Citation Nr: 1328250 Decision Date: 09/04/13 Archive Date: 09/10/13 DOCKET NO. 12-11 688 ) DATE ) ) On appeal from the Department of Veterans Affairs Regional Office in Milwaukee, Wisconsin THE ISSUES 1. Whether an overpayment of nonservice-connected pension benefits in the amount of $13,621.00 was properly created. 2. Entitlement to waiver of recovery of any properly created overpayment. REPRESENTATION Appellant represented by: The American Legion ATTORNEY FOR THE BOARD Jennifer Hwa, Counsel INTRODUCTION The Veteran served on active duty from May 1943 to December 1945. This matter comes before the Board of Veterans' Appeals (Board) on appeal from a January 2012 administrative decision of the Department of Veterans Affairs (VA) Regional Office (RO) in Milwaukee, Wisconsin. A September 2011 rating decision effectuated a July 2011 proposal to stop the Veteran's pension benefits, effective January 1, 2010, based on an increase of his net worth from $26,000.00 in 2009 to $71,942.00 in 2010. In doing so, the RO determined that the Veteran's net worth had become great enough to provide for his maintenance without pension benefits in 2010. He was informed that he would receive a letter notifying him of the amount he was overpaid as a result of the decision to retroactively stop his pension benefits. Following the September 2011 decision, the Veteran was notified, via a letter from the Debt Management Center, that he had been overpaid by an amount of $13,621.00. He was told that he could pay the debt in full or through a monthly debt schedule. He was also notified that he could dispute the debt and request a waiver. In November 2011, the Veteran requested a waiver of recovery of overpayment and submitted a Financial Status Report detailing his income, assets, and expenses. The January 2012 administrative decision denied the Veteran's waiver request. The Veteran's waiver of overpayment request was again denied in a March 2012 administrative decision. Later that month, the Veteran filed a notice of disagreement "on the over payment of VA benefits." In January 2013, the Board remanded the Veteran's claims for issuance of a statement of the case. In March 2013, the Debt Management Center made a compromise offer to the Veteran and notified him that a lesser amount could be considered as full settlement of his indebtedness. Subsequently, the Veteran made a compromise offer of a $5000.00 lump sum payment, which the Debt Management Center rejected in an April 2013 decision. The Veteran was notified that due to the findings in his Financial Status Report, his compromise offer would not be advantageous for VA, but that another lump sum offer of $7000.00 would be considered. The Veteran was given 20 days to respond to this letter, but did not send in a reply. Thus, the Board finds that the Veteran's claims remain on appeal. The Board notes that, in addition to the paper claims file, there is a paperless, electronic (Virtual VA) claims file associated with the Veteran's claims. A review of the documents in such file reveals that many documents are highly relevant to the issues on appeal. Thus, the Board has considered these electronic records in its adjudication of the Veteran's case. Please note this appeal has been advanced on the Board's docket pursuant to 38 C.F.R. § 20.900(c) (2012). 38 U.S.C.A. § 7107(a)(2) (West 2002). FINDINGS OF FACT 1. The Veteran began receiving nonservice-connected pension benefits effective January 1, 2007. It was determined that the net worth of the Veteran and his spouse was not excessive and their annual net income was within the maximum income rate allowable. 2. As of January 1, 2010, the Veteran's estate consisted of $71,942.00 in interest-bearing bank accounts. He and his spouse had a combined annual income of $22,439.00, for a monthly income of $1869.91. He had estimated monthly expenses of $2,221.64, and thus, his net monthly expenses were approximately $351.75. 3. A June 2011 "Corpus of Estate Determination" noted that the Veteran's life expectancy was 5 years. Given the value of his estate and combined annual income, his spending would be exhausted in approximately 17.04 years. 4. In a September 2011 determination, the VA found that the Veteran's net worth was a bar to his VA nonservice-connected pension benefits, and his benefits were terminated. 5. Since January 1, 2010, the Veteran received VA benefits despite the fact that his net worth had increased to the extent that it was a bar to his nonservice-connected pension benefits. This produced an overpayment of benefits in the amount of $13,621.00. 