PS 01545.018 Iowa
A. PS 08-161 Bona Fide Loans for Minors
DATE: April 30, 2008
This opinion addresses whether minors may enter into bona fide loan agreements with adults (parents and non-parents) in Region VII States (Iowa, Kansas, Missouri, and Nebraska).
State law generally provides that a minor may enter into a bona fide loan agreement with an adult, but the minor maintains the right to disaffirm the agreement upon reaching the age of majority, absent factors such as the minor's own misrepresentations concerning his or her age and good cause reliance by the adult, or emancipation by marriage.
State law provides parents have a legal obligation to support their children. Therefore, a parent may not loan an apportioned share of household expenses to a child he or she is already legally obligated to support. Guardianship and foster care cases must be reviewed on a case-by-case basis to determine if an in kind loan is proper.
You have asked for the legal requirements of a bona fide loan between a minor and an adult in Missouri, Kansas, Nebraska, and Iowa. The legal opinions which you attached addressing this issue in Kansas, Nebraska, and Iowa are still valid. In short summary, these states generally provide that minors may enter into bona fide loan agreements with an adult, but the minor maintains the right to disaffirm the agreement upon reaching the age of majority, absent factors such as the minor's own misrepresentations concerning his or her age and good cause reliance by the adult, or emancipation by marriage. See KAN. STAT. ANN. §§ 38-102, 30-103 (2008); NEB. REV. STAT. § 43-2101 (2008); IOWA CODE §§599.1, 599.2, and 599.3 (2008). The age of majority is 18 years of age in Kansas and Iowa, and 19 years of age in Nebraska. See KAN. STAT. ANN §38-101 (2008); IOWA CODE § 599.1 (2008); and NEB. REV. STAT. § 43-2101 (2008).
A minor may also enter into a bona fide loan agreement with an adult in Missouri but, as with the other states at issue, upon attaining the age of majority he or she may refuse to ratify that agreement. See MO. ANN. STAT. § 431.060 (2008). The legal age at which a person becomes competent to enter into a contract is 18 years old. See MO. ANN. STAT. § 431.055 (2008). Debts contracted before the person attains the age of majority may be ratified after the age of 18. See MO. ANN. STAT. § 431.060 (2008). Acts indicating ratification include: (1) acknowledging or promising to pay the debt, in writing; (2) partial payment of the debt; (3) disposal of all or part of the property subject to the debt; and (4) refusal to deliver the property in the minor's possession or under his control for which the debt was contracted, to the other contracting party upon written demand. See MO. ANN. STAT. § 431.060 (2008).
You also indicated that the situations of interest to you involved circumstances where children are residing with either their parent or a "nonparent," wherein the adult asserted that they "loaned" the child his or her share of the household expenses until receipt of the child's SSI benefits. In addition to the typical situation in which the child is residing with his or her parent, addressed below are the most common circumstances in which a child would be legally residing with a "nonparent." Please note that while these types of cases may fall under the general categories described below, each case should be reviewed based upon its specific facts, as it is not possible to cover every scenario here. Different facts, even within the same general category of cases, may produce a different result. Each case requires a fact-specific analysis under the following general guidelines. Some of the important factors to consider include whether the adult with whom the alleged contract exists is the natural parent and/or representative payee, and whether the adult has any other non-compensable legal obligation of support to the child.
In all four states under review, parents have a legal obligation to support their children. See State v. Reed, 181 S.W.3d 567, 569 (Mo. 2006); Secretary, Kansas Department of Social and Rehabilitation Services (SRS) v. Rice, 121 P.3d 458, 461 (Kan. Ct. App. 2005) review denied Feb. 15, 2006; NEB. REV. STAT. § 43-1402 (2008); IOWA CODE § 597.14 (2008); In re Marriage of Herriott, 707 N.W.2d 336 (Iowa Ct. App. 2005); In re Marriage of Van Ryswyk, 492 N.W.2d 728, 731 (Iowa Ct. App. 1992). Therefore, it is reasonable to conclude that the parent may not "loan" an apportioned share of household expenses to a child he or she is already legally obligated to support. The POMS site you referenced, SI 00835.482, does not address the situation where the alleged loan is from a minor child of the parent. Rather, it addresses loans between adults or situations where an adult child is providing food and shelter to the parent. The distinction is legally significant because a child has no legal obligation to provide support to his or her parent.
In Missouri, a legal guardian has the obligation to provide for the ward's "care, treatment, habilitations, education, support, and maintenance." See MO. ANN. STAT. § 475.120(3) (2008). However, the guardian is not required to use his or her own resources to support the ward. Rather, the guardian may use the child's estate and available public benefits. See MO. ANN. STAT. § 475.120(4)(2008). Thus, in situations where the child resides with a guardian, in kind loans are not improper. However, because a guardian may receive compensation for his or her services to the ward, as deemed reasonable by the court, review of the guardian's in kind loan may be appropriate to determine if compensation has already been received. See MO. ANN. STAT. § 475.265 (2008).
