PS 01810.026 Minnesota
A. PS 10-052 SSI-MN—Oral Loan Agreement (Ralph M~, ~ /Gayle M~)— REPLY Your reference: S2D5G6, SI 2-1-3 MN Our reference: 10-0020-ncs
DATE: January 25, 2010
This decision illustrates the requirements necessary to establish a bone fide oral loan under Minnesota law. This is notable because it is a loan made by the claimants to their daughter. The lenders in this case are the applicants for SSI benefits and the bona fide oral loan is a resource to them. This decision also clarifies the issue of repayment within one year. A bona fide oral loan in Minnesota must not preclude repayment within one year no matter how improbable that may be. Only written loans can preclude repayment within one year.
You asked whether an oral agreement between the claimants, Ralph and Gayle M~, who are Minnesota residents, and their daughter represents a bona fide oral loan under SSI. We conclude that, based on the information you have provided, the agreement represents a bona fide oral loan. Therefore, the loan should be considered a resource to the claimants. We also believe that the Regional POMS for oral loans at POMS SI CHI01120.220 should be clarified with respect to the issue of what constitutes full performance of an oral loan. We will prepare a separate memorandum outlining suggested changes to POMS SI CHI01120.220(B)(2).
On April 29, 2005, claimants Ralph and Gayle took out a second mortgage on their home for $34,140. This money was given to their daughter in the same month in the form of an oral loan—their daughter agreed to pay back the full amount of the loan. Ralph’s and Gayle’s names appear on the mortgage loan and they are solely responsible for repayment to the bank. The daughter is paying the monthly mortgage payment of $600 to the bank, but she is not legally responsible to the bank. However, you advised that there is an oral agreement between the claimants and their daughter for her to repay the bank loan directly to the bank. The oral loan between the claimants and their daughter does not preclude the daughter from repaying the oral loan within one year. The claimants applied for SSI on January 30, 2009.
To be eligible for SSI, an individual must have limited income and resources. See 42 U.S.C. § 1382(a). Here, the claimants are lenders, rather than borrowers, in the loan agreement between the claimants and their daughter. The issue of whether the agreement between the claimants and their daughter represents a bona fide oral loan is significant because it determines whether the loan agreement is considered a resource to the claimants and how the loan is evaluated for purposes of determining the claimants’ eligibility for SSI.
For the lender, if the agreement is a negotiable, bona fide loan, then: 1) “[a] negotiable, bona fide loan agreement is a resource of the lender valued at the outstanding principal balance”; 2) “[t]he cash provided to the borrower is no longer the lender’s resource because the lender cannot access it for his or her own use; the loan agreement replaces the cash as his or her resource”; and 3) “[p]ayments received from the borrower against the loan principal are conversions of a resource, not income. If retained, the payments are counted as the lender’s resource starting in the month following the month of receipt.” POMS SI 01120.220(B)(2)(a). For the lender, if the agreement is not a negotiable bona fide loan, then: 1) “[t]he agreement is not a resource of the lender”; 2) “[p]ayments against the principal are income to the lender, not conversion of a resource”; and 3) “[t]he cash specified in the agreement may be a resource if the lender can access it for his or her own use.” POMS SI 01120.220(B)(2)(b).
Any interest income received by the lender is unearned income whether or not the loan is bona fide. POMS SI 01120.220(B)(2). SSA Requirements for Bona Fide Oral Loan Social Security Ruling (SSR) 92-8p provides that “[f]or purposes of determining when a loan is not considered income and when a loan is considered a countable resource under the SSI program,” a “loan” is defined as an advance (cash or an in-kind advance instead of cash) “from lender to borrower that the borrower must repay, with or without interest.” SSR 92-8p (Title XVI: SSI Loan Policy). SSR 92-8p further provides that a “loan” includes “any commercial or noncommercial loan (between relatives, friends, or others) that is recognized as enforceable under State law” and that “[t]he loan agreement may be oral or written, as long as it is enforceable under State law.” SSR 92-8p.