6. There was no fraud, misrepresentation, or bad faith on the part of the Veteran. 7. The overpayment resulted from the actions of the Veteran; there was no fault on the part of VA. 8. The evidence shows that recovery of the assessed overpayment would not deprive the Veteran of the ability to provide for basic necessities. 9. Waiver of the assessed overpayment would unjustly enrich the Veteran. 10. The evidence shows that the Veteran's assets and income, with consideration of the cost of life's basic necessities, are sufficient to permit repayment of the amount of the overpayment indebtedness of $13,621.00 and will not result in undue financial hardship. Additionally, collection of the indebtedness would not defeat the purposes of the award of VA benefits, or otherwise be inequitable. 11. There is no indication that the Veteran relinquished a valuable right or incurred a legal obligation in reliance upon the benefits received. CONCLUSIONS OF LAW 1. The overpayment of disability compensation benefits in the original amount of $13,621.00 was validly created. 38 U.S.C.A. §§ 5107, 1521 (West 2002 & Supp. 2012); 38 C.F.R. §§ 3.500, 3.660, 3.665(n) (2012). 2. Waiver of recovery of the overpayment of VA disability compensation benefits is precluded. 38 U.S.C.A. § 5302(a) (West 2002); 38 C.F.R. §§ 1.962, 1.963, 1.965 (2012). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS The preliminary issue of the validity of a debt is a threshold determination that must be made prior to a decision on a request for waiver of the indebtedness. Schaper v. Derwinski, 1 Vet. App. 430 (1991). Where the validity of a debt is challenged that issue must be developed before the issue of entitlement to waiver of the debt can be considered. VAOGCPREC 6-98 (1998), 63 Fed. Reg. 31264 (1998). Improved (nonservice-connected) pension is a benefit payable by VA to a veteran of a period of war who is permanently and totally disabled from nonservice-connected disability not the result of the veteran's willful misconduct. 38 U.S.C.A. § 1521(a) (West 2002 & Supp. 2012). Basic entitlement exists, in relevant part, if the veteran meets the net worth requirements under § 3.274 and does not have an annual income in excess of the applicable maximum annual pension rate specified in § 3.23. 38 U.S.C.A. §§ 1513, 1521, 1522; 38 C.F.R. § 3.3(a)(3)(v). Pension shall be denied or discontinued when the corpus of the estate of the veteran, and of the veteran's spouse, are such that under all the circumstances, including consideration of the annual income of the veteran, the veteran's spouse, and the veteran's children, it is reasonable that some part of the corpus of such estates be consumed for the veteran's maintenance. 38 U.S.C. 1522(a); 38 C.F.R. § 3.274(a). In determining whether the estate should have been used for the appellant's maintenance, factors to be considered include: whether the property can be readily converted into cash at no substantial sacrifice; life expectancy; number of dependents; and potential rate of depletion, including unusual medical expenses. 38 C.F.R. § 3.275(d). The Board notes that VA's pension program is intended to give beneficiaries a minimum level of financial security; it is not intended to protect substantial assets or build up the beneficiary's estate for the benefit of heirs. Pension entitlement is based on need and that need does not exist if a claimant's estate is of such size that he/she could use it for living expenses. The basic issue in evaluating net worth is to determine whether or not the claimant's financial resources are sufficient to meet the claimant's basic needs without assistance from VA. Thus, if net worth is a factor for the benefit claimed, VA should consider if it is reasonable, under all the circumstances, for the claimant to consume some of his/her estate for maintenance. If a claimant's assets are sufficiently large that the claimant could live off of these assets for a reasonable period of time, pension should be denied for excessive net worth. If net worth is later depleted, the claimant can reopen the pension claim. There are no precise guidelines, however, which establish what size estate would preclude the payment of pension. What constitutes excessive net worth is a question of fact for resolution after considering the facts and circumstances in each case. See VA Adjudication Procedure Manual, M21-1MR, Part V, Subpart iii, Chapter 1, Section J, Topic 67, Blocks g, h (February 13, 2007). See also M21-1MR, Part V, Subpart iii, Chapter 1, Section J, Topic 70, Block a (February 13, 2007). The Veteran was initially granted