In Re ESTATE OF Omer STIDHAM , 2012 Tenn. App. LEXIS 584 ( 2012 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
July 11, 2012 Session
IN RE ESTATE OF OMER STIDHAM
Appeal from the Chancery Court for Hamblen County
No. 2009P180 Hon. Thomas R. Frierson, II, Chancellor
No. E2011-02507-COA-R3-CV-FILED-AUGUST 23, 2012
The Bureau of TennCare filed a petition to appoint an administrator of Omer Stidham’s
estate in order to file a claim against the estate for medical assistance rendered. The court
appointed an administrator, and the Bureau of TennCare filed its claim. The administrator
found that the estate was insolvent but moved the court to determine whether real property
held in a revocable trust could be used to satisfy the debts of the estate. The heirs objected,
arguing that the claim was untimely and that the property could not be reached because it was
held in a revocable trust. The court authorized the use of the property to satisfy the debts of
the estate, finding that the claim was not untimely and that the revocable trust was subject
to claims against the estate. The heirs appeal. We affirm the decision of the trial court.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed; Case Remanded
J OHN W. M CC LARTY, J., delivered the opinion of the court, in which C HARLES D. S USANO,
J R., J., and N ORMA M CG EE O GLE, SP. J.,1 joined.
Alexander M. Taylor and Briton S. Collins, Knoxville, Tennessee, for the appellants, Karen
A. Scott, Mary Jo White, Judy Wright, David Stidham, Suzanne E. Brooks, Rebecca Ball,
and Terri Lane.
Robert E. Cooper, Jr., Attorney General and Reporter; William E. Young, Solicitor General;
L. Vincent Williams, Deputy Attorney General; and Richard F. Clippard, Assistant Attorney
General, General Civil Division, Nashville, Tennessee, for the appellee, Tennessee Bureau
of TennCare.
1
Judge on the Court of Criminal Appeals sitting by special designation.
OPINION
I. BACKGROUND
On October 27, 2008, Omer Stidham (“Decedent”) died while a resident at Life Care
Center in Morristown, Tennessee. Prior to his death, Decedent and his wife, who preceded
him in death, owned real property that had been transferred into a revocable trust. Following
his death, his heirs did not attempt to administer his estate because absent the property held
in the trust, the estate was insolvent. On November 4, 2009, the Bureau of TennCare (“the
Bureau”) filed a petition to appoint an administrator of the estate, alleging that Decedent had
received TennCare services and that it was entitled to reimbursement from the estate for
those services.
The court appointed Scott Hodge (“Administrator”) as the administrator of the estate,
and the Bureau filed a claim in the amount of $87,295.97. Administrator found that the
estate was insolvent because Decedent’s only known asset was the real property held in the
revocable trust. Administrator requested a hearing to determine whether the real property
could be brought into the estate for the purpose of paying the estate’s debts. The heirs
objected, arguing that the Bureau’s claim against the estate was time-barred and that the
Bureau could not access the property because the revocable trust was not part of the estate.
The Bureau asserted that the claim was not time-barred because it did not receive notice of
Decedent’s death as required and that property held in a revocable trust should not be held
inaccessible from proceedings to satisfy just debts. Following a hearing, the court denied the
objections submitted by the heirs, holding that the claim was not barred by Tennessee Code
Annotated section 30-2-310 and that Administrator could use the real property located in the
revocable trust for the purpose of satisfying the Bureau’s claim against the estate. The heirs
filed a timely appeal.
II. ISSUES
We consolidate and restate the issues raised on appeal as follows:
A. Whether the statute of limitations precluded the Bureau’s claim for the
recovery of justly paid medical benefits.
B. Whether the Bureau may use assets held in a revocable trust to satisfy a
claim against an estate for medical benefits.
C. Whether allowing the Bureau to recover assets in similar claims places an
unintended and unlawful obligation upon the trustees of revocable trusts.