The Regional POMS states that “[t]o be considered a bona fide loan, an oral agreement must meet the requirements listed in POMS SI 01120.220(C) and be legally binding under state law.” POMS SI CHI01120.220(A). POMS SI 01120.220(C) provides that an informal oral loan is bona fide if it meets the following requirements:
1) A bona fide loan is a contract that must be enforceable under the applicable State law;
2) The loan agreement must be in effect at the time that the cash proceeds are provided to the borrower. Money given to an individual with no obligation to repay cannot become a loan at a later date;
3) A loan is an advance from a lender that the borrower must repay, with or without interest. This obligation to repay must be acknowledged by both the lender and the borrower for a bona fide loan to exist. When money or property is given and accepted based on any understanding other than it is to be repaid by the receiver, there is no loan for SSI purposes. A statement by the individual that he or she feels personally responsible to pay back the friend or relative does not create a legal obligation to repay the individual who provided the cash. Similarly, a statement by the lender that the eligible individual is only required to repay the cash if he or she becomes financially able to do so does not create a legal obligation to repay; and
4) The loan must include a plan or schedule for repayment, and the borrower’s express intent to repay by pledging real or personal property or anticipated future income (such as SSI benefits); and
5) The plan or schedule must be feasible. In determining the plan’s feasibility, consider the amount of the loan, the individual’s resources and income (including anticipated SSI benefits), and the individual’s living expenses.
POMS SI 01120.220(C).
Based on the facts you have provided, we believe requirements 2 through 5 have been satisfied. The claimants gave the $34,140 to their daughter in the form of an oral loan. Their daughter agreed to pay back the full amount of the loan. As such, the loan agreement appears to have been in effect at the time the cash proceeds were provided to the borrower. Additionally, the obligation to repay appears to have been acknowledged by both the lender and borrower. Finally, the loan included a feasible plan/schedule for repayment. There is an oral agreement between the claimants and their daughter for her to repay the bank loan directly to the bank, and the daughter is paying the monthly mortgage payment of $600 to the bank.
As discussed in more detail below, we also believe the first requirement is satisfied because the contract would be enforceable under applicable State law.
All six states in Region V, including Minnesota, recognize the validity of oral loans as long as they satisfy certain requirements. POMS SI CHI01120.220(B); see also Memorandum from Gary A. S~, Acting Regional Chief Counsel, to Donna Y. M~, Assistant Regional Commissioner, Re: SSI-Regional Supplement on the Validity of Oral Loans in Region V States (Dec. 30, 2002). The POMS supplement for Region V provides: “To be valid, the loan must be repayable within one (1) year of the date of the agreement. This means that the terms of the agreement must allow a possibility (not necessarily a probability) that the loan can be repaid within one (1) year.” POMS SI CHI01120.220(B)(1). Additionally, the Regional POMS states: “Loans that, by their terms, preclude repayment within one (1) year must be written. Oral loans that, by their terms do not preclude the possibility of repayment within one (1) year, even though repayment is improbable (e.g., current income is insufficient), are valid loans. Therefore, even though the timetable for repaying the oral loan (SI 01120.220C) extends beyond a year, the loan is valid if repayment within a year is not specifically prohibited by the agreement.” POMS SI CHI01120.220(B)(1).
Here, the oral agreement between the claimants and their daughter satisfies the additional requirements of SI CHI01120.220(B)(1). The fact that the terms of the oral loan do not require the daughter to repay the loan within one year is not dispositive. The significant question is whether the terms of the oral loan preclude the possibility of repayment within one year. The facts we have been provided do not indicate that under the terms of the oral loan the daughter was specifically prohibited from repaying the loan within one year. Furthermore, the fact that the schedule for repayment ($600/month) would suggest repayment will likely extend beyond a year is also not dispositive. “[T]he loan is valid if repayment within a year is not specifically prohibited by the agreement.” POMS SI CHI01120.220(B)(1).