non-service connected disability pension with entitlement to aid and attendance in a July 2007 administrative decision. This decision was made based, in part, on a determination that the net worth of the Veteran and his spouse was not excessive and that their annual net income was within the maximum income rate allowable. These benefits were effective January 1, 2007. In February 2011, the Veteran submitted an Improved Pension Eligibility Verification Report reflecting that he and his spouse had a combined $71,942.00 in interest-bearing bank accounts in 2010, and that their combined annual income from SSA, other retirement, and interest/dividends was $22,439.00 in 2010, for a monthly income of $1869.91. In April 2011, the Veteran submitted a Request for Details of Expenses form that had been sent to him by VA. He estimated monthly expenses of $2,221.64. Thus, his net monthly expenses were approximately $351.75. At that rate, his spending would be exhausted in approximately 17.04 years. A June 2011 "Corpus of Estate Determination" found that the appellant's life expectancy was 5.0 years, and thus, the corpus of his estate was projected to exceed his expected lifespan by 12 years. At the Veteran's current rate of spending, the projected rate of depletion of the Veteran's net worth of $71,942.00 exceeded his life expectancy by 12 years. The evidence indicated that this property, which was in interest-bearing bank accounts, could be readily converted into cash at no substantial sacrifice. The assets, income, and expenses of the Veteran's dependent spouse were also considered in the calculation. With respect to unusual medical expenses, the Veteran's estate would be depleted in his five-year lifespan only if he incurred an increase in medical expenses of $1,199.03 per month. In July 2011 correspondence, the RO indicated that the Veteran needed to provide more information so that it could be determined if he had been paid the correct benefit rate and whether he would continue to be entitled to pension benefits. He was requested to explain how his net worth increased during 2010. The RO explained that if the Veteran did not respond within 60 days, his pension benefits would be terminated, effective January 1, 2010. Although the Veteran submitted a July 2011 statement, he merely reported that his monthly medical expenses had not decreased and that his net worth was still below $80,000. He failed to provide the information requested by the RO regarding an explanation of how his net worth had increased in 2010. The RO subsequently terminated his benefits in September 2011, effective January 1, 2010. In a Financial Status Report dated in February 2012, the Veteran indicated that he and his spouse had total monthly net income of $1691 and monthly expenses of $2112. Total assets were noted to be $66,000. No further information or evidence has been received in support of the Veteran's claim. Thus, the Board finds that a preponderance of the evidence supports the conclusion that the overpayment of nonservice-connected pension benefits in the original amount of $13,621.00 was validly created as a result of the Veteran's increase in net worth for the period from January 1, 2010 through August 31, 2011. Having found that the debt was validly created, the Board must address whether a waiver of recovery of an overpayment may be granted. The Veteran requested a waiver of recovery of the overpayment of pension benefits within 180 days of receiving notification of the indebtedness. Therefore, he filed a timely application for waiver of recovery of the overpayment. 38 U.S.C.A. § 5302(a) (West 2002); 38 C.F.R. § 1.963(b)(2) (2012). Recovery of overpayments of any benefits made under the laws administered by VA shall be waived if there is no indication of fraud, misrepresentation, or bad faith on the part of the person or persons having an interest in obtaining the waiver and if the recovery of the indebtedness from the payee who received such benefits would be against equity and good conscience. 38 U.S.C.A. § 5302 (West 2002); 38 C.F.R. §§ 1.962, 1.963(a), 1.965 (2012). The phrase equity and good conscience means arriving at a fair decision between the obligor and the government. 