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III. STANDARD OF REVIEW
The facts are not in dispute, and the issues before this court involve the interpretation
of statutes and case law. “Statutory construction is a question of law that is reviewable on
a de novo basis without any presumption of correctness.” In re Estate of Tanner, 295 S.W.3d
610, 613 (Tenn. 2009). Likewise, the trial court’s conclusions of law are subject to a de novo
review with no presumption of correctness. Blackburn v. Blackburn, 270 S.W.3d 42, 47
(Tenn. 2008); Union Carbide Corp. v. Huddleston, 854 S.W.2d 87, 91 (Tenn. 1993).
The Supreme Court of Tennessee has recapitulated the primary principles of statutory
construction as follows:
[T]here are a number of principles of statutory construction, among which is
the most basic rule of statutory construction: to ascertain and give effect to the
intention and purpose of the legislature. However, the court must ascertain the
intent without unduly restricting or expanding the statute’s coverage beyond
its intended scope. The legislative intent and purpose are to be ascertained
primarily from the natural and ordinary meaning of the statutory language,
without a forced or subtle interpretation that would limit or extend the statute’s
application.
Mooney v. Sneed, 30 S.W.3d 304, 306 (Tenn. 2000) (citations and internal quotation marks
omitted). This court is not permitted “to alter or amend a statute.” Gleaves v. Checker Cab
Transit Corp., Inc., 15 S.W.3d 799, 803 (Tenn. 2000). “The reasonableness of a statute may
not be questioned by a court, and a court may not substitute its own policy judgments for
those of the legislature.” Mooney, 30 S.W.3d at 306 (citing Gleaves, 15 S.W.3d at 803). “It
is presumed that the Legislature in enacting [a] statute did not intend an absurdity, and such
a result will be avoided if the terms of the statute admit of it by a reasonable construction.”
Epstein v. State, 366 S.W.2d 914, 918 (Tenn. 1963). “[C]ourts must ‘presume that the
legislature says in a statute what it means and means in a statute what it says there.’”
Gleaves, 15 S.W.3d at 803 (quoting BellSouth Telecomms., Inc. v. Greer, 972 S.W.2d 663,
673 (Tenn. Ct. App. 1997)).
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IV. DISCUSSION
A.
Tennessee imposes a one-year statute of limitations upon claims made by the Bureau
against an estate. See Tenn. Code Ann. § 30-2-310 (barring non-tax claims not filed within
12 months from the date of death of the decedent). The heirs assert that the Bureau’s claim
was untimely because it was filed more than one year after Decedent’s death. The Bureau
responds that the applicable statute of limitations does not bar its claim because it did not
receive the required notice pursuant to Tennessee Code Annotated section 71-5-116(d). Both
parties argue that their position is supported by the Supreme Court’s decision reached in
Tanner and by the 2007 amendments to section 71-5-116.
Notably, Tanner was limited to the pre-2007 version of section 71-5-116, which did
not include the specific notice requirements mentioned by the Bureau. In Tanner, the court
relied on the pre-2007 version of the statute, which provided, in pertinent part,
(c) There shall be no adjustment or recovery of any payment for medical
assistance correctly paid on behalf of any individual under this part, except in
the case of an individual who was fifty-five (55) years of age or older when
such individual received such medical assistance or services, from such
individual’s estate, and then only after the death of such individual’s surviving
spouse, if any[.]
(1) To facilitate and enhance compliance with this subsection (c), the
department of health shall promptly notify [the Bureau], in a format to be
specified by the [B]ureau, of the death of any individual fifty-five (55) years
of age or older. Such notification shall include the decedent’s name, date of
birth, and social security number. It is the legislative intent of this subsection
(c) that [the Bureau] strive vigorously to recoup any TennCare funds expended
for a decedent after the date of death.
(2) Before any probate estate may be closed pursuant to title 30, with respect
to a decedent who, at the time of death, was enrolled in the TennCare program,
the personal representative of the estate shall file with the clerk of the court
exercising probate jurisdiction a release from [the Bureau] evidencing payment
of all medical assistance benefits, premiums, or other such costs due from the
estate under law, unless waived by the [B]ureau.
