finder cannot determine that the piano (or similar item) is required, then the current market value of the piano (or similar item) is subject to the $2,000 maximum exclusion for household goods and personal effects [20 CFR 416.1216(a)-(b)]. It should be noted that the exclusions discussed above do not appear in the Social Security Act.
You asked whether a piano, owned by SSI claimant Alicia W~, should be considered a countable resource for SSI purposes, or whether it can be excluded as a resource required because of her physical condition. We conclude that, although there is no caselaw or other legal authority interpreting the applicable regulation, 20 C.F.R. § 416.1216(c), the Agency may consider the piano as an excludable resource, under 20 C.F.R. § 416.1216(c), provided Ms. W~ can show that playing the piano is required as treatment or therapy for her physical condition. If the Agency finds that the piano is not so required, further development and consideration may be warranted to determine the actual current market value of the piano.
Alicia W~ owns a baby grand piano that the Wausau Field Office reported is worth $7000. It is not clear how the valuation of $7000 was reached. For purposes of this memorandum, we assume that $7000 is likely the amount Ms. W~ paid for the piano. Ruth J~, a benefit specialist with the Aging and Disability Resource Center of Marathon County, has advised SSA that Ms. W~ tried to sell her piano by advertising it in a local newspaper and with the Wausau Conservatory of Music and by contacting several local churches. Two individuals expressed interest, but Ms. W~ received no offers to buy the piano. We do not know what price Ms. W~ asked or whether anyone would be willing to purchase the piano for less than her asking price. Ms. J~ stated, in April 2002, that a local music store sold only one comparable piano in the preceding year. The price that the music store charged was not reported. Although Ms. J~ indicated that she was providing the field office with a statement from the music store, no such statement was included in the materials forwarded to us. Ms. J~ also reported that Ms. W~ uses the piano daily and that she is the only member of her household.
Ms. W~ has a congestive heart condition and hypertension. On December 12, 2001, her physician, Arthur W~, M.D., wrote a letter stating that playing piano provided Ms. W~ with positive health benefits in terms of stress relief, which resulted in positive benefits for her hypertension. Dr. W~ further stated that being forced to sell her piano in order to receive SSI "would have a deleterious effect on her overall health."
The Social Security Act (the Act) provides that certain resources are excludable resources for SSI purposes. 42 U.S.C. § 1382b. Among the resources that may be excluded are household goods and personal effects, but only to the extent that their total value does not exceed the $2000 limit set by the Commissioner. 42 U.S.C. § 1382b(2)(A); 20 C.F.R. § 416.1216(b). The regulations define "personal effects" to include musical instruments. Thus, a portion of the value of Ms. W~'s piano could be excluded as a personal effect, provided the total value of her other personal effects and household goods is less than $2000. However, it appears that Ms. W~'s piano may be worth considerably more than that. We must determine, therefore, whether her piano may be excludable for some other reason, or whether the value of her piano can be considered less than previously assumed.
Exclusion for Items Required for Person's Physical Condition
The exclusion for household goods and personal effects that are required because of a person's physical condition does not appear in the Act. See 42 U.S.C. §1382b. The exclusion became a part of SSI regulations effective October 20, 1975. 40 Fed. Reg. 48911, 48916 (October 20, 1975). Neither the preamble to the final regulation published on that date nor the preamble to the proposed regulation states the rationale for the exclusion or gives any further clarification as to its application. See 39 Fed. Reg. 2487 (January 22, 1974); 40 Fed. Reg. at 48911. Thus, we cannot ascertain from those publications whether the Agency intended for the exclusion to apply to items such as a piano that provide "positive health benefits" in terms of an individual's physical condition. The POMS, likewise, provides no guidance in this situation. See POMS SI 01130.430. We were unable to find any caselaw interpreting the regulatory provision or any OGC precedential opinion on the subject. Similarly, we found no caselaw regarding other needs-based federal entitlement programs that might be helpful in interpreting 20 C.F.R. § 416.1216(c).
