PR: Title II Regional Chief Counsel Precedents
TN 6 (02-18)
A. PR 17-037 Recovery of Funds Escheated to the Commonwealth of Massachusetts
Date: January 9, 2017
1. Syllabus
The Social Security Administration (SSA) has a valid interest in the property and there are no apparent risks or bars to reclaiming the property. Thus, we believe that SSA should file a claim with the State of Massachusetts seeking the return of the post-death benefits paid.
2. Opinion
I. Question Presented
Can the Social Security Administration (SSA) claim $58,968.00 in funds erroneously paid to deceased number-holder D~ when the number-holder’s financial institution escheated those funds as abandoned property to the Commonwealth of Massachusetts?
II. Short Answer
Yes. The SSA has a valid interest in the property and there are no apparent risks or bars to reclaiming the property.
III. Background
On December 9, 2016, we received your request for an opinion as to whether SSA could reclaim SSA benefit payments that had been erroneously made to a deceased number-holder, when those funds had escheated to the Commonwealth of Massachusetts from the number-holder’s financial institution, the Bank of America.
D~ passed away on January XX, 2008, in N~, Canada. Following her death, a Bank of America account that she had held jointly with her then-deceased husband continued to receive Social Security benefits payments through direct deposit. SSA deposited funds into the jointly-held account on a monthly basis until October 2012, resulting in a title II incorrect payment of $58,968.00. It is unclear when SSA learned of D~’s death. It is also unclear whether SSA attempted to reclaim the funds erroneously deposited into her account by filing an FMS-133 Notice of Reclamation. See POMS GN 02408.610. Sometime in 2013, Bank of America escheated a total of $61,389.03 from the account to the Commonwealth of Massachusetts Unclaimed Property Division due to inactivity. The Office of Inspector General (OIG) investigated the case and contacted the Massachusetts State Treasurer’s Office to begin the process for claiming the $58,968.00 in account funds that belong to SSA. OGC has been asked to provide an opinion on how to proceed in accordance with POMS GN 02408.750.
IV. Applicable Law
Federal law provides that all financial institutions receiving federal deposits via electronic funds transfer (EFT) are liable to the federal government for benefit payments received after the death or incapacity of the beneficiary. 31 C.F.R. §§ 210.9, 210.10. To reclaim post-death benefit payments directly from a financial institution, the Agency must initiate the request for reclamation within 120 calendar days after the date that the Agency first has actual or constructive knowledge of the beneficiary’s death. 31 C.F.R. § 210.10(d); see also POMS GN 02408.610A(4).
Property held in deposit within Massachusetts is presumed abandoned if the purported owner of the property fails to communicate with the financial institution1 or fails to engage in transactions known to the financial institution for a period of three years. Mass. Gen. Laws ch. 200A § 3. Massachusetts state law requires financial institutions to annually report and deliver any presumably abandoned property to the treasurer of the State. Mass. Gen. Laws ch. 200A, §§ 7, 8A. Parties claiming an interest in abandoned property that has been surrendered to the state treasurer may establish their claim at any time by following a claims process set forth under Massachusetts law. Mass. Gen. Laws ch. 200A, § 10; 960 Mass. Code Regs. 4.01-4.10 (2016).
When SSA learns that an account containing SSA benefits will be surrendered to a state as abandoned property, the Regional Office seeks legal advice from the Regional Chief Counsel for how to recover the money. See POMS GN 02408.750B.2 POMS identifies three possible courses of action for SSA to take in this situation: (1) asking the financial institution to return the funds to SSA; (2) asking the state to return the funds to SSA; or (3) contacting the beneficiary’s estate if the estate claimed some or all of the funds that were previously surrendered to the state treasury. POMS GN 02408.750B.