We believe POMS SI CHI01120.220(B)(1) is consistent with current Minnesota law. The Minnesota Statute of Frauds states that an “agreement that by its terms is not to be performed within one year from the making thereof” cannot be enforced if it is not in writing. Minn. Stat. Ann. § 513.01(1). Thus, an oral agreement that specifically requires performance for more than one year would fall within the statute of frauds. See, e.g., Worwa v. Solz Enters., 238 N.W.2d 628, 630-31 (Minn. 1976) (“According to plaintiff’s deposition, defendants agreed to pay $15,000 per year for 2 years of services rendered. Such an agreement plainly cannot be performed within 1 year.”); see also Memorandum from Donna W~, Reg’l Att’y, to Alice C~, Acting Assist. Reg’l Comm’r, Re: Minnesota; Validity of Oral Loan (Dec. 8, 1982). However, in Bannitz v. Hardware Mut. Casualty Co., the Minnesota Supreme Court held that “[t]he statute of frauds has no application where the contract, by its terms, can be performed within one year though it runs for an indefinite time.” 17 N.W.2d 372, 374 (Minn. 1945). Since this agreement could be performed within one year, it falls outside the statue of frauds and is legally enforceable. Furthermore, under Minnesota law complete performance by one party to a loan agreement also generally removes the oral contract from the statute of frauds. See Langan v. Iverson, 80 N.W. 1051, 1052 (Minn. 1899) (“The statute applies only to contracts which are not to be performed upon either side within a year. If all that is to be performed on one side is to be performed within a year, the contract is not within the statute.”) (internal quotations and citations removed); see generally Hartung v. Billmeier, 66 N.W.2d 784, 789 (Minn. 1954) (“[T]he defendant accepted plaintiff’s offer by forbearing to leave plaintiff’s employment for five years. The moment plaintiff’s offer was thus converted into a contract, the bonus became due and payable. At that moment such parol contract was clearly not within the statute of frauds since it was then fully performed by one of the parties, the defendant.”); see also Memorandum from Donna W~, Reg’l Att’y, to Alice C~, Acting Assist. Reg’l Comm’r, Re: Minnesota; Validity of Oral Loan (Dec. 8, 1982). Here, the contract was fully performed by the claimants when they gave their daughter the full $34,140 in funds in April 2005 in the form of an oral loan. Thus, once the claimants gave their daughter $34,140, the contract would have been enforceable regardless of whether the terms of the agreement prohibited repayment within one year.
In sum, we conclude that based on the information you have provided, the agreement represents a bona fide oral loan and the loan should be considered a resource to the claimants. In addition, we believe the Regional POMS for oral loans should be clarified with respect to the issue of what constitutes full performance of an oral loan. We will be sending you a separate memorandum with recommended changes to POMS SI CHI01120.220(B)(2).
Donna L. C~
Regional Chief Counsel, Region V
Joo H. K~
Assistant Regional Counsel
B. PS 04-291 SSI-Minnesota-Review of the Oral Contract Assigning Laura R~'s Receipt of Loan Payments, SSN ~Your Reference: SI-2-1-6 MN (R~) Our Reference: 04P051 - REPLY
DATE: July 22, 2004
The issue is whether a verbal agreement is a valid contract to sell a person's ownership interest in a parcel of real estate.
On 09/11/02, an SSI recipient sold a home she co-owned for $27,611.95. The recipient and the co-owner agreed to provide the purchaser with $15000.00 in the form of a bona fide promissory note to assist with financing the purchase of the home. The purchaser was obligated to make monthly payments beginning 11/1/02, and make a balloon payment for the remaining balance of the principal, plus interest, on 11/1/04. In 11/02, the recipient orally assigned her share of the promissory note (50%) to her sister, and agreed that the sister would be entitled to $5000.00 of her interest in the balloon payment and the monthly payments owed to her from the note. In return for 50% of the note, the sister agreed to provide assets (clothes, automotive repairs, etc.) to the recipient on an "as needed" basis. The agreement was subsequently put in writing in 8/03, and the oral agreement dated 11/02 was determined to be valid under Minnesota law based on the Statute of Frauds. The value of the promissory note prior to the time she assigned it to her sister, the portion of the balloon payment that remained in the recipient's possession after assignment, and the assets that were provided to the recipient by her sister were determined to be countable resources for SSI purposes.
