|
As published in the =
Pennsylvania=20
Bar Association's law journal, =
the Pennsylvania Bar=20
Association Quarterly. The =
Pennsylvania=20
Bar Association Quarterly is published four times =
a year=20
in January, April, July, and October by the =
Pennsylvania Bar=20
Association.
By ROBERT C. GERHARD III,=20
CELA*
INTRODUCTION
Federal law requires each state =
to operate=20
an estate recovery program. Pennsylvania complied with =
this=20
federal mandate by passing Act 49 of 1994, Section =
1412, 62=20
Pa. C.S. =A71412 which required the Pennsylvania =
Department of=20
Public Welfare (DPW) to establish and implement an =
estate=20
recovery program to recover certain medical assistance =
payments from a decedent=92s probate estate. DPW set =
up the=20
program and ultimately regulations were promulgated, =
setting=20
forth Pennsylvania policy and practice with respect to =
the=20
program.
No further notice about the program is required to =
Medicaid=20
recipients beyond enactment and publication of the =
law.=20
However, the Department of Public Welfare includes an=20
informational brochure about the estate recovery =
program to=20
Medical Assistance recipients when their cases are =
authorized=20
for benefits. Caseworkers also do their best to =
explain the=20
program to the family representatives during the =
application=20
process.
Not all Medicaid payments are subject to estate =
recovery.=20
Only Medical Assistance received by individuals after =
age 55=20
are recoverable, and only where the Medical assistance =
payments were for specific types of services. Estate =
recovery=20
does not apply to medical assitance=20
payments made before the recipient=20
attained age 55.
Pennsylvania=92s estate recovery program only seeks =
reimbursement for certain services: nursing facility =
services,=20
home and community based services, or related hospital =
and=20
prescription drug services. Nursing facility services =
include=20
general, hospital based, and county nursing facility =
services,=20
as well as services provided in an intermediate care =
facility=20
for the mentally retarded or for persons with other =
related=20
conditions. Home and community based services include =
a broad=20
array of Medicaid services provided to an individual =
over age=20
55 to avoid institutionalized nursing facility =
services under=20
the waiver authority of section 1915 (c) of the Social =
Security Act. (42 U.S.C.A. =A71396n (c). Related =
hospital and=20
prescription drug services include hospital and =
prescription=20
drug services provided to an individual over age 55 =
while the=20
individual was a resident in a nursing facility or was =
receiving home and community based services, while the =
individual was on temporary leave from a nursing =
facility, and=20
subsequent to transfer from a nursing facility to a=20
hospital.
All "estate property" is subject to estate =
recovery. Other=20
states have more aggressive programs that seek =
recovery from=20
an expanded definition of estate property, such as =
property=20
owned jointly with right of survivorship. Under =
present=20
Pennsylvania law, property liable to repay the =
Department=92s=20
claim includes all probate estate property. This =
includes all=20
real and personal property of a decedent which is =
subject to=20
administration by a decedent=92s personal =
representative,=20
whether actually administered or not administered. =
Life insurance which is payable to the decedent=92s =
estate is=20
subject to the Department=92s claim, even if the life =
insurance=20
policy contains a facility of payment clause. A =
facility of=20
payment clause is a contract provision which enables =
an=20
insurance company to pay policy proceeds directly to =
certain=20
family members, not to the estate, even where there is =
no=20
designated beneficiary.
Deposit accounts and patient care accounts paid =
directly to=20
specified family members outside of probate pursuant =
to 20=20
P.S. =A73101(b) and 20 P.S. =A73101(c) are also =
included in the=20
definition of estate assets for purposes of estate =
recovery.=20
This includes excess funeral reserves which would =
otherwise be=20
subject to formal estate administration but for the =
operation=20
of 20 P.S. =A73101.
Assets not subject to estate recovery include =
property=20
owned jointly by the decedent and another, including =
property=20
owned as tenants by the entireties, life insurance =
proceeds=20
paid directly to a designated named beneficiary, asset =
placed=20
in trust prior to the death of the decedent, =
irrevocable=20
funeral reserves, certain property of Native American =
Indians,=20
government repatriations to special populations, and =
certain=20
trusts for disabled persons, including special needs=20
trusts.
