Basic (01-05)

PS 01805.026 Minnesota

A. PS 09-014 Treatment of Home as a Resource for SSI in Minnesota (Kristen R~)

DATE: November 3, 2008

1. SYLLABUS

This opinion discusses whether an inherited home is considered a countable resource for SSI purposes. Minnesota state law provides that legal title to a home is passed immediately to the surviving spouse if all of the decedent's surviving descendants (children) are also descendants (children) of the surviving spouse. Title to the home ("property") does not pass through probate proceedings and, instead, vests in the heir(s) immediately upon the intestate's death. In the case discussed, the SSI beneficiary inherited the property and subsequently moved out with no intention of returning. For SSI purposes, the property does not meet the definition of a home and, as such, cannot be excluded under the provisions in 20 CFR 416.1212.

2. OPINION

Questions Presented

You have asked for an opinion on whether Ms. R~, an SSI claimant, had an ownership interest in a home owned solely by her deceased spouse and whether the home is a resource for SSI purposes. Specifically, you asked: (1) whether Ms. R~ established an equitable ownership interest in the house by virtue of payment of the first mortgage; (2) whether she was prohibited from selling the house because it was pending probate; and (3) whether the house met the definition of a resource.

Short Answer

Under Minnesota _/1 law, Ms. R~ received legal title to the home immediately upon the death of her husband. Although the Agency generally considers an individual's home to be an excluded resource, in the instant case, because Ms. R~ has moved out of the house, the house meets the definition of a resource for SSI purposes. Because Ms. R~ obtained legal title, the equitable interest issue is moot. And because the title to real estate does not pass through intestate probate proceedings, but rather by rule of law immediately upon the intestate's death, Ms. R~ is not prohibited from selling the house during probate proceedings.

Facts

According to the information you provided, the R~s were married in 1982, and lived in a home located in Ely, Minnesota until the time of Mr. R~'s death. At the time of the marriage and until his death, Mr. R~ owned the house solely and absolutely with unqualified legal title. Mr. R~ never changed or modified the title to the home to include his spouse as a co-owner.

In 2006, Mr. R~ died intestate _/2 and was survived by Ms. R~ and their two adult children. Ms. R~ used proceeds from Mr. R~'s life insurance policy to pay off the first mortgage on the house. Ms. R~ moved out of the house some time after her husband's death, but before she applied for benefits in October 2008. It is our understanding that Ms. R~ does not intend to return to the house.

Applicable Laws and Regulations

Eligibility for SSI is determined by an individual's status (aged, blind, or disabled), income, and resources _/3 other than excluded income and resources. See § 1611(a) of the Social Security Act (Act), 42 U.S.C. § 1382; 20 C.F.R. § 416.202. The Act, Agency regulations, and Agency policy provide that an individual's home is an excluded resource. See § 1613(a)(1) of the Act, 42 U.S.C. § 1382b; 20 C.F.R. §§ 416.1210, 416.1212; POMS SI 01130.100. In addition, 20 C.F.R. § 416.1212 and POMS SI 01130.100 provide that if a home ceases to be the principal place of residence of an individual, that home is no longer excluded as a resource.

Minnesota law regarding intestate succession provides that the surviving spouse is entitled to the entire intestate estate if all of the decedent's surviving descendants (children) are also descendants (children) of the surviving spouse. See Minn. Stat. Ann. § 524.2-102 (2008). Minnesota case law provides that the title to real estate held by an intestate individual vests in the heirs immediately upon the intestate's death. POMS SI CHI00830.550 states that in Minnesota, an individual has some alienable property interest in the property inherited as of the decedent's death. See Hardenbergh v. Comm'r of Internal Revenue, 198 F.2d 63, 67 (8th Cir. 1952).

Analysis

You asked whether the home would be considered a resource of Ms. R~'s.

Mr. R~ had absolute and unqualified legal title to the family home when he died, and his surviving children are also Ms. R~'s descendants. As such, absolute and unqualified legal 4 Because Ms. R~ had an ownership interest in the property and resided in it as her principal place of residence, the house met the regulatory definition of a home. See 20 C.F.R. § 416.1212; POMS SI 01130.100. title to the R~'s home passed to Ms. R~ immediately upon the death of her husband in 2006.4 See Minn. Stat. Ann. § 524.2-102 (2008); see also Hardenbergh, 198 F.2d at 67.

Normally, an individual's home is an excluded resource for SSI purposes. See § 1613(a)(1) of the Act, 42 U.S.C. § 1382b; 20 C.F.R. §§ 416.1210, 416.1212; POMS SI 01130.100. The regulations and the POMS define a home as property in which an individual has an ownership interest and that serves as his or her principal place of residence. See 20 C.F.R. § 416.1212, POMS SI 01130.100. Had Ms. R~ applied for benefits while she lived in the house, her house would have been considered an excluded resource. See § 1613(a)(1) of the Act, 42 U.S.C. § 1382b; 20 C.F.R. §§ 416.1210, 416.1212; POMS SI 01130.100 However, in the instant case, Ms. R~ moved out of the home sometime after the death of her husband, but before she applied for benefits, and indicated she did not intend to return to the home. As such, the home ceased to be her principal place of residence. See 20 C.F.R. § 416.1212; POMS SI 01130.100. Agency policy provides that if a home ceases to be an individual's principal place of residence, such property is no longer excludable as a resource for SSI purposes. Id. Accordingly, Ms. R~'s home would be considered a resource.

You have questioned whether Ms. R~ had an equitable interest in the house, by virtue of her paying off the first mortgage. Case law provides that no presumption of ownership arises from the payment of a mortgage. See Fisk v. Stewart, 4 N.W. 611, 613 (1880). In any event, the question is moot since Ms. R~ received legal title and an ownership interest in the home upon the death of her husband.

Your question regarding whether Ms. R~ was prohibited from selling the house because the house was pending probate is moot. As to intestate succession, title to property (real estate) does not pass through probate proceeding, but rather passes by rule of law upon the death of the intestate. See Hardenbergh, 198 F.2d at 66. As discussed above, unqualified legal title to the home passed by force of law to Ms. R~ immediately upon the death of her husband and no legal prohibition exists that would prevent her from selling the home.