You asked whether an oral assignment by Laura R~ to her sister, Sonja C~, created an encumbrance (or lien) against her share (50%) of a contract with Wendy K~, and whether such an encumbrance against the contract would also encumber the monthly payments. You also asked whether Laura should be charged with interest from the monthly payments since she assigned the monthly payments as well as the balloon payment. In other words, you are asking to what extent Laura's proceeds from the contract with Wendy, given her assignment to Sonja, are a countable resource for SSI purposes. We conclude that the oral contract with Sonja is valid and encumbers Laura's share of the monthly payments and a portion of her share of the balloon payment contemplated by the Note. However, Laura is still charged with countable resources for SSI purposes, including her share of the Note prior to the execution of the oral contract, her unassigned share of the balloon payment, and the assets she receives from Sonja in consideration of the assignment.
On September 11, 2002, Laura R~ sold a home she co-owned (with three other parties according to the HUD Settlement Statement) to Wendy K~ for $27,611.95. Laura and Rosa A~ (one of the co-owners) took out a second mortgage (which you refer to as the "contract") in the property to assist Wendy with the purchase, as Wendy did not have sufficient financing to satisfy the purchase price. The second mortgage is set forth in a written contract which you included, labeled "Note." The Note specifies that Laura and Rosa are the lenders and Wendy and another individual, Paul, are the borrowers. The Note specifies that $15,000.00 was loaned to Wendy and Paul at an interest rate of 6%, and that Wendy and Paul in turn were obligated to pay monthly payments of $89.93 beginning November 1, 2002, and continuing through November 1, 2004, with a balloon payment also due on November 1, 2004 in the amount of $14,693.34. You indicated Laura's share of the Note was $7,500.00, in other words, she advanced $7,500.00 of the $15,000.00 to Wendy and Paul. The Note specified that payments were to be made at "Sonia C~ . . . [in] Texas . . . for Laura R~ and US Bank for Rosa A~." The Note does not specify how the payments amounts would be divided, but presumably Laura and Rosa would each be entitled to receive one-half of each monthly payment as well as one-half of the balloon payment.
Laura stated that in November 2002, she orally assigned her share of the contract to Sonja. She indicated that they put their agreement in writing in August 2003, and provided a copy of that Agreement. That Agreement indicated that they made an oral contract in November 2002 regarding the proceeds from the September 11, 2002 Note between Laura/Rosa and Wendy. The Agreement stated that it was "intended to memorialize and document an oral contract between Sonja C~ and Laura R~." The Agreement stated that "[b]ased upon the November 2002 oral contract made by the parties, [Laura] assigned: (1) $5,000.00 of her interest in the November 2004 balloon payment, and (2) monthly payments, owed to her under the Note to [Sonja]." The Agreement further stated that "[i]n consideration of this assignment, [Sonja] agreed to provide assets (school clothes, money for car repairs, etc.) as needed by Ms. R~." The Agreement noted that "[s]ince the inception of this oral agreement, [Sonja] has provided assets in an amount totaling approximately $4,500 to [Laura] in fulfillment of her obligation under the contract." Additionally, Exhibit A, attached to the Agreement, describes the September 2002 Note. The Exhibit indicates that, in February 2003, Laura received a payment of $500.00 toward the portion of the balloon payment owed her ($7,346.67), and that she only expects to receive approximately $5,750.00 on November 1, 2004, the date on which the balloon payment is due.
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash for her support and maintenance. 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. 20 C.F.R. § 416.1201(a). Thus, if an individual is able to obtain funds or convert property to cash to be used toward her support and maintenance, such funds or property are to be included as resources for determining SSI eligibility.
The POMS directs that, in identifying resources, a bona fide promissory note is a resource to the creditor. POMS SI 01140.300(C)(1). "If payments received by the seller consist of both principal and interest, only the interest portion is income. The principal portion is the conversion of a resource so it is not income." Id. However, if the loan is not bona fide, "payments towards the principal are unearned income to the lender." POMS SI 00815.350(A)(2). "Interest received on money loaned is income whether the loan is bona fide or not." POMS SI 00815.350(A)(3).