Where the decedent was over age 55, the personal=20
representative of the estate has a duty to first =
ascertain=20
whether the decedent received MA at any time during =
the 5=20
years preceding death. If no MA was received in 5 =
years prior=20
to death, then there is no duty to even notify DPW or =
request=20
a claim, and therefore no estate recovery occurs. If =
the=20
administrator determines that benefits were received =
within=20
that five year window, then the executor or =
administrator is=20
required to give notice to the department in an effort =
to=20
obtain a statement of the department=92s claim. The =
5-year time=20
frame is for notification purposes only and does not =
limit the=20
department=92s claim. There is no limit on the number =
of years=20
for which DPW can seek recovery, except that there can =
be no=20
recovery for medical assistance provided prior to the=20
effective date of the act, August 15, 1994.
If a personal representative knows that a decedent =
received=20
medical assistance while over age 55, but earlier than =
5 years=20
prior to death, estate recovery would still apply if a =
request=20
for statement of claim is made. Failure to request a =
claim=20
under this circumstance is an ethical problem for the =
personal=20
representative if he or she knows of a creditor=92s =
claim that=20
is due and fails to address it. Absent actual =
knowledge of the=20
existence of the claim, the only legal duty of a =
personal=20
representative to request a claim hinges on the =
determination=20
of whether medical assistance was paid within the 5 =
years=20
prior to death where the recipient was over age 55 at =
the time=20
benefits were received.
Notice must be sent by certified mail, return =
receipt=20
requested to the Third Party Liability Section; =
Department of=20
Public Welfare; Estate Recovery Program; P.O. Box =
8486;=20
Harrisburg, PA 17105-8486. Notice may also be sent to =
the=20
Department via facsimile transmission at (717) =
772-6553.
If there is an estate claim, the Department must =
submit its=20
claim to the executor or administrator within =
forty-five (45)=20
days of receipt of the notice or the claim is =
forfeited. DPW=20
usually forwards the statement of claim within two to =
three=20
weeks, though there have been rare cases where the =
Department=20
failed to submit its claim within the required time =
period=20
resulting in forfeiture. The certified mail receipt or =
facsimile transmission confirmation verifies the =
receipt date=20
for starting the response period. If the last day of a =
response period falls on a weekend, Commonwealth =
holiday, or a=20
day that the offices of the Department are closed, the =
response period ends on the next business day.
The Department=92s 45-day response period does not =
start to=20
run until a notice is properly served on the =
Department which=20
fully complies with the applicable regulations. The =
letter=20
from the personal representative must set forth a =
statement=20
that the personal representative is requesting a =
statement of=20
the claim against the estate of the decedent. =
Additionally,=20
the decedent=92s name, last address, date of birth, =
and Social=20
Security Number must be in the letter together with =
the name,=20
address, and phone number of the personal =
representative. A=20
last requirement of the notice is written =
documentation of the=20
gross value of the decedent=92s estate.
Written documentation of the size of the estate is =
required=20
by the Department=92s regulations and should accompany =
the=20
personal representative=92s request for a statement of =
claim.=20
Such verification could include a copy of the =
estate=92s=20
financial inventory, copies of the bank account =
statements, or=20
other written verification of the value of the estate. =
The=20
purpose of this requirement in the regulations is to =
serve as=20
a trigger mechanism for the Department to identify =
those small=20
estates where estate recovery will not be pursued due =
to the=20
hardship waiver for estates valued at $2,400 or less. =
DPW=92s estate recovery claim consists of all =
Medical=20
assistance payments made on behalf of the decedent for =
nursing=20
facility services, home and community based services, =
and=20
related hospital and prescription drug services =
rendered on or=20
after August 15, 1994. The Medicare premium payments =
and=20
cost-sharing for qualified Medicare beneficiaries are =
also=20
included in the statement of claim for the period =
during which=20
nursing facility services, home and community based =
services,=20
and related hospital services were covered by Medical=20
Assistance. Medical Assistance services delivered =
through a=20
Managed Care Organization (MCO) contract are included =
in the=20
Department=92s claim in an amount equal to that paid =
to the=20
MCO.