CONCLUSION

In sum, Ms. R~ has a legal ownership interest in the home since absolute unqualified title passed to her immediately upon the death of her husband. In addition, because the home is no longer her principal place of residence, the home would be countable as a resource for SSI purposes .

Deana R. E~-L~
Regional Chief Counsel, Region V
By: __________________________
Robert L. V~ S~
Assistant Regional Counsel

_/1We consulted OGC Region V regarding Minnesota law.

_/2 It is our understanding that the Field Office verified with Ms. R~ that her husband did not have a will.

_/3 Resources mean cash or other liquid assets or any real or personal property that an individual (or spouse) owns and could convert to cash to be used for his or her support and maintenance. 20 C.F.R. § 416.1201 (2008).

B. PS 07-144 Validity of Minnesota Oral Life Estate (Eldred E~)-REPLY Your Reference: S2D8B51.RLM Our Reference: 07-0257

DATE: May 30, 2007

1. SYLLABUS

This opinion addresses whether an oral agreement can create a life estate in land transferred by a quitclaim deed in the state of Minnesota. For SSI purposes, a life estate in home property is an excluded resource. In this case the SSI claimant filed a quitclaim deed transferring home property to his son and daughter-in-law. The deed did not reserve the claimant a life estate but the claimant alleges an oral agreement was reached that would in essence retain a life estate in the property. Under Minnesota law, a life estate must be created in a written document. Because the life estate at issue here was only agreed to orally, and was not memorialized in the quitclaim deed, it does not exist. The claimant could petition a Minnesota court to reform the quitclaim to reserve a life estate; however, absent such a reformation the oral agreement is insufficient to create a life estate.

2. OPINION

You asked whether an oral agreement can create a life estate in land transferred by a quitclaim deed in Minnesota. The Minnesota statute of frauds requires that an estate must be created by a written document. In certain circumstances, a Minnesota court will retroactively reform a quitclaim deed to create a life estate. Thus, while the oral agreement of the parties did not create a life estate, they may petition a Minnesota court to reform the deed to create a retroactive life estate. Unless they do so, however, no life estate should be found to exist.

BACKGROUND

In 2004, Eldred and Alice E~ transferred by quitclaim deed land with a house on it to their son and his wife, Leland and Julie E~. The deed did not reserve a life estate to Eldred and Alice. ("A life estate confers upon one or more persons (grantees) certain rights in a property for his/her/their lifetimes or the life of some other person." POMS SI 01110.5151A2a.) But Eldred claimed to have an oral agreement with Leland that he and Alice would live in the home until they died. Eldred assumed that if he and Alice had to leave the house due to illness and were unable to return, Leland and Julie would own the house. Eldred and Alice paid the utility bills and Leland paid the taxes.

After Eldred applied for SSI, he completed Form SSA-795, stating that he had the right to live in his house, although he was not its owner. Leland also completed Form SSA-795, stating that Eldred had an oral life estate in the house, with the right to live in it until he died.

DISCUSSION

SSI has income and resource limits. A home that a person owns and is the person's principal place of residence is an excluded resource. 42 U.S.C. 1382b(a)(1); POMS SI 01110.210B. But a person who lives in a house that he doesn't own, and does not pay rent, receives "rent-free shelter." POMS SI 00835.370B1. Rent-free shelter is a type of in-kind support and maintenance, which affects income limits. POMS SI 00835.370C.

A life estate creates an ownership interest in realty. POMS 01110.515B1a. A life estate in home property is an excluded resource. Id.

When Eldred and Alice filed a quitclaim deed transferring their property to Leland and Julie, the deed did not reserve in them a life estate. But Eldred and Leland claim that they orally agreed that Eldred and Alice would in essence retain a life estate in the property. At issue is thus whether Minnesota recognizes an oral agreement to create a life estate in property transferred by a quitclaim deed.

The answer to this question is "no." The Minnesota statute of frauds provides that "[n]o estate or interest in lands . . . shall hereafter be created, granted, assigned, surrendered, or declared, unless by act or operation of law, or by deed or conveyance in writing." Minn. Stat. § 513.04. The Supreme Court of Minnesota has interpreted "interest" to include an estate in real estate. Hatlestad v. Mutual Trust Life Ins. Co., 268 N.W. 665, 667 (1936). Minnesota courts will not reform a written contract absent a mutual mistake, or a mistake on the part of one of the parties and fraud or inequitable conduct on the part of the other party. Karger v. Wangerin, 40 N.W.2d 846, 850 (1950). Therefore, because the oral agreement between Eldred and Alice and Leland and Julie was not memorialized in the quitclaim deed, it did not create a life estate for Eldred and Alice.

It is possible, however, that a Minnesota court would reform the quitclaim deed based on a mutual mistake of failing to include the life estate. Id. A mutual mistake occurs if: (1) there is a valid agreement between the parties expressing their real intentions; (2) the written instrument failed to express those intentions; and (3) this failure was due to a mutual mistake of the parties, or a unilateral mistake by one of the parties accompanied by fraud or inequitable conduct on the part of the other party. Theros v. Phillips, 256 N.W.2d 852, 857 (Minn. 1977).

Olson v. Olson, No. 97-1978, 1998 WL 170111 (Minn. Ct. App. 1998), an unpublished Minnesota Court of Appeals decision, is on point. In Olson, land was transferred by a father to his children, but the parties neglected to include in the deed a life estate for the father. When one of the children attempted to sell the land, the father and the other children protested, on the basis that the parties intended to reserve a life estate to the father. The trial court reformed the deed to include a life estate for the father, and the court of appeals upheld the reformation. The court of appeals also found that the trial court did not violate the statute of frauds, citing Olson v. Erickson, 44 N.W. 317, 318 (1890), because where a written contract fails, through mistake or fraud, to express the actual oral agreement, it may be reformed even though it comes within the statute of frauds.