We note that the agreement between Laura/Rosa and Wendy/Paul for $15,000.00 is an informal, written loan, made between parties who are not in the business of lending. See POMS SI 01120.220(C). While you refer to this loan as a "second mortgage," the clause stating that the note is secured by a mortgage has been cancelled out in the Note. Additionally, you have not included any materials to show that there is actually a mortgage outstanding or lien against the property in relation to this transaction. The Note does not reference any collateral, and the lenders' rights in the event of default appear limited to pursuing the money owed and costs and expenses. The materials you sent do not indicate that Laura and Rosa borrowed funds from another lender, despite your statement that Laura and Rosa "took out a second mortgage." Rather, it appears that Laura and Rosa simply loaned their own funds directly to Wendy and Paul, or accepted this Note toward the amount they were due on the sale of their home, to assist them with purchasing the property. This type of note is thus considered a "promissory note," as opposed to a "property agreement." POMS SI 01140.300(B). Under the terms of the Note, Laura and Rosa are the co-lenders and are entitled to the funds from the monthly payments, both the principal and interest. Information you provided indicates that Laura and Rosa each provided one-half of the loan proceeds, thus, Laura's share of the Note would be a resource to her for SSI purposes.
As the creditor, Laura's portion of the principal loaned is considered conversion of a resource, see POMS SI 01140.300(C)(1), and her portion of any interest payment is considered unearned income, see POMS SI 00815.350(A)(3). The POMS provides instruction on developing the resource value of the promissory note. POMS SI 01120.220(B)(2)(a); SI 01140.300(C)(3), (D). Since there is no evidence to the contrary, we assume the Note is bona fide and negotiable. POMS SI 01140.300(D)(1). If counting the original principal balance attributable to Laura ($7,500.00) as a resource does not cause ineligibility, development ceases. POMS SI 01140.300(D)(1). The resource value of the note is assumed to be the outstanding principal balance. POMS SI 01140.300(D)(2). Evidence of this balance should be obtained for the month in which the determination is being made; the amortization schedule you included may be used. POMS SI 01140.300(D)(2). The payments Laura receives, if retained, are counted as her resource starting in the month following the month of receipt. POMS SI 01120.220(B)(2)(a).
Next, we address the issue of whether the oral assignment by Laura to Sonja of her right to payments under the promissory note creates an encumbrance against her share of the Note. Laura indicated that she orally assigned her right to monthly payments and the balloon payment under the Note to Sonja in November 2002, the month payments were to start under the Note. _/1 In August 2003, Laura and Sonja put their agreement in writing, and the terms set forth in the written agreement appear to be the terms of the oral assignment, as the written agreement indicates that it "memorialize[d] and document[ed]" the oral agreement. See Agreement.
You have asked whether this oral contract is a valid assignment of Laura's share of the note and her right to payments, and whether the result would be different under Minnesota or Texas law. The Statute of Frauds requires that any promise or agreement which is not to be performed within one year must be in writing and signed by the parties to be enforceable. See RESTATEMENT (SECOND) OF CONTRACTS § 110 (1981); TEX. BUS. & C. CODE ANN. § 26.01(a), (b)(6) (Vernon 2002); MINN. STAT. § 513.01(1) (2002). _/2 It appears that the contract between Laura and Sonja could be fully performed within one year and is thus valid. Although the November 2004 balloon payment is referenced in the Agreement, the underlying Note between Laura/Rosa and Wendy/Paul indicates the loan can be prepaid in full at any time before it is due and that interest will only be charged on the unpaid principal until the full amount of the principal has been paid. Indeed, Exhibit A to the Agreement shows that some of the balloon payment was prepaid. Thus, it is possible that the balloon payment and the monthly payments could all be paid within one year of the contracting between Laura and Sonja. The contract also specifies that Sonja is obligated to "provide assets (school clothes, money for car repairs, etc.) as needed by [Laura]." The Agreement indicates that, as of August 2003, Sonja had already provided assets worth approximately $4,500.00 to Laura in fulfillment of her obligation under the contract, so presumably, Sonja's obligation is limited by the dollar value of the assigned Note and payments and she could presumably fulfill her obligations within one year of contracting with Laura. _/3 Therefore, the oral contract appears to be enforceable under the Statute of Frauds. _/4
The written Agreement, executed ten months after the oral contract, clearly sets forth the parties and the terms of the contract. Thus, the following should be counted as resources to Laura:
(1) Between September 11, 2002, when the Note was executed, and the oral contract in November 2002, Laura's share of the original balance of the Note ($7,500.00), is countable as a converted resource (see above).