In Kansas, guardians have a statutorily imposed duty to provide for the minor's "care, treatment, habilitation, education, support, and maintenance." See KAN. STAT. ANN. § 59-3075(2)(b)(1)(2008). As in Missouri, a guardian in Kansas is not obligated to use his or her own financial resources for the child's support. See KAN. STAT. ANN § 59-3075 (c) (2008). Thus, in kind loans are not improper. Because the guardian has no power to exercise control or authority over the ward's estate without court authorization, it would be prudent to inquire whether the guardian has received compensation by the court for the expenditures he or she is alleging an in kind loan agreement was made. See KAN. STAT. ANN. § 59-3075(e)(8)(2008).
In Nebraska, guardians of minors have the "powers and responsibilities of a parent who has not been deprived of custody." See NEB. REV. STAT. § 30-2613 (2008). However, the guardian is not legally obligated to provide for the minors out of his or her own funds. Id. Thus, as in Missouri and Kansas, in kind loans are not clearly improper and inquiry regarding whether the guardian has already been compensated should be made.
The Iowa statutes are not as clear as the statutes in Missouri, Kansas, and Nebraska. However, taken in combination, the statutes provide that a guardian's duty is to make important decisions for his or her ward, and expenditures must be approved by the court. See IOWA CODE §§ 232.2 (2008), 633.635 (2008). Absent a breach of fiduciary duty or willful and wanton misconduct, guardians and conservators are not personally liable for actions taken while acting within their official duties. See IOWA CODE § 633.633A (2008). Given the totality of the statutory language, it appears reasonable to conclude that a guardian could enter into an in kind loan agreement with the minor.
In Missouri, so long as the child is in the care and custody of the state, whether that be in an institution or a foster home, the state is the legal guardian. See MO. REV. STAT. § 211.021 (2007). Foster parents receive payment from the state which are intended to provide economic benefits for the foster children. See Bryant v. Bryant, 218 S.W.3d 565, 569 (Mo. Ct. App. 2007). While the foster parent spends the money at his or her discretion, he or she has an obligation to provide food, clothing, and shelter for the foster children placed in his or her care. Id. Thus, it is reasonable to conclude that in kind loans may not be appropriate in foster care situations, if compensation has already been received by the foster parent. However, the payment received may not, and very likely does not, adequately compensate the foster parent. Therefore, careful review of the compensation received versus the resources expended for the care of the child should be undertaken prior to disapproving these in kind loan situations.
In Kansas, foster parents are considered the custodial parents of the foster child in their care while SRS is the child's legal guardian. See KAN. STAT. ANN. §§ 38-133, 38-134 (2007). While foster parents are compensated by SRS, the amount of compensation is "minimal." See Mitzner v. SRS, 891 P.2d 435, 438 (Kan. 1995). Thus, it is reasonable to conclude that the cost of caring for the foster child does not adequately compensate the foster parent and in kind loans may therefore be proper.
In Nebraska, the Department of Health and Human Services (DHHS) is the legal guardian for children in foster care and foster parents are paid a monthly fee. See NEB. REV. STAT. §§ 43-247, 43-285, 43-905, and 43-1320 (2008). As in the other states under current review, careful review of the foster parent expenses versus the money received from DHHS should be undertaken when presented with an alleged in kind loan.
In Iowa, the Department of Human Services (DHS) is "responsible for paying the cost of foster care for a child." IOWA CODE § 234.35 (2008). Foster parents are paid by DHS, in the amount of 65 percent of the estimated cost of raising a child in the preceding year, as determined by the Department of Agriculture, assuming the child has no special needs. See IOWA CODE § 234.38 (2008). Thus, in kind loans alleged by foster parents may be proper, but like the other states, a careful review of the alleged loan and the money already received for care of the child should be conducted.
In sum, minors may enter into bona find loan agreements with an adult, but the minor maintains the right to disaffirm the agreement upon reaching the age of majority, absent factors such as the minor's own misrepresentations concerning his or her age and good cause reliance by the adult, or emancipation by marriage. Despite that general rule, an in kind loan between a minor and an adult with the legal obligation to provide support and maintenance for that minor child is not appropriate. In instances where the adult has a legal obligation to the child, but that obligation does not require him or her to expend his or her own financial resources to fulfill that duty, an in kind loan may be allowable. As is often the case, these cases must be reviewed on a case-by-case basis as differing facts may well produce different results.
Kristi A. S~
Acting Chief Counsel, Region VII
Pamela J. M~
Assistant Regional Counsel