V. Analysis
SSA should adopt option (2) and follow the claim process provided under Massachusetts state law for claiming abandoned property. Option (1) is time-barred at this point. SSA seems to have learned of D~’s death by April 2016 at the latest. See Email from R~, Lead Investigator, Massachusetts State Treasurer’s Office, dated Apr. 29, 2016 (hereinafter “state treasury email”). Federal agencies must initiate the request for reclamation from a financial institution within 120 calendar days after the date that the Agency first has actual or constructive knowledge of the beneficiary’s death. 31 C.F.R. § 210.10(d). Were the claim not time-barred, it may have been advantageous to pursue that method of reclamation while simultaneously exercising our right to claim the abandoned property under Massachusetts law. However, the time for seeking reclamation under 31 C.F.R. § 210.10 has passed, and this memorandum does not address the option further.
Option (3) also appears to be inapplicable, as SSA has no reason to believe that D~’s estate claimed any of the funds that were surrendered to the state treasury.
Option (2) thus remains SSA’s only available method for reclaiming the post-death benefits delivered to D~’s account. POMS GN 02408.750B.
Massachusetts law sets forth the process for claiming abandoned property. Mass. Gen. Laws ch. 200A, § 10; 960 Mass. Code Regs. 4.01-4.10. SSA must first file a claim with the Massachusetts state treasurer. 960 Mass. Code Regs. 4.04. SSA has already received and largely completed a claims form – the first step in the process. 960 Mass. Code Regs. § 4.04(1). SSA claims funds valued at $58,968.00. The governing regulation identifies the documentation required for a cash claim valued at $5,000.00 or greater. Id. at § 4.04(2)(a)(2).
SSA must provide: (1) the signature, date of signature, and FEIN number for SSA; (2) a written statement from Bank of America certifying that it reported D~’s account to the state treasury as abandoned (“holder certification”); (3) proof of former residence, if reported; (4) passbook or monthly statement, if applicable; and (5) “other documentation as may be required by the [Abandoned Property] Division to substantiate the validity of the claim.” See 960 Mass. Code Regs. § 4.04(2)(a)(2); see also, id. at § 4.02 (defining “holder certification” and “Division”). Here, it appears that an SSA OIG agent spoke with an investigator in the Massachusetts State Treasurer’s Office who advised that SSA would need to provide “other documentation” to substantiate the validity of the claim. See state treasury email. Specifically, the Massachusetts State Treasurer’s Office instructed SSA to provide a death record for both listed owners of the account that was surrendered by Bank of America. See state treasury email. Thus, SSA will need to provide a death certificate for both D~ and for her deceased husband D1~, who was a joint owner of the account. The state treasurer’s office also referenced a “court order” – presumably the SSA OIG agent who initiated the claim is familiar with any additional documentary requirements imposed by the state treasury office.3
After SSA submits the claim, the state treasurer will issue a written determination. Mass. Gen. Laws ch. 200A, § 10(b). Should SSA disagree with the determination, the state of Massachusetts does provide a hearing and appeals process. Id. at § 10(b), (d). There are short, 20-day deadlines to seek further review following determinations at each stage of the hearing and appeals process, so SSA should be vigilant in protecting its appeal rights upon receipt of a determination on the claim. Id.
VI. Conclusion
Based on the foregoing, we believe that SSA should file a claim with the State of Massachusetts seeking the return of the post-death benefits paid to the account of D~.
Michael J. Pelgro
Regional Chief Counsel
By: Sean Santen
Assistant Regional Counsel
B. PR 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
1. Syllabus
The opinion expands on the policy for recovery of an overpayment from an executor of an estate of a deceased debtor.
2. Opinion
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 (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.
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.
Footnotes:
. The law is not limited to financial institutions, but this memorandum substitutes “financial institution” for the more generic “person” used in the statutory provisions for the sake of simplicity. See e.g., Mass. Gen. Laws ch. 200A § 1 (defining “person” for purposes of chapter 200A to include “any bank..., savings bank, .... national banks, ... bank holding companies and bank subsidiaries...”).
. The POMS use the formalistic legal term “escheat” to describe the legally mandated surrender of abandoned property to the state treasury. POMS GN 02408.750A. For the sake of simplicity and readability, this memorandum uses the plain language found in Massachusetts law regarding the orderly surrender of abandoned property.
. As noted above, it appears that the claims form is largely completed. We assume that CPS and OIG will coordinate to complete the claim, but we are happy to assist with any questions that arise about the claim requirements.