(2) The oral contract specifies that all of the monthly payments scheduled to begin November 2002 were assigned to Sonja, so no interest income is countable to Laura from the monthly payments. Furthermore, Sonja is assigned $5,000.00 of the $7,346.67 balloon payment which is Laura's interest in the November 2004 balloon payment. Thus, $2,346.67 of the balloon payment is countable to Laura as a converted resource. The POMS directs that "payments [against the loan principal] are counted as the lender's resource starting in the month following the month of receipt." POMS SI 01120.220(B)(2)(a). Exhibit A to the Agreement indicates that Laura received direct payment of $500.00 from Wendy in February 2003. Additional development is recommended to ascertain when Laura receives/received the $1,846.67 additional payments to which she is still entitled. Exhibit A indicates that $1,596.67 was already paid as of August 2003, so presumably another $1,096.67 has been paid, but it is not clear if it was paid to Laura or Sonja.
(3) Laura received approximately $4,500.00 in assets from Sonja between November 2002 and August 2003. If cash or ISM, these assets must be considered a resource to Laura, and development of what she received and when is recommended. Further, the Agreement contemplates that additional assets will be paid to Laura. Development is recommended to ascertain what additional assets Laura receives from Sonja under this contract.
We conclude that the oral assignment from Laura to Sonja of both the monthly payments and a portion of the balloon payment to which Laura was entitled under the Note appears valid. However, the value of the loan prior to the assignment, the portion of the balloon payment which was not assigned, and the assets in terms of cash or ISM that Laura receives from Sonja are resources to Laura for SSI purposes.
_/1 As we noted earlier, the Note provided only that monthly payments were paid at "Sonja C~ . . . [in] Texas . . . for Laura R~ and US Bank for Rosa A~." Thus, the Note merely designated Sonja as an agent to receive Laura's payments on her behalf. The Note did not assign those payments, and it clearly provided that payments, including any November 2004 balloon payment, belonged to the "Note Holder." See Minn. Mutual Life Ins. Co. v. Anderson, 504 N.W.2d 284, 286 (Minn. Ct. App. 1993) (assignment requires that assignor not retain any control or power of revocation); Twelve Oaks Tower I, Ltd. v. Premier Allergy, Inc.; 938 S.W.2d 102, 113 (Tex. App. 1996) (assignment transfers the assignors whole interest in a right or property) (citation omitted).
_/2 Generally, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing that is signed by the parties and which identifies the subject matter of the contract, indicates that a contract has been made, and states the terms of the contract with reasonable certainty. RESTATEMENT (SECOND) OF CONTRACTS § 131. Such a writing may be made or signed at any time before or after the formation of the contract. Id. at § 136. Particular requirements may be set forth by the Statutes of Fraud. In Texas, "there must be a written memorandum which is complete within itself in every material detail, and which contains all of the essential elements of the agreement, so that the contract can be ascertained from the writings without resorting to oral testimony." Padilla v. LaFrance, 907 S.W.2d 454, 460 (Tex.1995) (quoting Cohen v. McCutchin, 565 S.W.2d 230, 232 (Tex.1978)). Similarly, in Minnesota, to satisfy the Statute of Frauds, the writing must establish the contract in all its terms … [and] receive no aid from parol evidence." Lewis v. Johnson, 143 N.W. 1127 1128 (Minn. 1913). Any such written memorandum "need not be contained in one document." Padilla, 907 S.W. at 460; see also Halstead Minn. Tribune Co., 180 N.W. 556 (Minn. 1920). Nevertheless, as discussed above, the oral contract could be performed within one year and, therefore, appears enforceable.