It would thus seem possible that, if the parties petitioned a Minnesota court to reform this quitclaim deed to reserve a life estate in Eldred and Alice, the court would reform the deed. But absent such a reformation, the oral agreement between the parties is insufficient to create a life estate.

CONCLUSION

Under Minnesota law, a life estate must be created by a written document. Because the life estate at issue here was only agreed to orally, and was not memorialized in the quitclaim deed, it does not exist. But Minnesota law does allow parties to a contract to petition a court to reform the contract where the contract does not reflect the parties' intentions due to a mutual mistake. Should the parties here exercise that option, and a Minnesota court of competent jurisdiction grant the petition, then the life estate would exist retroactively.

Donna L. C~
Regional Chief Counsel, Region V
By: __________________________
Charles R. G~
Assistant Regional Counsel

C. PS 06-102 SSI-Minnesota-Review of Assignment Form for American Memorial Life Insurance Company-REPLY Your Ref: S2D5G6, SI 2-1-3 MN (American Memorial) Our Ref: 05-0210

DATE: March 29, 2006

1. SYLLABUS

This opinion reviews a form intended to irrevocably assign a life insurance policy issued by American Memorial Life Insurance Company (AMLI). The form is to be used to assign the life insurance policy to a named funeral home that will, in turn, immediately assign the policy to the Assurant Preneed E~ Trust. The issue that the opinion resolves pertains to whether or not a properly completed form would establish an irrevocable assignment of the policy. Based on an evaluation of the AMLI assignment form, proper completion of the form would constitute a valid irrevocable assignment under Minnesota state law. Still, whether a particular pre-need burial agreement, based upon the AMLI assignment form, would be a countable resource can only be determined on a case by case basis.

2. OPINION

You asked us to review a sample form for irrevocably assigning a life insurance policy issued by American Memorial Life Insurance Company ("AMLI"). Apparently, AMLI intends that its customers will use the assignment form to assign their life insurance policies to a named funeral home that will, in exchange, immediately assign the policy to the Assurant Preneed E~ Trust, which will disburse funds to provide funeral goods and services upon the death of the beneficiary of the policy. AMLI would like the Agency to review and "approve" the form. For purposes of this opinion, we assume that "approve" means only that the assignment form, properly completed, constitutes an irrevocable assignment of the life insurance policy from the individual to the funeral provider. We expressly do not offer an opinion as to whether the assignment form, properly completed, would render the pre-need burial agreement or life insurance a countable resource for SSI purposes, because such a decision could only be made on a case-by-case basis.

Accordingly, we have reviewed the sample assignment to determine if it complies with Minnesota law, and we conclude that an assignment using this form would be irrevocable.

BACKGROUND

The assignment form sent to us is blank, but will apparently be given to potential customers of AMLI who are SSI applicants or beneficiaries. The form purports to irrevocably assign the life insurance policy or ownership of the policy to a funeral home. The individual assigning the policy is to fill in the name of a particular funeral home to which the policy will be assigned. Under the terms of the assignment form, the individual assigns the ownership and proceeds of the policy; waives all rights to surrender it for cash or obtain a loan or advance using the policy as collateral; waives the right to receive any income from the policy provided that it is an annuity; waives the right to any net proceeds from the policy; retains the obligation to pay all premiums due on the policy; but retains the right to change the designated funeral provider who will receive the insurance proceeds upon the individual's death. The form then provides a space for the owner and any irrevocable beneficiary of the policy to affix their signature.

The form further provides that the funeral provider accepts and irrevocably assigns control and ownership of the policy to Assurant Preneed E~ Trust, and that said assignment may not be altered, amended, revoked, or terminated. Finally, the form provides a place for a representative of the funeral provider to sign as the responsible party for compliance with these terms.

DISCUSSION

In Minnesota, for an assignment to constitute an irrevocable assignment, "an intent to transfer must be manifested and the assignor must not retain any control over the fund or power of revocation." Guaranty State Bank of St. Paul v. Lundquist, 304 N.W. 278, 281 (Minn. 1980) (quoting Spring v. J.R. Clark Co., 46 F. Supp. 54, 58 (D. Minn. 1942), rev'd on other grounds, 138 F.3d 722 (8th Cir. 1943)). In addition, there must be a present transfer, not an intent to transfer in the future. See Minnesota Mutual Life Ins. Co. v. Anderson, 504 N.W.2d 284, 286, (Minn. Ct. App. 1993); RESTATEMENT (SECOND) OF CONTRACTS §§ 324 & comment a, 330 (1981). Finally, for an assignment to be irrevocable, the assignee must give value for the assignment. See Minnesota Mutual Life Insurance Co., 504 N.W.2d at 281 (citing Farnsworth, Contracts § 11.6).

The terms of the form that you sent us clearly comply with these requirements. By affixing his/her signature to the form, the insured (assignor) promises to "hereby irrevocably assign ownership and proceeds" of the policy to a specified/named funeral provider, which expressly indicates an intent to transfer ownership and control presently, as opposed to some time in the future. By affixing his/her signature to the same form, the representative of the funeral provider (assignee) promises to deliver the agreed-upon funeral services and merchandise and to "irrevocably assign the ownership rights of the policy to Assurant Preneed E~ Trust," which constitutes value for the assignment. Accordingly, the assignment form, properly completed, constitutes a valid irrevocable assignment under Minnesota state law.

CONCLUSION

For the foregoing reasons, AMLI's assignment form, when properly completed, constitutes a valid irrevocable assignment under Minnesota state law. However, whether a particular pre-need burial agreement would be a countable resource for SSI purposes could only be determined on a case-by-case basis.