Using that version of the statute, the Supreme Court held,
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Section 30-2-310(b) creates a general one-year statute of limitations on state
claims against an estate, except claims for taxes. Section 71-5-116(c)
however, imposes a duty on the representative of an estate to actively seek a
release or waiver of any “medical assistance correctly paid,” 42 U.S.C. §
1396(p), owed under the TennCare program. Because Mr. Tanner did not do
so, and no waiver or release has issued, the Bureau was empowered under the
terms of the applicable statute, as then written, to file the claim beyond the
one-year period of limitation. At least until the first day of January, 2007,
when the most recent amendment took effect, claims by the Bureau were not
subject to a one-year statute of limitations, regardless of whether it received
a notice to creditors.
Tanner, 295 S.W.3d at 630. In contrast, the amended statute provides, in pertinent part,
(c)(1) There shall be no adjustment or recovery of any payment for medical
assistance correctly paid on behalf of any recipient pursuant to this part from
the recipient’s estate, except in the case of a recipient who was fifty-five (55)
years of age or older at the time the recipient received medical assistance or
services pursuant to this part. In that case, adjustment or recovery from the
recipient’s estate may be pursued only after the death of the individual’s
surviving spouse[.]
(c)(2) Before any probate estate may be closed pursuant to title 30, with
respect to a decedent, who at the time of death, was enrolled in the TennCare
program, the personal representative of the estate shall file with the clerk of the
court exercising probate jurisdiction a release from [the Bureau] evidencing
either:
(A) Payment of all medical assistance benefits, premiums, or
other costs due from the estate under law;
(B) Waiver of the bureau’s claims; or
(C) A statement from the bureau that no amount is due.
(d)(1) To facilitate and enhance compliance with subsection (c), the following
notices shall be provided:
(A) Within thirty (30) days of receipt of notice of a person’s
death, the department of health shall notify [the Bureau], in a
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format to be specified by the [B]ureau, of the death of any
individual fifty-five (55) years of age or older. Each notification
shall include the decedent’s name, date of birth and social
security number;
(B) Within sixty (60) days of the date of issuance of either
letters of administration or letters testamentary, the personal
representatives of decedents shall provide notice of the death of
any individual age fifty-five (55) years of age or older to [the
Bureau], in a format to be specified by the [B]ureau, shall state
whether the decedent was a TennCare recipient and shall request
a release from [the Bureau] pursuant to subdivision (c)(2), and
an affidavit confirming notice shall be filed pursuant to § 30-2-
301(b)(3);
(C) Personal representatives of decedents shall provide notice to
the court concerning whether or not decedent was a TennCare
recipient pursuant to § 30-1-117; and
(D) Personal representatives of decedents shall provide notice
to creditors specified in § 30-2-306 to [the Bureau], if the
decedent was a TennCare recipient. If a notice to creditors is
provided to the [B]ureau, the [B]ureau shall file a claim for
recovery in accordance with the requirements of title 30, chapter
2, part 3.
(2) It is the legislative intent of subdivision (d)(1) that, after the date of death,
[the Bureau] strive vigorously to recoup any TennCare funds expended for
decedent during decedent’s lifetime.
Tenn. Code Ann. § 71-5-116(c), (d).
The heirs assert that the legislature amended section 71-5-116(d) because it was
concerned that the Bureau had been allowed to “circumvent” the limitations period. Tanner,
295 S.W.3d at 628. They argue that the addition of the notice requirements placed a “burden
on the various departments of the State to coordinate and ensure that the Bureau
expeditiously fulfills its recoupment efforts.” They caution that allowing recovery in this
case “would remove any incentive for the Bureau to proceed expeditiously to administer
estates or file claims” and would provide the Bureau with a luxury that other creditors had
not been afforded. The Bureau opines that the language relied upon in Tanner was
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unchanged by the amendment. The Bureau asserts that applying the statute in the way the
heirs suggest would result in a significant loss of funds and would be contrary to the
legislative intent when the fiscal impact of the bill was meant to be “minimal.”