38 C.F.R. § 1.965 (2012). In making the determination, consideration will be given to the following elements, which are not intended to be all inclusive: (1) Fault of the debtor. Where actions of the debtor contribute to the creation of the debt. (2) Balancing of faults. Weighing fault of debtor against any VA fault. (3) Undue hardship. Whether collection would deprive debtor or family of basic necessities. (4) Defeat the purpose. Whether the withholding of benefits or recovery would nullify the objective for which the benefits were intended. (5) Unjust enrichment. Failure to make restitution would result in unfair gain to the debtor. (6) Changing position to one's detriment. Reliance on Department of Veterans Affairs benefits results in relinquishment of a valuable right or incurrence of a legal obligation. 38 C.F.R. § 1.965 (2012). However, there cannot be any indication of fraud, misrepresentation, or bad faith on the part of the person seeking the waiver. 38 U.S.C.A. § 5302(c) (West 2002); 38 C.F.R. § 1.963 (2012). Misrepresentation must be more than non-willful or mere inadvertence. 38 C.F.R. § 1.962(b) (2012). The term bad faith generally describes unfair or deceptive dealing by one who seeks to gain thereby at another's expense. Thus, a debtor's conduct in connection with a debt arising from participation in a VA benefits or services program exhibits bad faith if such conduct, although not undertaken with actual fraudulent intent, is undertaken with intent to seek an unfair advantage, with knowledge of the likely consequences, and results in a loss to the government. 38 C.F.R. § 1.965(b)(2) (2012). Lack of good faith is an absence of an honest intention to abstain from undertaking unfair advantage of the holder or the government. 38 C.F.R. § 1.965(b)(2) (2012). The Veteran dutifully reported the increase in his family net worth in 2010 when he submitted an Eligibility Verification Report in February 2011. Because the Veteran made no attempt to hide the change in his financial circumstances, and there is otherwise no evidence that the Veteran intended to deceive VA or seek unfair advantage, the Board finds no evidence of fraud, misrepresentation, or bad faith on the part of the Veteran in the creation of this overpayment. Therefore, there are no mandatory bars to waiver in this case. The remaining question before the Board then is whether recovery of the overpayment would be against equity and good conscience. 38 C.F.R. § 1.965(a) (2012); Ridings v. Brown, 6 Vet. App. 544 (1994). In determining whether the recovery of the overpayment would be against equity and good conscience, the first consideration is whether the Veteran was at fault in the creation of the overpayment. In this case, the Board finds that the Veteran was predominantly at fault in the creation of the overpayment. The record shows that the Veteran was in receipt of VA nonservice-connected pension benefits at the full-time rate from January 1, 2010 through August 31, 2011. Additionally, the Veteran bears a greater fault than VA, as he continued to accept benefits to which he knew, or should have known, that he was not entitled once his financial circumstances changed. The question of fault is a different question than that of fraud or bad faith. Persons dealing with the Government are charged with knowledge of Federal statutes and lawfully promulgated agency regulations, regardless of whether the individual has actual knowledge of the regulation. Morris v. Derwinski, 1 Vet. App. 261 (1991); Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380 (1947). As the Veteran may be charged with knowledge of an agency regulation whether or not he had actual notice, in this case that he is not entitled to pension benefits if the corpus of his estate is of such size that he could reasonably use it for living expenses, he is at fault in the creation of the debt. The second element to consider is the balancing of faults, which requires a weighing of the fault of the debtor against the fault of VA. 38 C.F.R. § 1.965(a)(2) (2012). The Board finds that VA acted promptly once it became aware of the overpayment and was not at fault for the creation of the debt. The lack of fault on the part of the VA does not outweigh the fault on the part of the Veteran in the creation of the debt. That weighs against a finding that recovery of the overpayment would be against equity and good conscience. The next question for consideration is whether collection of the debt would cause the Veteran undue financial hardship. As noted above, the combined estate of the Veteran and his spouse totaled $71,942.00 in 2010, and the combined annual income was $22,439.00 in 2010, for a monthly income of $1869.91. The Veteran's estimated monthly expenses totaled $2,221.64, and therefore, after deducting his monthly income, his net monthly expenses were approximately $351.75. As the Veteran's life expectancy in 2011 was 5 years, given his current rate of spending, the