The Commonwealth=92s estate recovery program =
generates a=20
"claim" against the decedent=92s estate. Many people =
incorrectly=20
refer to the claim as a lien. The distinction is =
important in=20
cases where the estate is insolvent.
Judgment liens, mortgage liens, and other liens =
against=20
specific property take priority over unsecured =
creditors and=20
get paid first when the property is sold. The estate =
recovery=20
claim is not a lien, but an unsecured claim against =
estate=20
assets. Pennsylvania law sets forth the priority in =
which=20
unsecured claims are paid from an insolvent estate: =
If the applicable assets of the estate are =
insufficient to=20
pay all proper charges and claims in full, the =
personal=20
representative, subject to any preference given by law =
to=20
claims due the United States, shall pay them in the =
following=20
order, without priority as between claims of the same=20
class:
(1) The costs of administration.
(2) The family exemption.
(3) The costs of the decedent=92s funeral and =
burial, and the=20
costs of medicines furnished to him within six months =
of his=20
death, of medical or nursing services performed for =
him within=20
that time, of hospital services including maintenance =
provided=20
him within that time, and of services performed for =
him by any=20
of his employees within that time.
(4) The cost of a gravemarker.
(5) Rents for the occupancy of the decedent=92s =
residence for=20
six months immediately prior to his death.
(6) All other claims, including claims by the=20
Commonwealth.
Estate administration expenses, including =
reasonable=20
attorney fees, represent Class 1 claims and are paid =
first.=20
The estate recovery claim is subordinate to the family =
exemption as well, if applicable. The estate recovery =
claim is=20
a Class 3 claim to the extent it is comprised of =
medical=20
services rendered within the last six months prior to =
death,=20
and the balance represents a Class 6 claim.
The family exemption takes priority over the =
Department=92s=20
claim, but only if the family member who is otherwise =
entitled=20
to the exemption was residing in the household of the=20
decedent. If the nursing home applicant intends to =
return=20
home, the family member can still be considered as =
"residing"=20
with the late family member and the exemption may =
still be=20
claimed. At a certain point a nursing home resident =
may not be=20
considered as residing at home, for purposes of =
claiming the=20
family exemption. The Department considers its =
position in=20
these situations on a case-by-case basis, but a =
nursing home=20
stay of over one year in duration would tend to =
indicate that=20
the family exemption is not going to be allowed, while =
a stay=20
of under one year would most likely not draw an =
objection from=20
the Department of Public Welfare with regard to =
claiming the=20
family exemption.
Funeral expenses and nursing home services paid =
within 6=20
months of death are both Class 3 claims. A strict=20
interpretation of the statute would call for a =
pro-rata=20
payment of the competing claims without priority =
between=20
claims of the same class. However, the Commonwealth =
has always=20
had an informal policy of accepting a "Class 3 (b) =
position"=20
behind reasonable funeral and burial expenses, an =
approach now=20
formalized in the regulations.
The personal representative has a duty to pay the =
estate=20
debts in accordance with the statutory priorities =
outlined in=20
20 PA CS =A73392. If the statutory priorities are not =
followed=20
and the Commonwealth=92s claim remains unsatisfied, =
the personal=20
representative is personally liable to the extent =
estate=20
assets were not properly applied to pay the estate =
recovery=20
claim.
In some situations estate recovery is postponed. In =
postponement cases, the executor also has a duty to =
protect=20
the Commonwealth=92s interest in certain estate =
"protectable"=20
assets. Improper transfer or sale of such protected =
assets=20
will also result in personal liability for the =
personal=20
representative.
Although in many cases it may not appear =
financially=20
feasible to bring an estate accounting before the =
court for=20
audit, obtaining a decree of distribution can help =
protect the=20
executor from personal liability. However, the =
regulations=20
provide that a decree of distribution will only =
discharge=20
liability of personal representative if certain =
conditions are=20
met. Specifically, DPW must be served with a copy of =
the=20
proposed distribution at least 30 days in advance of =
court=20
approval, the court records must show that the =
personal=20
representative made the appropriate request for the =
statement=20
of a claim pursuant to 55 PA Code =A7258.4. =
Furthermore, the=20
court records must show that any claim of the =
Department was=20
presented to the court and paid, or that there were=20
insufficient assets to pay the Department=92s claim, =
and the=20
Department must be served with a copy of the final=20
distribution order and paid all amounts that it is =
due.