A similar issue was presented before this court in the case of In re Estate of Gregory,
No. E2011-01369-COA-R3-CV, 2012 WL 2499502 (Tenn. Ct. App. June 29, 2012). In
Gregory, the executor of decedent’s estate waited approximately 14 months to open
decedent’s estate and provide notice to the Bureau. The executor asserted that the Bureau’s
claim was untimely because it had not been filed within the applicable one-year statute of
limitations. Like the heirs in this case, the executor in Gregory argued that the legislative
changes to section 71-5-116 “placed the ultimate burden on the Bureau to recoup any funds
expended on TennCare recipients, regardless of actions taken or not taken by the personal
representatives.” 2012 WL 2499502, at *2. In rejecting that argument, this court stated,
The effect of giving the statute of limitations effect without notice from the
personal representative within one year of the death would be to reward the
estate for failing to give the intended notice in a manner that would facilitate
the filing of a claim, while penalizing the Bureau for failing to act despite the
lack of notice. We understand that the Bureau is supposed to receive notice
of the death from the department of health pursuant to [Tennessee Code
Annotated section 71-5-116(d)(1)(A), but that was also true in Tanner. (See
Tanner, 295 S.W.3d at 615 (quoting same requirement in version of statute in
effect before January 1, 2007).
Id. at *3. This court further stated that “the legislature knew [section 71-5-116(c)(2)] was
being read to imply an exception to the statute of limitations and left it intact” because it had
met more than once after the decision in Tanner was filed. Id. The court acknowledged that
“subsection (d)(1) of Tennessee Code Annotated section 71-5-116, upon part of which the
executor relies, states that its purpose is to ‘facilitate and enhance compliance with
subsection (c)’ – the ‘waiver and release’ requirement upon which the Tanner holding rests.”
Id. In conclusion, this court stated,
[W]e hold that, under the undisputed facts of this case, the January 2007
amendment to [Tennessee Code Annotated section 71-5-116] does not change
the applicability of Tanner. The executor, having waited more than one year
from the death of Ms. Gregory to open the estate and give notice of the death,
cannot now invoke the notice and claim requirements of section 71-5-
116(d)(1)(D) as a reason for strictly holding the Bureau to the statute of
limitations. The executor’s failure to obtain a waiver or release from the
Bureau prevented the statute of limitations found in Tennessee Code Annotated
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section 30-2-310 from running. We state no opinion as to the result had the
executor filed the estate shortly after the death and given notice to the Bureau
in time to facilitate it filing a claim within a year of the death.
Id. at *4 (emphasis added).
The analysis in Gregory is sound and instructive even though the facts in this case are
slightly different. In this case, the decedent’s heirs never sought to open the estate. Instead,
the Bureau initiated a probate proceeding, like the proceeding that was instituted in Tanner,
pursuant to section 30-1-106. Once that proceeding was instituted, the estate could not be
closed until the personal representative of the estate filed a release pursuant to section 71-5-
116(c)(2). The failure of the personal representative of the estate to obtain a release
prevented the statute of limitations from running. Gregory, 2012 WL 2499502 at *4.
Additionally, the heirs neglected to give any notice to the Bureau of Decedent’s death and
his status as a TennCare recipient. As stated in Gregory, those who fail to give notice should
not be able to assert the notice and claim requirements contained in section 71-5-116. Id.
Accordingly, the statute of limitations did not prevent the Bureau from filing its claim.
In a somewhat related argument, the heirs contend that they had no duty to seek a
release from the Bureau when the estate was insolvent. We reject this argument. The duty
to seek a release is not contingent upon the Bureau’s potential for success in recouping funds
when the Bureau may choose to waive its potential claim. See Tenn. Code Ann. § 71-5-
116(c)(2)(B). Additionally, as will be discussed further in the next issue, property not
necessarily held in the estate may be used to satisfy claims submitted by a decedent’s
creditors, including the Bureau. See generally Tenn. Code Ann. § 35-15-505(a)(5).
B.
The heirs assert that the Bureau’s right of recovery was limited to assets that were
contained in the estate and that use of the property held in the revocable trust was error
because that property was not part of the estate. The heirs admit that Tennessee allows
creditors to recover property from a revocable trust if the estate does not contain sufficient
assets to fulfill the debt obligations but asserts that the Bureau has “been statutorily limited
to recovery against only the estate.” The Bureau responds that
where the legislature, by statute, has placed certain assets of a decedent within
the jurisdiction of a probate or chancery court and made them subject to
distribution with the approval of the chancellor or probate judge, those assets
have effectively been rendered part of the probate estate, at least for the limited
purpose of selling real estate to satisfy the decedent’s just debts.