The Internal Revenue Code (IRC), however, includes a personal income tax deduction for medical care expenses. 26 U.S.C. § 213(a). The definition of "medical care" includes amounts paid "for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. . .." 26 U.S.C. § 213(d)(1)(A). The Internal Revenue Service (IRS) addressed the issue of whether the cost of a piano could be deducted under the IRC medical care provision in two private letter opinions. In the first, parents bought a piano so that their child, who had polio, could strengthen her finger muscles and improve her posture. Priv. Ltr. Rul. 59-03205410A (March 20, 1959), 1959 WL 59702. The IRS determined that, if the use of the piano was prescribed by a physician to mitigate the effects of the child's illness, and if the child was the only one to use the piano, a portion of the cost could be deducted as a medical care expense. Id. The portion of the piano's cost that could be deducted was "the minimum cost of a piano of a quality sufficient for the therapeutic purposes" subject to the ceiling of 7.5% of adjusted gross income, as provided in 26 U.S.C. § 213(a). Priv. Ltr. Rul. 59-03205410A. Another private letter ruling states that, after suffering a nervous breakdown, a taxpayer's daughter "was induced by her doctors to resume piano lessons, in view of her particular aptitude in this area, as it was hoped that this would be good therapeutic treatment and would create a motivation toward recovery." Priv. Ltr. Rul. 63-02264710A (February 26, 1963), 1963 WL 14192. The taxpayer could not find a suitable used piano, so he bought a new piano for $800. The IRS held that the taxpayer could take a medical care deduction for "an amount which does not exceed the minimum cost of a piano of a quality sufficient to effect the prescribed therapy," subject to the limitations in 26 U.S.C. § 213. Priv. Ltr. Rul. 63-02264710A (February 26, 1963), 1963 WL 14192. To the extent, however, that the expenditure was "elaborate," i.e., beyond the need for the prescribed medical therapy, it was not deductible because it was not directly related to medical care. Id.
The IRC provision relied upon in these two private letter rulings is not identical to the resource exclusion provision in the Social Security Regulations. The IRC section would apply to expenditures for treatment of a mental condition as well as a physical condition, but the Social Security regulation would allow exclusion of an item only if it is required because of the SSI claimant's physical condition. Compare 26 U.S.C. § 213(d)(1)(A), 20 C.F.R. § 416.1216(c). While the Social Security regulation allows for exclusion of a resource "required because of a person's physical condition," 20 C.F.R. § 416.1216(c) (emphasis added), the IRC provision, 26 U.S.C. § 213(d)(1), allows a tax deduction for "amounts paid" for treatment (emphasis added). Although the IRC section does not address whether an expenditure is medically required, the private letter rulings provide some support for the conclusion that, in some cases, piano playing may be prescribed as part of an individual's medical treatment.
There is nothing in the Social Security Act or Social Security Regulations to direct a conclusion on this issue. We think it reasonable, however, to conclude, based on the private letter rulings, that there are situations in which a doctor may reasonably require a patient to play a piano as a necessary part of treatment or therapy for the patient's physical condition. Unlike the medical care deduction provision in the IRC, the SSI exclusion for items required for a person's physical condition does not place any limitation on the value of items which can be excluded, even though some of the items listed, such as an engagement ring or a dialysis machine, could have considerable monetary value. 20 C.F.R. § 416.1216(c); see also POMS SI 01130.430 ("Items Excluded Regardless of Value") (emphasis added).
The letter from Ms. W~'s physician states that it is important that she enjoy the benefits of her piano because it relieves her stress and, consequently, has a positive effect on her hypertension. The doctor further states that selling the piano to receive SSI benefits would be "deleterious" to her health. In the absence of evidence casting doubt on the doctor's credibility, we think this statement may be sufficient for a fact-finder to conclude that the piano is required for Ms. W~'s physical condition. You may want to obtain clarification from the doctor, however, that he considers playing the piano a required part of Ms. W~'s treatment or therapy for her hypertension or her congestive heart condition. You may also want to verify that the "deleterious" effect of selling the piano refers to her inability to receive the therapeutic benefit of playing the piano, rather than to other factors, such as a contemplated elevation of her blood pressure because selling the piano would upset her.