_/3 The assets that Laura received in exchange for her oral agreement must be considered under our resource rules. If cash or in-kind support and maintenance (ISM), such assets would be countable. We recommend development of when and what Laura received. Laura's receipt of assets in exchange for the assignment of loan proceeds reinforces that the assignment was not a transfer for less than fair market value. POMS SI 01150.001(C)(3). Further, Laura's receipt of assets must be developed to ensure that her assignment of loan proceeds to Sonja was sufficient such that any shortfall did not lead to forgiveness of a debt.
The terms "as needed" and "etc." with reference to the provision of assets by Sonja to Laura suggest some vagueness regarding a time limit or some other limit on Sonja's obligation to provide assets to Laura. In Texas, the parties' intention regarding the length of performance at the time of contracting is determinative as to whether the contract falls within the Statute of Frauds. See Gerstacker v. Blum Consulting Engineers, Inc., 884 S.W.2d 845, 850 (Tex. App. 1994), writ denied (Mar. 02, 1995). In Minnesota, some proof of the duration of time for performance as a contractual term definitely agreed upon is required. See Foster v. Butler, 291 N.W. 505, 507 (Minn. 1940).
C. PS 04-242 Minnesota Oral Land Contract Judy S~
DATE: March 22, 1995
The issue is whether a verbal agreement is a valid contract to sell a person's ownership interest in a parcel of real estate.
Minnesota law specifies that a contract for sale of land or interest in land is void unless the contract is in writing and signed by the seller. The Minnesota Supreme Court decided that payments alone do not constitute a written contract. Oral agreements are deemed enforceable only when the purchaser takes possession of the land and makes improvements to the property.
In this case the purchaser never took possession of the property. The oral agreement between the seller and purchaser of the property is not a valid contract. The seller retains her ownership of the property.
You requested our opinion as to whether Judy S~ and Kenneth J. S~ entered into a valid contract whereby Judy S~ sold Kenneth S~ her interest in the family home. The facts, as we understand them, are as follows. On March 15, 1988, the State of Minnesota District Court for the Seventh Judicial District, Todd County, granted Judy S~ title to the family home when it entered judgment approving Judy and Kenneth's Marital Termination Agreement. Judy S~ claims that in February of 1991 she agreed to sell the family home to her ex-husband for $15,000, payable in monthly installments of $200.00 each. Kenneth paid $200.00 to Judy each month from February of 1991 until August of 1994, inclusive (43 months) for a total of $8,600.00. Although both Kenneth and Judy S~ allege that they contracted with one another for the purchase and sale of the family property, they both acknowledge that they neglected to make a written record of their putative agreement.
Minnesota's Statute of Frauds provides that a contract for the sale of land or an interest in land is void unless the contract (or some note or memorandum expressing the consideration given in return for the property) is in writing and is signed by the seller. Minn. Stat. Ann. § 513.05 (West). The Supreme Court of Minnesota has held that the payment of purchase money does not, in and of itself, transform an oral agreement for the purchase of land into an enforceable contract. Bouten v. Richard Miller Homes, 321 N.W.2d 895, 900 (Minn. 1992). A wholly undocumented agreement will be deemed enforceable only under a very limited set of circumstances; namely, where the putative purchaser takes possession of the land and makes improvements thereupon. Id.
On the morning of March 20, 1995, the undersigned and John H. W~, Program Specialist, contacted Judy S~ by telephone. We asked Ms. S~ whether her ex-husband had occupied the family home at any time subsequent to the divorce. Ms. S~ responded in the negative. She informed us that in fact she and her daughter Marie S~ had occupied the family home together since 1988, except for an eight-month period in 1994 when Judy lived with her then-fiance on his farm. Kenneth S~, a truck driver who spent much of his time on the road, never had intended or wanted to occupy the house after the divorce. Indeed, according to Judy he raised no objection when she moved back into the family property and even told her that she could "have the house back" for good and repay him the $8,600.00 whenever she was able.
Because Judy and Kenneth S~, by their own admission, made no written record of their alleged agreement regarding the family home, their "contract" violates the Minnesota Statute of Frauds and, as such, is unenforceable. Nor can the doctrine of part performance save an oral "contract" such as this one, where Mr. S~ (the purchaser) never took possession of the property in question.