D. PS 06-094 SSI - Minnesota - Review of the Fixed Annuity for Ruth L~ Including Pre-need Statement of Funeral Goods and Services, SSN: ~ - REPLY Your Reference: S2D5G6, SI 2-1-3 IL (L~) Our Reference: 05-0172

DATE: March 14, 2006

1. SYLLABUS

This opinion examines whether an annuity funded pre-need burial contract is a countable resource. The SSI beneficiary purchased an annuity in April, 1998 and, also in April, assigned the policy to the Minnesota Valley Funeral Home. The annuity policy was to be held by the funeral home for payment of the beneficiary's funeral goods and services. Upon request, the Funeral Home provided a Pre-Need Statement of Funeral Goods and Services detailing specific goods and services to be provided. At the time that the contract was executed Minnesota state law did not contain statutory limitations on the revocability of an annuity-funded pre-need contract. Still, the designation of the Funeral Home as an irrevocable beneficiary constitutes an irrevocable act when the annuity or life insurance policy contains a non-specific designation of a particular funeral home. Additionally, a burial contract funded by life insurance (the annuity in this case) is presumed not to have value or be salable because it is part of a larger arrangement involving the assignment of the policy in the contract for goods and services.

2. OPINION

You have asked whether the annuity Ruth L~ applied for on April 13, 1998, is a resource for purposes of SSI. For the reasons discussed below, we believe that the annuity is not a resource.

FACTS

In conjunction with an April 2005 opinion request on this matter, we received the following: an annuity application, an assignment document, and a notation that Ms. L~ did not have a contract for goods and services with a funeral home, and did not have a copy of her annuity policy.

The annuity application is dated April 13, 1998, with an "initial purchase payment" of $6,000. It is signed by Ms. L~ and the insurance agent, and lists the primary beneficiary as "any funeral home as their interest may appear irrevocable." We presume this beneficiary is entitled to receive the proceeds of the policy upon Ms. L~'s death. We will thus refer to the policy as an annuity based form of life insurance.

The assignment document, dated April 27, 1998, indicates that Ms. L~ assigned her policy to Minnesota Valley Funeral Home (Assignee), and that the policy is to be held by the funeral home as "collateral security for any and all liabilities of the undersigned . . . either now existing or that may hereafter arise in the ordinary course of business between any of the undersigned and the Assignee. . . ." The document is signed by Ms. L~ and a "beneficiary," whose signature is illegible.

Ms. L~ applied for SSI in April 2005.

Based on the above information, we issued an opinion in May 2005, which concluded that the annuity was a resource. Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI - Minnesota - Review of the Fixed Annuity for Ruth L~ (May 2, 2005). Specifically, we found that the annuity assignment and beneficiary designation were revocable by Ms. L~ because the arrangement did not contain an itemized description of funeral goods and services, as currently required by Minnesota statutory law, Minn. Stat. Ann. § 149A.97(3a) (West 2006). Thus, we concluded that the cash surrender value of the annuity was a resource.

Subsequently, you spoke with a representative from the Minnesota Valley Funeral Home, who indicated that they did not believe an itemized description of goods and services was required at the time Ms. L~ entered into her pre-paid burial arrangement. The funeral home, nevertheless, generated a Pre-Need Statement of Funeral Goods and Services for Ms. L~, which you have submitted in conjunction with a second request for review of this matter.

DISCUSSION

It appears that Ms. L~ intended to enter into a prepaid burial contract with Minnesota Valley Funeral Home, which would be funded with an annuity-based form of life insurance. See generally POMS SI 01130.420, 01130.425 (describing prepaid burial contracts and life insurance funded burial contracts). Specifically, under the assignment, the funeral home holds the policy, which presumably has a death benefit and a cash surrender value, and is contractually entitled to collect on the policy to satisfy any existing or future debts incurred by Ms. L~ and/or the illegible beneficiary, including the services detailed in the itemized description of funeral goods and services.

Prepaid burial contracts are a resource if the contract is either revocable or salable. POMS SI 01130.420(B)(1). As we discuss below, Ms. L~'s preneed burial arrangement is neither revocable nor salable, and is thus not a resource.

1. The Preneed Burial Agreement Is Not Revocable.

"State law determines whether a [prepaid burial] contract is revocable," and is therefore a resource. POMS SI 01130.420(B)(3). As indicated above, we originally opined that Ms. L~'s arrangement would be revocable (and thus a resource) because it did not contain a written itemized description of funeral goods and services, as currently required by Minnesota statutory law, Minn. Stat. Ann. § 149A.97(3a) (West 2006). However, upon further review, it appears that the statutory section we relied upon was not enacted, and did not become applicable, until April 24, 2000. 2000 Minn. Sess. Law Serv. Ch. 438 Section 39 (S.F. 2686) (West). We note that another statutory provision that was effective at the time Ms. L~ entered into her arrangement does limit revocability of certain preneed funeral arrangements, Minn. Stat. Ann. § 149A.97(3) (West 2006), but this provision only applies where the individual pays cash to fund the preneed agreement, not where the individual funds it with an annuity, as was done here. Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Minnesota-Request for Review of OGC Opinion on Life Insurance Funded Burial Agreements at 2 (December 15, 1999).

Absent any statutory limits on revocability, we have previously opined that the designation of an irrevocable beneficiary (in a life insurance policy) is an irrevocable act that makes the policy not a resource. Specifically:

[where] the beneficiary named is "any funeral home as its interests may appear, irrevocably" or "the funeral home of choice, irrevocably" or the like, and the policy holder has not reserved the right to obtain the cash surrender value of the policy without the consent of the irrevocable beneficiary . . . the policy holder could not obtain the cash surrender value of the policy without first obtaining the consent of every funeral home that exists now and in the future. Since this is essentially impossible, we assume that such a policy is not a resource.

Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Minnesota-Request for Review of OGC Opinion on Life Insurance Funded Burial Agreements at 4-5 (December 15, 1999) (footnote and citation omitted). As noted above, Ms. L~ listed the primary beneficiary on her annuity based life insurance policy application as "any funeral home as their interest may appear irrevocable." We further note that Ms. L~'s assignment of her policy to Minnesota Valley Funeral Home (Assignee), to be held by the funeral home as "collateral security for any and all liabilities of the undersigned . . . either now existing or that may hereafter arise in the ordinary course of business between any of the undersigned and the Assignee" also appears to be an irrevocable act. Id. at 5-6. Accordingly, Ms. L~'s preneed burial arrangement is not revocable.