The personal representative must fully disclose all =
estate=20
assets in paperwork presented to the court when =
seeking the=20
decree of distribution. If recoverable estate assets =
are not=20
disclosed, then the personal representative is not =
discharged=20
from liability and can be held personally liable for =
the value=20
of the non-disclosed assets which should have been =
used to=20
satisfy the estate recovery claim.
The estate recovery act specifically relieves the =
bona=20
fide purchaser of estate property from personal =
liability,=20
even where the Department=92s claim is not properly =
satisfied by=20
the personal representative. However, purchasers are =
only=20
exempted from personal liability in arm=92s-length =
transactions=20
where the property is purchased at fair market value. =
If=20
property subject to the Department=92s claim is sold =
for less=20
than fair market value, both the transferee and the =
personal=20
representative are personally liable for the =
difference=20
between the fair market value and the amount actually =
received=20
by the estate.
Many times family members are interested in =
attempting to=20
keep a home or automobile in the family and wish to =
purchase=20
it from the estate. Occasionally the purchaser =
inappropriately=20
seeks to take the property at a bargain price, =
certainly=20
something less than fair market value. The best =
practice for=20
the personal representative in this circumstance, =
other than=20
selling the property to an unrelated third party, is =
to=20
adequately document the fair market of the asset by =
way of a=20
professional appraisal. The property must be sold for =
fair=20
market value. An honest, professional appraisal can =
help=20
protect both the transferee and personal =
representative from=20
liability in this circumstance.
In addition to pursuing traditional remedies in =
court for=20
enforcement of liability against the personal =
representative,=20
the Department may administratively assess liability =
pursuant=20
to 62 P.S. =A71412(a.1)(1) and (2). Where an =
administrative=20
assessment is made, the personal representative =
receives=20
written notice and has a 30-day appeal period to =
request a=20
hearing before the Department=92s Bureau of Hearings =
and=20
Appeals. This hearing is known as a "fair hearing." =
The=20
determination made by the administrative law judge at =
the fair=20
hearing is subject to reconsideration by the Secretary =
of the=20
Department of Public Welfare and appellate review in=20
Commonwealth Court.
Estate recovery is postponed by the Department of =
Public=20
Welfare in certain circumstances. No interest is =
charged on=20
the Department=92s claim in the case of postponement. =
Collection=20
the estate recovery claim is delayed until:
1) The death of any surviving spouse.
2) The death of any child who is blind or totally =
and=20
permanently disabled as determined under the standards =
of the=20
Supplemental Security Income (SSI) program in the =
Social=20
Security Act.
3)The date any surviving child is 21 years of =
age.
4)The death of, property transfer by or vacating of =
the=20
property by a sibling who has an equity interest in =
the=20
property and who has been living in the home for at =
least 1=20
year prior to the death of the decedent.
During postponement, "protectable assets" are to be =
safeguarded by the personal representative. In the =
case of=20
real property, the personal representative is to make=20
arrangements to have a mortgage or other recorded =
encumbrance=20
entered against the property in favor of the =
Department.=20
Individual items of personal property with a fair =
market value=20
in excess of $10,000, are to be protected by way of a =
properly=20
perfected security interest being entered of record. =
If the estate contains cash or cash equivalents =
exceeding=20
$50,000, the personal representative is to work with =
the=20
Department of Public Welfare to place the money in a =
trust=20
which complies with the estate recovery regulations. =
The trust=20
would allow the surviving spouse or child to access =
the income=20
without court approval but would require court =
approval for=20
distributions of principal. The creation of such a =
trust can=20
be avoided if the beneficiary is willing to waive =
postponement=20
and the Department is willing to compromise the =
claim.
