A version of this article was previously published in the Pennsylvania Bar Association's law journal, the Pennsylvania Bar Association Quarterly.
By ROBERT C. GERHARD III, CELA*
Federal law requires each state to operate an estate recovery program. Pennsylvania complied with this federal mandate by passing Act 49 of 1994, Section 1412, 62 Pa. C.S. ß1412 which required the Pennsylvania Department of Public Welfare (DPW) to establish and implement an estate recovery program to recover certain medical assistance payments from a decedentís probate estate. DPW set up the program and ultimately regulations were promulgated, setting forth Pennsylvania policy and practice with respect to the program.
No further notice about the program is required to Medicaid recipients beyond enactment and publication of the law. However, the Department of Public Welfare includes an informational brochure about the estate recovery program to Medical Assistance recipients when their cases are authorized for benefits. Caseworkers also do their best to explain the program to the family representatives during the application process.
Not all Medicaid payments are subject to estate recovery. Only Medical Assistance received by individuals after age 55 are recoverable, and only where the Medical assistance payments were for specific types of services. Estate recovery does not apply to medical assitance payments made before the recipient attained age 55.
Pennsylvaniaís estate recovery program only seeks reimbursement for certain services: nursing facility services, home and community based services, or related hospital and prescription drug services. Nursing facility services include general, hospital based, and county nursing facility services, as well as services provided in an intermediate care facility for the mentally retarded or for persons with other related conditions. Home and community based services include a broad array of Medicaid services provided to an individual over age 55 to avoid institutionalized nursing facility services under the waiver authority of section 1915 (c) of the Social Security Act. (42 U.S.C.A. ß1396n (c), including the PDA 60+ Aging Waiver. Related hospital and prescription drug services include hospital and prescription drug services provided to an individual over age 55 while the 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 subsequent to transfer from a nursing facility to a hospital.
All "estate property" is subject to estate recovery. Other states have more aggressive programs that seek recovery from an expanded definition of estate property, such as property owned jointly with right of survivorship. Under present Pennsylvania law, property liable to repay the Departmentís claim includes only probate estate property. This includes all real and personal property of a decedent which is subject to administration by a decedentís personal representative, whether actually administered or not administered.
Life insurance which is payable to the decedentís estate is subject to the Departmentís claim, even if the life insurance policy contains a facility of payment clause. A facility of payment clause is a contract provision which enables an insurance company to pay policy proceeds directly to certain family members, not to the estate, even where there is no designated beneficiary.
Deposit accounts and patient care accounts paid directly to specified family members outside of probate pursuant to 20 P.S. ß3101(b) and 20 P.S. ß3101(c) are also included in the definition of estate assets for purposes of estate recovery. This includes excess funeral reserves which would otherwise be subject to formal estate administration but for the operation of 20 P.S. ß3101, and which are instead paid to family members.
Assets not subject to estate recovery include property owned jointly by the decedent and another, including property owned as tenants by the entireties, life insurance proceeds paid directly to a designated named beneficiary, asset placed in trust prior to the death of the decedent, irrevocable funeral reserves, certain property of Native American Indians, government repatriations to special populations, and certain trusts for disabled persons, including special needs trusts.
Where the decedent was over age 55, the personal representative of the estate has a duty to first ascertain whether the decedent received MA at any time during the 5 years preceding death. If no MA was received in 5 years prior to death, then there is no duty to even notify DPW or request a claim, and therefore no estate recovery occurs. If the estate's personal representative determines that benefits were received within that five year window, then the executor or administrator is required to give notice to the department in an effort to obtain a statement of the departmentís claim. The 5-year time frame is for notification purposes only and does not limit the Departmentís claim. There is no limit on the number of years for which DPW can seek recovery, except that there can be no recovery for medical assistance provided prior to the effective date of the act, August 15, 1994.
If a personal representative knows that a decedent received medical assistance while over age 55, but earlier than 5 years prior to death, estate recovery would still apply if a request for statement of claim is made. Failure to request a claim under this circumstance is an ethical problem for the personal representative if he or she knows of a creditorís claim that is due and fails to address it. Absent actual knowledge of the existence of the claim, the only legal duty of a personal representative to request a claim hinges on the determination of whether medical assistance was paid within the 5 years prior to death where the recipient was over age 55 at the time benefits were received. A Statement of Claim Request Form should be sent by certified mail, return receipt requested to the Third Party Liability Section; Department of Public Welfare; Estate Recovery Program; P.O. Box 8486; Harrisburg, PA 17105-8486. Notice may also be sent to the Department via facsimile transmission at (717) 772-6553. Representatives there can be reached by telephone at (717)772-6604 or toll free at (800) 528-3708.