2. The Preneed Burial Arrangement Is Not Salable.

When Ms. L~ entered into her burial arrangement in 1998, her contract provided only that the proceeds of her annuity would be used by the funeral home to cover any liabilities incurred in the ordinary course of business. More recently, Ms. L~ has received a specific Statement of Funeral Goods and Services, which details the funeral goods and services to be provided by Minnesota Valley Funeral Home. In either case, however, as explained in POMS SI 01130.425(B)(1), a burial contract funded by life insurance is presumed not to have value or to be salable:

We assume that the burial contract itself (without the insurance policy assigned to fund it) has no resource value. We also assume that the contract is not salable because it is part of a larger arrangement involving life insurance that has been assigned to another party as payment for [a] contract [for] goods and services.

POMS SI 01130.425(B)(1). Since we presume that Ms. L~'s annuity operates as a form of life insurance, her burial arrangement is not salable.

CONCLUSION

Because Ms. L~'s preneed burial arrangement is neither revocable nor salable, it is not a resource.

E. PS 06-036 SSI-Minnesota-Review of the Life Insurance Funded Burial Agreement of Valeen A~, ~ -- REPLY Your Ref: S2D5G6, SI 2-1-4 WI (A~) Our Ref: 05-0170

DATE: December 23, 2005

1. SYLLABUS

Minnesota law permits the irrevocable assignment of a life insurance policy to a particular individual or entity. In the event of such an assignment, the policy is no longer considered a resource to the individual. This is true, if at that point of assignment: (1) the individual had not previously named an irrevocable beneficiary of the policy; (2) the individual had not previously irrevocably assigned the policy; (3) the policy permits such an assignment; and (4) the individual makes a current assignment to a particular assignee, even though he or she may retain the right to change the funeral home or funeral provider. For such an assignment to be irrevocable, the assignee must also give value for the assignment. This condition is met if the proceeds of the policy are to be used for the individual's funeral services.

2. OPINION

You have asked whether two life insurance policies for Valeen A~ are countable resources for purposes of SSI. As discussed below, we conclude that the insurance policies should not be considered resources because Ms. A~ has irrevocably assigned her policies to the insurance company as consideration for paying for funeral services, and she has not reserved any right to obtain cash or income from the policies.

BACKGROUND

The relevant information that we have consists of two completed applications for life insurance policies; two annual reports from the Pierce National Life Company; a listing of burial goods and services from Olson Funeral Home in Truman, Minnesota; and two irrevocable assignments of ownership of the insurance policies to the Purple Shield Plan, underwritten by Pierce National Life Investment Corporation. We do not have the terms of the insurance policies themselves.

On October 10, 1993, Ms. Valeen E. A~ purchased two life insurance policies ("Policies"), policy number ~ for a single premium of $2307.00 and ~ for a single premium of $2883.00, from the Pierce National Life Insurance Company ("Insurer"), with herself as the named insured. The Policies became effective on October 28, 1993. Both Policies named Eugene A~, Valeen A~'s spouse, as the primary beneficiary, and Sharon K. D~, her daughter, as the contingent beneficiary. Both Policies were paid in full. Policy ~ had a death benefit of $3155.00 as of October 28, 1998; a guaranteed death benefit of $3617.00 on October 28, 2003, and a guaranteed death benefit of $4770.00 on October 28, 2013. Policy ~ had a death benefit of $3944.00 on October 28, 1998; a guaranteed death benefit of $4521.00 on October 28, 2003; and a guaranteed death benefit of $5963 on October 28, 2013.

The documents also included an irrevocable assignment of ownership of each Policy from Ms. A~ to the Purple Shield Plan of the Pierce Investment Corporation ("Pierce Purple Shield Plan), underwritten by Pierce National Life, both executed on October 12, 1993 ("Assignments"). The Assignments were made as consideration for applying the proceeds of each Policy as payment to the funeral home that provided of funeral services for Ms. A~, if she has one. The Assignments contained no express reservations of rights. Any excess proceeds would be paid to the beneficiary of the Policies. The List of Funeral Goods and Services simply recited various funeral services and merchandise, in an amount totaling $5190, that Ms. A~ selected.

DISCUSSION

A resource includes "any real or personal property that an individual . . . owns and could convert to cash to be used for his or her support and maintenance." 20 C.F.R. § 416.1201(a). A life insurance policy can be a resource to the extent of its cash surrender value. See 20 C.F.R. § 416.1230; POMS SI 01130.300(B). The question, therefore, is whether Ms. A~ can surrender it for cash or recover the premiums paid. See 20 C.F.R. § 416.1230.

We have previously advised that in Minnesota, if an individual has irrevocably and currently assigned ownership of a life insurance policy (including the right to obtain the cash surrender value) to a particular individual or entity (other than a trust or trustee), the policy is not a resource. See POMS PS 01805.026. See also Memorandum from Regional Chief Counsel, Chicago, to Assistant Regional Commissioner - MOS Chicago, SSI-Minnesota-Review of the Life Insurance Funded Burial Contract of John M. P~, at 2 (April 24, 2003) [hereinafter "P~ Memo"]. For an assignment to be valid, "'an intent to transfer must be manifested and the assignor must not retain any control over the fund or power of revocation.'" Guaranty State Bank of St. Paul v. Lundquist, 304 N.S. 278, 281 (Minn. 1980) (quoting Spring v. J.R. Clark Co., 46 F. Supp. 54, 58 (D. Minn. 1942), rev'd on other grounds, 138 F.3d 722 (8th Cir. 1943)). In addition, there must be a present transfer, not an intent to transfer in the future. See Minnesota Mutual Life Ins. Co. v. Anderson, 504 N.W.2d 284, 286, (Minn. Ct. App. 1993); RESTATEMENT (SECOND) OF CONTRACTS §§ 324 & comment a, 330 (1981).