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The Bureau notes that while a decedent’s real property is said to vest immediately upon
death, the real property remains subject to distribution if the decedent’s personal property is
insufficient to satisfy the just debts. The Bureau analogizes that the same should hold true
for property held in a revocable trust and that the Bureau should be given the same ability to
recover such property as other creditors when the legislature has clearly evidenced an “intent
to give the Bureau a privileged status vis-a-vis most other creditors.”
The Bureau’s ability to recover justly paid medical assistance from an estate is derived
from section 71-5-116(c)(1), which provides, in pertinent part,
There shall be no adjustment or recovery of any payment for medical
assistance correctly paid on behalf of any recipient pursuant to this part from
the recipient’s estate, except in the case of a recipient who was fifty-five (55)
years of age or older at the time the recipient received medical assistance or
services pursuant to this part.
(Emphasis added). While our legislature did not define the term estate, the federal
counterpart of this statute provides the following definition:
(4) For purposes of this subsection, the term “estate”, with respect to a
deceased individual –
(A) shall include all real and personal property and other assets
included within the individual’s estate, as defined for purposes
of State probate law; and
(B) may include, at the option of the State (and shall include, in
the case of an individual to whom paragraph (1)(C)(i) applies),
any other real and personal property and other assets in which
the individual had any legal title or interest at the time of death
(to the extent of such interest), including such assets conveyed
to a survivor, heir, or assign of the deceased individual through
joint tenancy, tenancy in common, survivorship, life estate,
living trust, or other arrangement.
42 U.S.C. § 1396p(b)(4) (emphasis added). The heirs argue that the legislature’s failure to
incorporate the federal definition of estate evidences the legislature’s intent to “not allow [the
Bureau] to recover payments from traditionally non-probate assets, including living and
revocable trusts.” We disagree.
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Creditors may recover property held in a revocable trust when the assets held in the
estate are inadequate. See Tenn. Code Ann. § 35-15-505(a)(5) (“[T]he property of a trust that
was revocable immediately preceding the settlor’s death is subject to claims of the settlor’s
creditors, costs of administration of the settlor’s estate and the expenses of the settlor’s
funeral and disposal of remains.”). When a creditor is attempting to recover from a revocable
trust, the recovery is limited by the priority of payment of claims provided in section 30-2-
317. See Tenn. Code Ann. § 35-15-505(a)(5) (“The [priority of payment of claims] from the
probate estate of a decedent shall apply to a revocable trust to the extent the assets of the []
estate are inadequate and the personal representative or creditor or taxing authority of the
settlor’s estate has perfected its right to collect from the settlor’s revocable trust.”). The
priority of payment of claims in Tennessee is as follows:
(a) All claims or demands against the estate of any deceased person shall be
divided into the following classifications, which shall have priority in the order
shown:
(1) First: Costs of administration, including, but not limited to,
premiums on the fiduciary bonds and reasonable compensation
to the personal representative and the personal representative’s
counsel;
(2) Second: Reasonable funeral expenses;
(3) Third: Taxes and assessments imposed by the federal or any
state government or subdivision of the federal or any state
government, including claims by the Bureau of TennCare
pursuant to § 71-5-116; and
(4) Fourth: All other demands that may be filed as
aforementioned within four (4) months after the date of notice
to creditors.
(b) All demands against the estate shall be paid by the personal representative
in the order in which they are classed, and no demand of one class shall be
paid until the claims of all prior classes are satisfied or provided for; and if
there are not sufficient assets to pay the whole of any one class, the claims in
that class shall be paid pro rata.
Tenn. Code Ann. § 30-2-317(a), (b) (emphasis added). If we were to hold that unlike other
creditors, the Bureau may not recover from a revocable trust when the estate is insufficient
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to satisfy the just debts, then other creditors would be given priority over the Bureau. We do
not believe that the legislature intended to give other creditors priority over the Bureau when
we are “inclined to presume that the General Assembly meant to provide a robust and
effective mechanism to both recoup [the Bureau’s] expenses and fulfill its obligations to the
federal government.” Tanner, 295 S.W.3d at 627.