If estate recovery would cause undue hardship, the =
personal=20
representative may request a waiver by writing to the =
Estate=20
Recovery Program. If undue hardship is found to exist, =
the=20
Department will waive estate recovery. DPW has created =
a=20
"hardship committee" Harrisburg to carefully consider =
such=20
requests. Although determinations are made on a =
case-by-case=20
basis, the estate recovery regulations set forth some =
of the=20
circumstances where hardship waivers will be granted. =
In=20
making the request, consider the economic status of =
the=20
beneficiary of the estate. Also consider the physical =
or=20
mental disability of a beneficiary or any dependents. =
Caregiver Exception
A major hardship exception is waiver of recovery =
against=20
the decedent=92s residence in favor of certain =
caregivers who=20
helped keep the decedent out of a nursing home or who =
provided=20
care and support to the decedent while home and =
community=20
based services were being accessed. The caregiver must =
have=20
resided in the home for at least the two years =
immediately=20
prior to the decedent=92s entry to a nursing facility =
or for the=20
two years during the administration of home and =
community=20
based services. The Department will permanently waive =
the=20
claim with respect to the residence in this instance. =
Certain Income-Producing Property
The Department=92s claim will also be waived on a =
hardship=20
basis for a spouse, child, sibling, or grandchild with =
respect=20
to income-producing property if the asset is used to =
generate=20
the primary source of income for the household, and =
the family=20
would have income below 250% of the federal poverty =
guidelines=20
without use of the asset. The regulations define an=20
income-producing asset as property which is used in a =
trade or=20
business such as a family farm, family business, or =
rental=20
property.
Home Maintenance Expenses
The Department=92s claim is waived in cases where a =
person,=20
other than an estate creditor, has advanced "necessary =
and=20
reasonable expenses" to maintain the decedent=92s home =
while the=20
decedent was either in a nursing facility or at home =
receiving=20
home and community based services. The regulations =
define=20
necessary and reasonable expenses for maintaining the =
home to=20
include real estate taxes, utility bills, home =
repairs, and=20
home maintenance such as lawn care and snow removal =
necessary=20
to keep the property in condition for the decedent to =
return=20
home or to sell at fair market value.
Small Estates
Provided that there is an heir to claim his or =
her=20
beneficial interest in the estate, the Department will =
find=20
undue hardship and will permanently waive its claim =
for=20
administered estates with a gross value of $2,400 or =
less. If=20
the gross value of the estate exceeds $2,400, estate =
recovery=20
applies absent another applicable hardship =
exception.
The Bureau of Hearings and Appeals has exclusive=20
jurisdiction to review disputes concerning waiver, =
compromise,=20
or postponement of collection under an abuse of =
discretion=20
standard. The Bureau of Hearings and Appeals has =
concurrent=20
jurisdiction with the Court of Common Pleas with =
regard to=20
assessment of liability against a personal =
representative and=20
over computation of the estate recovery claim.
The Department has many cases where no family =
member comes=20
forward to probate a will or is willing to serve as=20
administrator for a decedent=92s estate. The =
Commonwealth is=20
permitted to serve as personal representative of an=20
unadministered estate pursuant to 20 Pa.C.S. =
=A73155(b)(4). As a=20
practical matter, the Office of Legal Counsel for the=20
Department has limited resources to allocate to the =
task of=20
administering these estates and anticipates that it =
will only=20
rarely do so.
The estate recovery regulations provide for this =
situation=20
by allowing the Department to provide lists of such =
estates to=20
county bar associations for local attorneys to =
administer.=20
Members of the bar may serve both as administrator and =
attorney for the estate, but the total combined fee =
charged=20
for both roles can not exceed $1,000 or 6% of the =
estate,=20
whichever is greater.
"With the approval of the Governor, the department =
may=20
expand the estate recovery by regulation to include =
medical=20
assistance for services other than those listed in =
this=20
section and to recover against other real and =
personal=20
property in which an individual had any legal title or =
interest at the time of death." Future recoveries =
may be=20
sought against non-probate =
property.
Author's=20
Update: Though not technically in the=20
category of estate recovery, there is a trend =
toward=20
states allowing the purchase of annuities in the =
Medicaid=20
planning process, provided that those annuities name =
the state=20
as the remainder beneficiary (behind a community =
spouse, or=20
minor or disabled child) to the extent Medicaid =
benefits have=20
been paid on behalf of the annuitant. Stay=20
tuned... -Robert C. Gerhard, III =20
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