If there is an estate claim, the Department must submit its claim to the executor or administrator within forty-five (45) days of receipt of the notice or the claim is forfeited. DPW usually forwards the statement of claim within two to three weeks, though there have been rare cases where the Department failed to submit its claim within the required time period resulting in forfeiture. The certified mail receipt or facsimile transmission confirmation verifies the receipt date for starting the response period. If the last day of a response period falls on a weekend, Commonwealth holiday, or a day that the offices of the Department are closed, the response period ends on the next business day.
The Departmentís 45-day response period does not start to run until a notice is properly served on the Department which fully complies with the applicable regulations. The letter from the personal representative must set forth a statement that the personal representative is requesting a statement of the claim against the estate of the decedent. Additionally, the decedentís name, last address, date of birth, and Social Security Number must be in the letter together with the name, address, and phone number of the personal representative. A last requirement of the notice is written documentation of the gross value of the decedentís estate.
Written documentation of the size of the estate is required by the Departmentís regulations and should accompany the personal representativeís request for a statement of claim. Such verification could include a copy of the estateís financial inventory, copies of the bank account statements, or other written verification of the value of the estate. The purpose of this requirement in the regulations is to serve as a trigger mechanism for the Department to identify those small estates where estate recovery will not be pursued due to the hardship waiver for estates valued at $2,400 or less.
DPWís estate recovery claim consists of all Medical assistance payments made on behalf of the decedent for nursing facility services, home and community based services, and related hospital and prescription drug services rendered on or after August 15, 1994. The Medicare premium payments and cost-sharing for qualified Medicare beneficiaries are also included in the statement of claim for the period during which nursing facility services, home and community based services, and related hospital services were covered by Medical Assistance. Medical Assistance services delivered through a Managed Care Organization (MCO) contract are included in the Departmentís claim in an amount equal to that paid to the MCO.
The Commonwealthís estate recovery program generates a "claim" against the decedentís estate. Many people incorrectly refer to the claim as a lien. The distinction is important in cases where the estate is insolvent.
Judgment liens, mortgage liens, and other liens against specific property take priority over unsecured creditors and get paid first when the property is sold. The estate recovery claim is not a lien, but an unsecured claim against estate assets. Pennsylvania law sets forth the priority in which unsecured claims are paid from an insolvent estate:
If the applicable assets of the estate are insufficient to pay all proper charges and claims in full, the personal representative, subject to any preference given by law to claims due the United States, shall pay them in the following order, without priority as between claims of the same class:
(1) The costs of administration.
(2) The family exemption ($3,500).
(3) The costs of the decedentís funeral and burial, and the costs of medicines furnished to him within six months of his death, of medical or nursing services performed for him within that time, of hospital services including maintenance provided him within that time, and of services performed for him by any of his employees within that time.
(4) The cost of a gravemarker.
(5) Rents for the occupancy of the decedentís residence for six months immediately prior to his death.
(5.1) Claims by the Commonwealth and the political subdivisions of the Commonwealth.
(6) All other claims, including claims by the Commonwealth.
Estate administration expenses, including reasonable attorney fees, represent Class 1 claims and are paid first. The estate recovery claim is subordinate to the family exemption as well, if applicable. The estate recovery claim is a Class 3 claim to the extent it is comprised of medical services rendered within the last six months prior to death, and the balance represents a Class 5.1 claim.
The family exemption takes priority over the Departmentís claim, but only if the family member who is otherwise entitled to the exemption was residing in the household of the decedent. If the nursing home applicant intends to return home, the family member can still be considered as "residing" with the late family member and the exemption may still be claimed. At a certain point a nursing home resident may not be considered as residing at home, for purposes of claiming the family exemption. The Department considers its position in these situations on a case-by-case basis, but a nursing home stay of over one year in duration would tend to indicate that the family exemption is not going to be allowed, while a stay of under one year would most likely not draw an objection from the Department of Public Welfare with regard to claiming the family exemption.