We have also previously advised that, in Minnesota, an irrevocably assigned life insurance policy is not a resource for SSI purposes if:

  1. (a) 

    the individual has not previously named an irrevocable beneficiary of the life insurance policy;

  2. (b) 

    the individual has not previously irrevocably assigned the life insurance policy;

  3. (c) 

    the life insurance policy permits the assignment; and

  4. (d) 

    the individual makes a current assignment of the policy to a particular assignee, even though he or she retains the right to change the funeral home or funeral provider.

See POMS PS 01805.026; P~ memo, above,at 3.

In the Assignments, Ms. A~ did not expressly retain any rights, including any right to obtain the cash surrender value of the policy, or obtain any loan or advance on it, or collect surplus or dividend distributions.

At the same time that Ms. A~ applied for the Policies, she assigned the Policies to the Pierce Purple Shield Plan. Thus, the Assignments are to a particular named entity and appear "current." They did not express a future intent. See Pepin Memo, above,at 3; RESTATEMENT (SECOND) OF CONTRACTS, §§ 324 & comment a, 330.

In this case, although we know from the Applications that Ms. A~ named her husband as beneficiary, because we do not know the terms of the Policies, we do not know whether Eugene A~ is an irrevocable beneficiary, or whether Ms. A~ reserved the right to designate or change beneficiaries under the Policies. While Minnesota law presumes that the beneficiary designation is irrevocable unless the owner of the policy specifically reserves the right to change the beneficiary, see Minn. Stat. Ann. § 61A.12(2), we have previously advised that most policies we have seen specifically reserve the right to change beneficiaries. See LIFB Review, at 5. In this case the Policies were purchased and assigned as part of the same transaction, both the Applications and the Assignments were constructed by the same company, Pierce National Life, and the Assignments expressly subordinated the beneficiary's right to the obligation to pay for funeral services. Thus, despite not having the actual insurance policies, it is reasonable to presume that the Policies permitted the Assignments.

Finally, for an assignment to be irrevocable, the assignee must give value for the assignment. See Minnesota Mutual Life Insurance Co., 504 N.W.2d at 281 (citing Farnsworth, Contracts § 11.6). In this case, the Pierce Purple Shield Plan agreed not to surrender the Policies for cash or obtain loans against them, and agreed that upon being notified of Ms. A~'s death, it would use the proceeds of the Policies to pay the provider of funeral services for Ms. A~, with any excess proceeds to be paid to the beneficiary Because this constitutes value for the assignment, the Assignments should be considered irrevocable.

Thus, Ms. A~ pre-paid for the goods and/or services by irrevocably assigning ownership of her Policies, which we have previously indicated is valid in Minnesota. Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Minnesota-Review of Minnesota Life Insurance Contract from CNA and American Memorial Life Insurance Companies (March 21, 2000); LIFB Review, above, at 5-6. Because the provisions of the Assignments clearly indicated Ms. A~'s intent to make a current transfer of ownership of the Policies to a particular named entity, in consideration for that entity paying for funeral goods and services, the Policies should not be countable resources for SSI purposes.

CONCLUSION

For the reasons discussed above, the life insurance funded burial agreement created by Ms. A~ is a not a resource.

F. PS 05-151 SSI - Review of the Fixed Annuity for Ruth L~, SSN: ~ - REPLY Your Reference: S2D5G6, SI 2-1-4 (L~) Our Reference: 05-0104

DATE: May 2, 2005

1. SYLLABUS

PS 06-094 above, supersedes this opinion.

The burial contract, submitted by the claimant, is not valid under Minnesota law. According to Minnesota law, the pre-need funeral agreement should include an itemized statement of the goods and services to be provided. Additionally, the statement should include whether or not the prices of the goods and services in the agreement are guranteed. The claimant provided an annuity application and an assignment document as proof of purchase of a pre-need funeral agreement. The documents provided, by the claimant, did not meet the requirements of Minnesota law regarding what must be included in a pre-need funeral agreement. Therefore, the funds in question are a resource to the claimant.

2. OPINION

You have asked whether the annuity Ruth L~ applied for on April 13, 1998, is a resource for purposes of SSI. For the reasons discussed below, we believe that the annuity is a resource.

FACTS

The documents we reviewed consist of an annuity application, an assignment document, and a notation that Ms. L~ does not have a contract for goods and services with a funeral home, and does not have a copy of her annuity policy.

The annuity application is dated April 13, 1998, with an "initial purchase payment" of $6,000. It is signed by Ms. L~ and the insurance agent, and lists the primary beneficiary as "any funeral home as their interest may appear irrevocable."

The assignment document, dated April 27, 1998, indicates that Ms. L~ assigned her policy to Minnesota Valley Funeral Home (Assignee), and that the policy is to be held by the funeral home as "collateral security for any and all liabilities of the undersigned . . . either now existing or that may hereafter arise in the ordinary course of business between any of the undersigned and the Assignee. . . ." The document is signed by Ms. L~ and a "beneficiary," whose signature is illegible.

DISCUSSION

It appears that Ms. L~ intended to enter into a prepaid burial contract with Minnesota Valley Funeral Home, which would be funded with an annuity-based form of life insurance. See generally POMS SI 01130.420, 01130.425 (describing prepaid burial contracts and life insurance funded burial contracts). Ms. L~'s arrangement, however, is not consistent with Minnesota law, which provides that it is unlawful to enter into a preneed funeral agreement unless the agreement contains, among other things, an itemized description of the goods and services to be provided and a statement as to whether the prices of the goods and services are guaranteed. Minn. Stat. Ann. § 149A.97(3a) (West 2005). As noted above, these elements are missing from Ms. L~'s transaction, and thus Ms. L~'s arrangement is unlawful under the state statute.