The Supreme Court was presented with a similar issue in In re Estate of Trigg, 368
S.W.3d 483 (Tenn. 2012). In Trigg, the decedent had prepared a will that provided for the
distribution of her real property. A personal representative was appointed over her estate,
and the Bureau filed a claim against the estate. However, the decedent’s personal property
was insufficient to satisfy the Bureau’s claim. The estate filed an exception to the claim,
which was overruled by the probate court. On appeal to the circuit court,2 the court held that
“the real property was not part of [the decedent’s] estate because it passed under her will to
her beneficiaries at the time of her death.” Trigg, 368 S.W.3d at 488. On appeal to the
Supreme Court, the personal representative argued that the Bureau could not reach the
decedent’s property because the legislature had not enacted the expanded definition of estate.
In holding that the decedent’s estate included the real property that had immediately passed
to the heirs at decedent’s death, the Court stated,
In light of the broad and common understanding of the word “estate,” we have
determined that “estate,” for the purpose of 42 U.S.C. § 1396p and Tenn. Code
Ann. § 71-5-116, includes not only the personal property owned by a
TennCare recipient at the time of death, but also the recipient’s interests in real
property that are properly subject to the payment of the deceased recipient’s
debts should the recipient’s personal property be insufficient to pay these
debts, including the debt to TennCare. Any real property that can be reached
by the personal representative pursuant to Tenn. Code Ann. §§ 30-2-401 and
31-2-103 for the payment of the debts of an insolvent estate may be reached
by the probate court for the purpose of reimbursing TennCare for the properly
paid medical care provided to a deceased recipient in accordance with Tenn.
Code Ann. § 71-5-116.
Id. at 502. We believe the same holds true in this case, namely that any property that can be
reached by the personal representative pursuant to Tennessee Code Annotated section 35-15-
505 for the payment of the debts of an insolvent estate may be reached by the probate court
for the purpose of reimbursing the Bureau. Accordingly, we conclude that the property held
in the revocable trust was subject to the Bureau’s claim for reimbursement.
2
On appeal, the Supreme Court held that the circuit court lacked jurisdiction to consider the appeal.
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C.
The heirs assert that allowing recovery in this case would place an unintended and
illegal obligation on trustees of revocable trusts. The heirs acknowledge that creditors may
reach assets held within a revocable trust but assert that unlike claims submitted by the
Bureau, claims submitted by other creditors are limited to the one-year statute of limitations,
thereby ensuring that any “cloud on the title” to property held in the trust is removed at a date
certain. The heirs claim that it would be impossible for trustees to convey good title to
property held in the trust without obtaining a release from the Bureau. The heirs opine that
if the trustee were to petition for a release, the trustee would then be a direct contributor to
the loss of the property, thereby violating his or her responsibilities to control and protect the
property, while taking reasonable steps to enforce claims of the trust and defend claims
against the trust. See Tenn. Code Ann. § 35-15-809, -811(a).
Tennessee Code Annotated section 35-15-505 places trustees on notice that property
held in the trust could be subject to potential creditor’s claims. We decline to hold that the
Bureau cannot recover in this case because the property remains subject to the Bureau’s
claims beyond the statute of limitations when the proper release has not been obtained and
the Bureau has not been notified of the death. In order to ensure that the property is
conveyed with good title, the trustee need only keep the beneficiaries of the trust “reasonably
informed about the administration of the trust and of the material facts necessary for them
to protect their interests.” See Tenn. Code Ann. § 35-15-803(a)(1). The beneficiaries may
then seek to open the decedent’s estate when there is a question as to whether a future claim
may be filed by the Bureau. The trustee is not tasked with the responsibility to seek and
obtain a release from the Bureau, that responsibility lies with the personal representative of
the estate. If the personal representative complies with the notice requirements, then the
claim should be filed within the applicable statute of limitations. This issue is without merit.
V. CONCLUSION
The judgment of the trial court is affirmed, and the case is remanded for such further
proceedings as may be necessary. Costs of the appeal are taxed to the appellants, Karen A.
Scott, Mary Jo White, Judy Wright, David Stidham, Suzanne E. Brooks, Rebecca Ball, and
Terri Lane.
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JOHN W. McCLARTY, JUDGE
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