projected rate of depletion of the Veteran's net worth of $71,942.00 would not be exhausted for approximately 17.04 years, which would exceed his life expectancy by 12 years. As of February 2012, the Veteran and and his spouse had total monthly net income of $1691 and monthly expenses of $2112. Total assets were noted to be $66,000. The Board finds that although the recovery of the debt would cause some financial hardship to the Veteran, the recovery of the overpayment would not deprive the Veteran of the basic necessities of life and result in undue financial hardship for him. While there may be some depletion of the Veteran's financial resources, given his net worth detailed above, some portion of the corpus of his estate may reasonably be consumed in order to provide for the maintenance of the Veteran and his spouse. The Veteran still has money from his estate remaining each month to buy food and basic necessities after satisfying his obligations. He also has a home in which to live. Therefore, the Board finds that recovery of the overpayment would not be against equity and good conscience. The Board must also consider whether the recovery of the overpayment would defeat the purpose for which the benefits were intended. In this case, the purpose of VA pension benefits would not be defeated. The purpose of pension benefits is to give beneficiaries a minimum level of financial security. They are not intended to protect substantial assets, subsidize discretionary spending, or build up the beneficiary's estate. In light of the purpose underlying such benefits, the Board finds that repayment of the debt at issue in this case would not conflict with the objective underlying the benefits, as pension entitlement is based on need and that need does not exist if a claimant's estate is of such size that he could reasonably use it for living expenses. Thus, continued repayment of the debt would not nullify the purpose for which the pension benefits were intended, since the Veteran's increase in net worth would allow him to reasonably use his estate to pay for living expenses. The Board also finds that failure to make restitution would unfairly enrich the Veteran because he received monetary benefits to which he was not entitled. VA continued to make pension payments at the full-time rate after the Veteran's net worth increased. The additional payments were not warranted after the Veteran's increase in net worth was of such size that he could reasonably use it for his living expenses. Under such circumstances, to allow the Veteran to retain the overpaid compensation would constitute unjust enrichment. Finally, the Board must consider whether reliance on the benefits resulted in relinquishment of a valuable right or the incurrence of a legal obligation. The Veteran has not contended, nor does the evidence show, that he relinquished a valuable right or incurred a legal obligation in reliance on VA continuing to pay pension benefits at a non-reduced rate. In sum, the Board finds that the principles of equity and good conscience would not be violated if VA were to recover the overpayment in question. The Veteran has been found to be at fault in the creation of the debt, and the retention of the overpayment would therefore unfairly enrich the Veteran. Moreover, repayment of the debt would not deprive the Veteran of the ability to provide for basic necessities of life and recovery of the overpayment would not defeat the purpose for which the benefits were intended. Accordingly, the Board finds that the preponderance of the evidence is against the Veteran's claim and waiver of recovery of the overpayment of VA pension benefits is not warranted. 38 U.S.C.A. § 5107(b) (West 2002); Gilbert v. Derwinski, 1 Vet. App. 49 (1990). With respect to VA's duties to notify and assist the Veteran with his claims, the provisions of law and regulations which set forth notice and assistance requirements on the part of VA in the adjudication of certain claims, are not applicable to claims involving the validity of creations of overpayment or requests for waiver of recovery of overpayments. Lueras v. Principi, 18 Vet. App. 435 (2004); Barger v. Principi, 16 Vet. App. 132 (2002). ORDER A debt was validly created by the overpayment of nonservice-connected pension benefits in the original amount of $13, 621.00. Waiver of the recovery of the overpayment of nonservice-connected pension benefits in the amount of $13, 621.00 is denied. ____________________________________________ WAYNE M. BRAEUER Veterans Law Judge, Board of Veterans' Appeals Department of Veterans Affairs