Funeral expenses and nursing home services paid within 6 months of death are both Class 3 claims. A strict interpretation of the statute would call for a pro-rata payment of the competing claims without priority between claims of the same class. However, the Commonwealth has always had an informal policy of accepting a "Class 3 (b) position" behind reasonable funeral and burial expenses, an approach now formalized in the regulations.
The personal representative has a duty to pay the estate debts in accordance with the statutory priorities outlined in 20 Pa.C.S. ß3392. If the statutory priorities are not followed and the Commonwealthís claim remains unsatisfied, the personal representative is personally liable to the extent estate assets were not properly applied to pay the estate recovery claim.
In some situations estate recovery is postponed. In postponement cases, the executor also has a duty to protect the Commonwealthís interest in certain estate "protectable" assets. Improper transfer or sale of such protected assets will also result in personal liability for the personal representative.
Although in many cases it may not appear financially feasible to bring an estate accounting before the court for audit, obtaining a decree of distribution can help protect the executor from personal liability. However, the regulations provide that a decree of distribution will only discharge liability of personal representative if certain conditions are met. Specifically, DPW must be served with a copy of the proposed distribution at least 30 days in advance of court approval, the court records must show that the personal representative made the appropriate request for the statement of a claim pursuant to 55 PA Code ß258.4. Furthermore, the court records must show that any claim of the Department was presented to the court and paid, or that there were insufficient assets to pay the Departmentís claim, and the Department must be served with a copy of the final distribution order and paid all amounts that it is due.
The personal representative must fully disclose all estate assets in paperwork presented to the court when seeking the decree of distribution. If recoverable estate assets are not disclosed, then the personal representative is not discharged from liability and can be held personally liable for the value of the non-disclosed assets which should have been used to satisfy the estate recovery claim.
The estate recovery act specifically relieves the bona fide purchaser of estate property from personal liability, even where the Departmentís claim is not properly satisfied by the personal representative. However, purchasers are only exempted from personal liability in armís-length transactions where the property is purchased at fair market value. If property subject to the Departmentís claim is sold for less than fair market value, both the transferee and the personal representative are personally liable for the difference between the fair market value and the amount actually received by the estate.
Many times family members are interested in attempting to keep a home or automobile in the family and wish to purchase it from the estate. Occasionally the purchaser inappropriately seeks to take the property at a bargain price, certainly something less than fair market value. The best practice for the personal representative in this circumstance, other than selling the property to an unrelated third party, is to adequately document the fair market of the asset by way of a professional appraisal. Estate property must be sold for fair market value. An honest, professional appraisal can help protect both the transferee and personal representative from liability in this circumstance.
In addition to pursuing traditional remedies in court for enforcement of liability against the personal representative, the Department may administratively assess liability pursuant to 62 P.S. ß1412(a.1)(1) and (2). Where an administrative assessment is made, the personal representative receives written notice and has a 30-day appeal period to request a hearing before the Departmentís Bureau of Hearings and Appeals. This hearing is known as a "fair hearing." The determination made by the administrative law judge at the fair hearing is subject to reconsideration by the Secretary of the Department of Public Welfare and appellate review in Commonwealth Court.
Estate recovery is postponed by the Department of Public Welfare in certain circumstances. No interest is charged on the Departmentís claim in the case of postponement. Collection 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 permanently disabled as determined under the standards of the Supplemental Security Income (SSI) program in the Social Security Act.
3)The date any surviving child is 21 years of age.
4)The death of, property transfer by or vacating of the property by a sibling who has an equity interest in the property and who has been living in the home for at least 1 year prior to the death of the decedent.
During postponement, "protectable assets" are to be safeguarded by the personal representative. In the case of real property, the personal representative is to make arrangements to have a mortgage or other recorded encumbrance entered against the property in favor of the Department. Individual items of personal property with a fair market value in excess of $10,000, are to be protected by way of a properly perfected security interest being entered of record.
If the estate contains cash or cash equivalents exceeding $50,000, the personal representative is to work with the Department of Public Welfare to place the money in a trust which complies with the estate recovery regulations. The trust would allow the surviving spouse or child to access the income without court approval but would require court approval for distributions of principal. The creation of such a trust can be avoided if the beneficiary is willing to waive postponement and the Department is willing to compromise the claim. In fact, the Department may opt to waive recovery in cases where there is a surviving spouse and very little in the way cash or other protectable assets, since creation of a trust for assets of modest value would not be cost effective.