Because Ms. L~'s arrangement was unlawful, and therefore against the public policy of Minnesota, any obligations contained in the arrangement probably would not be enforceable. Restatement (Second) Contracts §§ 178, 179 (1981) (discussing unenforceability on grounds of public policy). As such, Ms. L~ has the right to restitution for any performance she has rendered, meaning she can request that the annuity be returned to her. Restatement (Second) Contracts § 198, cmt. b (1981) (noting that restitution applies where the public policy that was violated was intended to protect the claimant, as is the case with the section 149A.97 preneed funeral agreement requirements). And, even though Ms. L~ apparently designated an irrevocable beneficiary in her annuity application, see Memorandum from Regional Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Minnesota-Request for Review of OGC Opinion on Life Insurance Funded Burial Agreements at 4-5 (December 15, 1999), since the designation was part of Ms. L~'s attempted prepaid burial contract, which we have concluded was unenforceable and subject to restitution claims, the beneficiary designation would likely not be deemed irrevocable.

Because Ms. L~ can seek return of her annuity policy and can change the beneficiary designation, the policy is a resource to the extent of its cash surrender value, although the $1,500 exclusion should be applied, if applicable. POMS SI 01130.300(B)(1), (2).

CONCLUSION

For the reasons discussed above, we conclude that the annuity policy is a resource in the amount of the cash surrender value, but the insurance limited exclusion might be applicable.

G. PS 05-003 SSI-Regional Supplement on the Validity of Loans for Minors in Region V States (Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin) Your Reference Number: SI-2-1-10 Our Reference Number: 04S041

DATE: September 28, 2004

1. SYLLABUS

State law in most Region V states prevents formal and informal loan agreements entered into with minors from being enforceable against the minor parties. Each state has specific exceptions that may apply depending on the circumstances surrounding the loan agreement. For example, minors that have been emancipated by the court may enter into valid loan agreements in some states, and loans for necessities may be enforceable depending on state law. All states in Region V have specific laws regarding the ratification of a loan upon a minor attaining age of majority (age 18 in all states in Region V). Loans entered into with a minor must be examined closely to determine whether ratification has occurred and the loan is, therefore, enforceable.

2. OPINION

You asked for an opinion on whether loan agreements entered into by minors - whether formal or informal - are enforceable in the six states in Region V. In each of the six states in Region V, a contract, including a loan, entered into with a minor (defined as an individual who has not reached the age of eighteen) is generally voidable by the minor party, but not by the party who is of the age of majority. Such agreements, therefore, are not enforceable against minors, regardless of whether the loan contract is a formal, written agreement. However, some exceptions apply. Below is a general discussion of our conclusions and an outline of the particular rules for each state in Region V.

DISCUSSION

Assets are a resource for SSI purposes if the individual owns them and can convert them to cash for her support and maintenance. If the individual has the right, authority, or power to liquidate the property, it is a resource. Loan proceeds and payments and loan agreements may be considered a resource or income to the borrower and lender, and the rules for determining when a loan counts as a resource vary based on whether the underlying loan agreement is a bona fide loan. In order to constitute a bona fide loan, a loan must be enforceable under state law. You have asked whether a loan agreement entered into with a minor is enforceable under state law.

In all Region V states, minors generally lack the legal capacity to contract. The age of majority is eighteen in all Region V states. Loan agreements entered into with a minor, whether formal, written agreements or otherwise, therefore, are not enforceable under state law, because they are voidable at the option of the minor party. Certain exceptions apply, however, and some loans entered into with minors are enforceable. For example, if a minor takes out a loan for the purchase of necessities, the loan will be enforceable under state law. Additionally, in some states in Region V, a minor's loan is enforceable if the minor fraudulently represented that he was of the age of majority when he took out the loan. Further, a minor may ratify or disaffirm a loan upon attaining the age of majority; ratification renders the loan enforceable. The states in Region V generally require a clear, intentional act to constitute ratification. Some states in Region V dictate that a loan will be deemed ratified where a minor fails to disaffirm the loan within a reasonable time after attaining the age of majority.

The six states in Region V follow essentially similar rules regarding the enforceability of loans to which a minor is a party. However, some slight differences exist. Below we have outlined the particular rules for each state in Region V. Please use these outlines in drafting your POMS Regional Supplement. Our office would be happy to review your draft guidelines.

Illinois

Age of Majority

In Illinois, the age of a majority is eighteen.

General Rule

A loan agreement with a minor is not enforceable because the loan agreement is voidable by the minor party.

Exceptions

A minor who has been emancipated by court order may enter valid loan contracts, which are thus enforceable.

A loan with a minor is enforceable if it is entered into for the purpose of obtaining necessities; necessities includes items such as food, clothing, lodging, and education, but typically does not include automobiles, even if used to earn a living.

Ratification

A loan agreement becomes enforceable against a minor party if the minor, upon reaching the age of majority, ratifies the loan agreement. Illinois law allows a minor to either ratify a contract with an intentional act after reaching the age of majority, or to disaffirm the contract within a reasonable time or within the statute of limitations applicable to the type of loan at issue. Acts which may constitute ratification include making payments on a loan, or causing a loan contract to be recorded. In Illinois, if a minor fails to ratify a loan agreement upon attaining age of majority, the loan may nonetheless be deemed ratified, and thereby rendered enforceable against the minor, if he fails to disaffirm the loan agreement within any applicable statute of limitations. If you cannot clearly determine whether a disaffirmance has occurred within a reasonable time or within an applicable statute of limitations, please request a legal opinion from OGC.

Indiana

Age of Majority

In Indiana, the age of majority is eighteen.

General Rule

Any loan entered into with a minor is not enforceable because the loan contract is voidable at the minor's option. A minor may void his contract at any time prior to, or upon attaining, the age of majority. Whether emancipation affects the minor's right to disaffirm his contracts depends upon the scope of the emancipation. If you cannot clearly determine whether a minor's emancipation affects his ability to enter valid loan contracts, please consult OGC for a legal opinion.

Exceptions

A loan entered into by a minor who represented in writing that he was eighteen or over in obtaining the loan is enforceable.

Loans by minors for necessities are enforceable, so long as the minor is not living at home or otherwise being supported by his parents. Necessities include items such as food, clothing, lodging, medical services, and education as well as such provisions provided for the minor's spouse, but generally do not include automobiles. Medical services are considered necessities regardless of whether a minor is living at home or being supported by his parents.