If you find that playing a piano is required for Ms. W~'s physical condition and she is the only person who will use the piano, the entire value of the piano should be considered an excludable resource. If, however, you find that playing piano is not required for Ms. W~'s physical condition, it will be necessary to determine the piano's value.
Determining the Current Market Value
If you determine that the piano is not an excludable resource under 20 C.F.R. § 416.1216(c), the current market value of the piano will be subject to the $2000 maximum exclusion for household goods and personal effects. 20 C.F.R. § 416.1216(a)-(b). Contrary to Ms. J~'s contention, the fact that Ms. W~ was unable to sell her piano does not necessarily mean that the value of the piano is zero. The piano likely has some value, even if it is not the $7000 purchase price. It is possible that the value of the piano is zero, however, if, for example, a buyer's expense to move the piano from Ms.W~'s home to a new location exceeds the price that a buyer would ordinarily pay for the piano.
The information provided to us did not indicate what price Ms. W~ was asking for the piano when she advertised it. It may be that she was simply asking a higher price than the current market value and, therefore, did not get an offer. We suggest further development to ascertain the current market value of the piano. For example, did Ms. W~ get any offers to buy the piano and, if so, what amount was offered? Ms. J~ indicated that the local music store sold one comparable piano over the past year. What was the sale price? Are there other music stores in the area that carry comparable pianos? If so, what price do they charge? Has Ms. W~'s piano been appraised? How much would a pawn shop pay for the piano, given that it could be difficult to sell quickly?
We note that POMS SI 01150.200 contains a provision that, under certain circumstances, allows for conditional SSI benefits for a limited period while an individual attempts to sell a non-liquid resource. The individual must agree to sell the resource at the current market value within a specified period and use the proceeds to refund the overpayment of conditional benefits. POMS SI 01150.200B.1. The period of conditional benefits where personal property is concerned would generally end after three months, except that there could be one three-month extension granted for good cause. SI 01150.201A. The individual must make reasonable efforts to sell the resource, taking all necessary steps to sell the resource through the local media. SI 01150.201B.1. The information provided to us does not indicate whether Ms. W~ was eligible for, or received, conditional benefits under these POMS provisions.
We also note that, even if Ms. W~ purchased the piano for $7000, and if the Agency determines that the current market value of her piano is less than $7000, it does not necessarily mean that her purchase was a transfer for less than fair market value. See POMS SI 01150.005A. (transfers of resources for less than fair market value after December 14, 1999 may result in a period of SSI ineligibility). Nor does the fact that Ms. W~ may not be able to sell her piano for the same price she paid mean that she paid more than the fair market value. Fair market value is the current market value of a resource at the time the resource is transferred, i.e., the going price for which it could reasonably be expected to sell at the time, on the open market in the geographic area involved. POMS SI 01150.005. If Ms. W~ bought her piano on the open market, e.g., from a merchant, the $7000 purchase price is assumed to be the fair market value at the time of the transfer. POMS SI 01140.005C.4.a. It may be that the value of the piano has depreciated since its purchase, or simply that the going price for a comparable piano was $7000 at the time of the purchase but is less now due to economic conditions. A prospective buyer might be willing to pay more for a piano bought from a merchant whose reputation is known than he would pay in a private sale by a stranger. A merchant might also be in a position to charge more because he could offer a factory guarantee or a store guarantee that a private seller like Ms. W~ cannot offer. Finally, a merchant might be in a position to wait until a buyer came along who was willing to pay a higher price. Thus, the current market value of the piano, in Ms. W~'s hands, may be less th