If estate recovery would cause undue hardship, the personal representative may request a waiver by writing to the Estate Recovery Program. If undue hardship is found to exist, the Department will waive estate recovery. Determinations of hardship requests are made on a case-by-case basis, the estate recovery regulations set forth some of the circumstances where hardship waivers will be granted. In making the request, consider the economic status of the beneficiary of the estate. Also consider the physical or mental disability of a beneficiary or any dependents. Follow this link to the Department of Public Welfare's Undue Hardship Waiver Request Form.
A major hardship exception is waiver of recovery against the decedentís residence in favor of certain caregivers who helped keep the decedent out of a nursing home or who provided care and support to the decedent for two years while home and community based services were being accessed. The caregiver must have resided in the home for at least the two years immediately prior to the decedentís entry to a nursing facility or for the two years during the administration of home and community based services. The Department will permanently waive the claim with respect to the residence in this instance.
Certain Income-Producing Property
The Departmentís claim will also be waived on a hardship basis for a spouse, child, sibling, or grandchild with respect to income-producing property if the asset is used to generate the primary source of income for the household, and the family would have income below 250% of the federal poverty guidelines without use of the asset. The regulations define an income-producing asset as property which is used in a trade or business such as a family farm, family business, or rental property.
Home Maintenance Expenses
The Departmentís claim is waived in cases where a person, other than an estate creditor, has advanced "necessary and reasonable expenses" to maintain the decedentís home while the decedent was either in a nursing facility or at home receiving home and community based services. The regulations define necessary and reasonable expenses for maintaining the home to include real estate taxes, utility bills, home repairs, and home maintenance such as lawn care and snow removal necessary to keep the property in condition for the decedent to return home or to sell at fair market value.
Provided that there is an heir to claim his or her beneficial interest in the estate, the Department will find undue hardship and will permanently waive its claim for administered estates with a gross value of $2,400 or less. If the gross value of the estate exceeds $2,400, estate recovery applies to the entire estate absent another applicable hardship exception.
The Bureau of Hearings and Appeals has exclusive jurisdiction to review disputes concerning waiver, compromise, or postponement of collection under an abuse of discretion standard. The Bureau of Hearings and Appeals has concurrent jurisdiction with the Court of Common Pleas with regard to assessment of liability against a personal representative and over computation of the estate recovery claim.
The Department has many cases where no family member comes forward to probate a will or is willing to serve as administrator for a decedentís estate. The Commonwealth is permitted to serve as personal representative of an unadministered estate pursuant to 20 Pa.C.S. ß3155(b)(4). As a practical matter, the Office of Legal Counsel for the Department has limited resources to allocate to the task of administering these estates and anticipates that it will only rarely do so.
The estate recovery regulations provide for this situation by allowing the Department to provide lists of such estates to county bar associations for local attorneys to administer. Members of the bar may serve both as administrator and attorney for the estate, but the total combined fee charged for both roles can not exceed $1,000 or 6% of the estate, whichever is greater.
Applicable law reads that "With the approval of the Governor, the Department may expand the estate recovery by regulation to include medical assistance for services other than those listed in this section and to recover against other real and personal property in which an individual had any legal title or interest at the time of death." In other words, the law can change such that estate recovery may in the future apply to non-probate property such as jointly owned property.
Appendix "A" Pennsylania Medical Assistance
Estate Recovery Program Collections:
Fiscal year 03-04 $22.8M
Fiscal year 04-05 $25.4M
Fiscal year 05-06 $27.9M
Fiscal year 06-07 $31.1M
Fiscal year 07-08 $35.5M
Fiscal year 08-09 $32.8M
Fiscal year 09-10 $34.4M
Fiscal year 10-11 $36.4M
Fiscal year 11-12 $36.7M
Appendix "B" Estate Recovery Program
Division of Third Party Liability
Department of Public Welfare
Estate Recovery Program
P.O. Box 8486
Harrisburg, PA 17105-8486
Toll Free Phone: (800) 528-3708
Direct Phone: (717) 772-6604
Facsimile: (717) 772-6553
(Last updated September 22, 2012 by Robert C. Gerhard, III)