Ratification

A minor may ratify a loan contract upon reaching the age of majority, rendering the loan enforceable. Ratification is not presumed, or deemed, to occur unless there is some affirmative act. A ratifying act may be done without the minor having explicit knowledge that his acts constitute a ratification or that he was not otherwise liable. However, ratification induced by fraud or undue influence is not valid and will not render a loan agreement enforceable. Whether a valid ratification has occurred depends on the facts of particular case, but the ratification should be in proportion to the nature of the original transaction. For example, if a minor party, after reaching the age of majority, agrees to pay, or makes a payment on, a simple loan which he entered into by himself while a minor, ratification has occurred.

Michigan

Age of Majority

The age of majority in Michigan is eighteen.

General Rule

A loan agreement with a minor is not enforceable because minors lack the legal capacity to contract and their contracts are voidable. Emancipation of a minor does not affect this general rule. However, if you have evidence of a minor's emancipation that indicates the minor may enter a valid contract, please request a legal opinion from OGC regarding whether that minor's loan is enforceable.

Exceptions

If a minor willfully misrepresented his age to obtain a loan, and if the misrepresentation was either made in writing in a separate instrument or admitted in open court, the loan is enforceable against the minor party. Such a loan may not be disaffirmed by the minor upon attaining the age of majority.

Loan agreements entered into by minors for the purchase of necessities are enforceable under state law. Necessities include items such as clothing and books for education.

Ratification

A loan is rendered enforceable in Michigan if a minor ratifies the loan with an affirmative act upon reaching the age of majority. Ratification consists of making a distinct acknowledgement of a loan contract and indicating an intention to be bound by it, for example by writing a letter acknowledging one's loan and promising to pay it. A minor may also disaffirm his loan upon attaining the age of majority. Silence may be sufficient to constitute ratification only where it would be inequitable to permit the defense of infancy. If a question arises as to whether a loan has been ratified based on silence, or a failure to disaffirm, please request a legal opinion from OGC.

Minnesota

Age of Majority

The age of majority in Minnesota is eighteen.

General Rule

Any loan agreement with a minor which has not been fully executed (performed) is not enforceable. A minor who enters a loan agreement by fraud may still disaffirm the contract. If you are presented with evidence of emancipation, or other evidence showing that a minor's loan obligation may be authorized by law, please consult with OGC for a legal opinion regarding whether the loan is enforceable.

Exceptions

A loan a minor enters for the purchase of necessities, however, is enforceable. Necessities includes items such as food, clothing, and lodging, but not transportation expenses.

Ratification

A minor party may affirm his loan by a ratifying act upon reaching the age of majority; the loan is then enforceable in Minnesota. A ratification consists of some word, act, or deed that indicates an intention to be bound by the loan. A minor also may disaffirm his loan within a reasonable time after attaining the age of majority. In Minnesota, unlike in the other states in Region V, a minor is required to return the proceeds of a loan in order to disaffirm the loan. If the minor does not actively disaffirm within a reasonable time of attaining majority, the loan will be considered ratified. The fact that a minor may be unaware of his right to disaffirm will not absolve him of his duty to act promptly in disaffirming the loan in order to avoid liability. If you cannot clearly determine whether a loan has been disaffirmed within a reasonable time, please request a legal opinion from OGC regarding whether the loan is enforceable.

Ohio

Age of Majority

In Ohio, the age of majority is eighteen.

General Rule

A loan entered into with a minor is not enforceable because the loan is voidable at the minor's option. If you are presented with evidence of emancipation, or other evidence showing that a minor's loan obligation may be authorized by law, please consult with OGC for a legal opinion regarding whether the loan is enforceable.

Exceptions

Loans entered into with a minor for the purchase of necessities are enforceable. To be enforceable, however, such loan contracts must be fair and reasonable, and must be made by the non-minor party in good faith and without knowledge of the minor's lack of capacity to contract. Necessities include "food, medicine, clothing, shelter, or personal services usually considered reasonably essential for the preservation and enjoyment of life."

Ratification

If a minor does not disaffirm his loan or other contract within a reasonable time after reaching the age of majority, ratification may be inferred from his voluntary actions, regardless of whether he had a definite intent to ratify the contract. For example, a minor who makes payments on a car loan and uses the car after reaching the age of majority is considered to have ratified his loan contract. In such a case, the loan agreement would then be rendered enforceable under state law. If you cannot clearly ascertain whether a loan has been disaffirmed by the minor upon reaching the age of majority, please request an opinion from OGC regarding whether the loan is enforceable under state law.

Wisconsin

Age of Majority

The age of majority in Wisconsin is eighteen.

General Rule

A loan entered into with a minor is not enforceable because it is voidable at the minor's option. This rule does not change depending on whether the minor is emancipated.

Exceptions

Loans to minors for the purpose of purchasing necessities are enforceable in Wisconsin. What constitutes necessities includes those items necessary for the minor's personal care and maintenance, but does not usually include cars.

Ratification

A minor may ratify a contract upon reaching the age of majority, and such ratification may be express or implied, as long as the intention to be bound by the contract is "clearly manifested." While ratification does not require express knowledge of the voidable act [or contract], it does require knowledge of "all material facts relating to the act." Thus, ratification may consist of simply being aware of one's interest in, and continuing to enjoy the benefits of, a loan contract entered into while a minor. Ratification renders the loan enforceable.

CONCLUSION

As discussed above, loans entered into with minors generally are not enforceable against the minor parties. Some exceptions apply, and certain loans of minors, such as those for necessities or those where a minor fraudulently misrepresents his age, may be enforceable, depending on the law of the minor's state. Further, a minor may ratify a loan upon attaining the age of majority, at which point the loan is rendered enforceable. Some states in Region V will deem ratification to occur if the minor fails to disaffirm his loan within a reasonable time upon attaining majority. If you cannot clearly determine whether a particular loan has been ratified and is thereby rendered enforceable, please request a legal opinion from OGC.


To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/1601805026
PS 01805.026 - Minnesota - 11/05/2008
Batch run: 11/29/2012
Rev:11/05/2008