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VA and SS Benefits Lose Creditor Protection at Death

Posted Friday, September 7, 2012 by John S. Palmer

The Washington Court of Appeals has ruled that the protection afforded Social Security and Veterans Benefits from creditors during a beneficiary’s life is lost when the beneficiary dies.

The case involved a claim asserted by the Washington Department of Social and Health Services (DSHS) against the estate of a man who had been hospitalized at Western State Hospital for a significant amount of time.

At the time of his death, the decedent had accumulated approximately $110,000 in cash savings derived primarily from Social Security and VA benefits. DSHS filed a claim against his estate seeking to recover part of the $325,000 it had spent on his hospitalization. The claim was rejected by the personal representative of the estate, DSHS filed suit, and the trial court ruled in favor of DSHS. The Court of Appeals affirmed the trial court.

At issue was the protection from creditors granted by two federal statutes. 38 USC §5301 provides that VA benefits “shall be exempt from the claim of creditors, and shall not be liable to attachment, levy, or seizure by or under any legal or equitable process whatever, either before or after receipt by the beneficiary….”

Likewise, under 42 USC §301 Social Security benefits are not subject to “execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.”

The issue before the Court of Appeals was whether the protection afforded by these statutes continues to apply after the beneficiary’s death. The Court of Appeals noted that the Congress created these exemptions for the benefit of the beneficiary and his or her dependents. Because the decedent left no dependents, the court found that the cash savings in his estate derived from Social Security and VA Benefits was not exempt from the claim filed by DSHS.

In support of the ruling the Court of Appeals cited several decisions by other courts; one such court, interpreting a predecessor to the current VA exemption statute, noted that to extend the exemption to a veteran’s estate “is to extend it to the heirs and legatees, and if this is done it is difficult, if not impossible, to determine when and where the exemption would cease.”

It is unclear whether or not the result would have been different had the decedent been survived by dependents, such as minor children. However, under Washington law a surviving spouse and minor dependents are entitled to file a petition for award for family support, to be paid from the assets of the decedent, which takes priority over most creditors’ claims.

DSHS v. Call, Decided August 28, 2012

Washington Court of Appeals Division II, Docket Number: 42085-6

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