Donna M. W~
Chief Counsel, Region V
Lauren S. R~
Assistant Regional Counsel
D. PS 00-246 SSI-Minnesota-Review of a Trust for Anthony M. G~
DATE: February 14, 2000
The trust contains a power of appointment, allowing the beneficiary to choose who would receive the remainder interest in the trust and if he does not make an appointment, the trust will pass to his "spouse, descendants, parents, siblings or heirs." The power of appointment was limited to his "spouse, children, grandchildren, or other descendants." The opinion states this limitation is sufficient to show an intention to create specific residual beneficiaries as opposed to a general power to appoint anyone he chooses. Therefore, the grantor is not the sole beneficiary.
You have requested an opinion on whether the assets of the "Anthony M. G~ Supplemental Needs Trust" count as a resource of Anthony M. G~ for purposes of determining his SSI eligibility.
For the reasons discussed below, our opinion is that the trust is not a countable resource, but that distributions from the trust to Mr. G~ may constitute countable unearned income.
On December 10, 1998, Andrew M. G~ and Kristen L. G~, parents of Mr. G~, established a supplemental needs trust for his benefit because he is "a person with developmental disability." G~ Trust, Article 2, § 1. The trust document describes Mr. G~'s parents as "settlors," but does not include the schedule that lists the assets transferred to the trust. Article 1, § 1. The attached memo from the family's attorney indicates that the trust may contain a personal injury settlement belonging to Mr. G~. Mr. G~'s parents nominate themselves as trustees. Article 1, § 1.
Mr. G~'s parents drafted the trust with the intent to comply with Federal and State Medicaid exemption provisions. 42 U.S.C. § 1396p(d)(4) and Minn. Stat. § 501B.89, Subd. 3. Article 2, § 1. The trustees are to "pay to or apply for the benefit of" Mr. G~ amounts from the principle or income of the trust to meet his living expenses, specifically including clothing and "essential dietary needs." Article 2, § 1. They are also empowered to purchase a home to be held by the trust for his benefit. Article 2, § 3. The trust document prevents the trustees from making any disbursement that would have the effect of "replacing, reducing, or substituting for any publicly funded benefits otherwise available to our son or rendering him ineligible for publicly funded benefits." Article 2, § 6. The trust states that it is irrevocable. Article 7.
At Mr. G~'s death, the trust will terminate and the remaining assets will be used, first, to pay back the State for medical assistance and, second, to pay the expenses of his last illness, funeral, and the trust. Article 3. The trust provides that any remainder will be paid to Mr. G~'s "spouse, children, grandchildren, or other descendants" if he designates them in his will. Article 3, § 2. In the event he does not transfer the remainder to those beneficiaries in his will, the assets will be distributed to his "spouse, descendants, parents, siblings, or heirs" as set out in the Minnesota intestate succession laws. Article 3, § 2.
Trust assets are resources if the SSI recipient can: terminate the trust and use the assets for food, clothing, and shelter; direct the use of the assets for personal maintenance and support under the terms of the trust; or sell the interest in the trust and use the proceeds for support and maintenance. 20 C.F.R. § 416.1201(a); POMS SI 01120.200(D)(1)(a). Clarification of Regional Program Circular 94-05—Question from Litchfield D.O. Concerning Trust with Multiple Grantors, OGC-V (Messer) to M~, ARC MOS (December 17, 1999).
Can Mr. G~ terminate the trust? No. This trust states that it is irrevocable. Because Mr. G~ may have contributed his assets to the trust, i.e., be a "grantor," we consider whether the grantor trust rule makes this trust revocable. In general, where a grantor is also the sole beneficiary of the trust, he or she can revoke or compel termination of the trust, even when the trust states it is irrevocable. Restatement (Second) of Trusts § 339, cmt. a (1959); POMS SI 01120.200(D)(3). We have previously advised that this general trust principal applies in Minnesota. See Six State Synopsis of Trust Laws, OGC-V (Patsavos) to P~-W~, ARC, SSA-V (2/26/92); In re Scholl, 297 N.W. 2d 282, 284 (Minn. 1996).
The issue then becomes whether Mr. G~ is the sole beneficiary of the trust. Generally, the law will presume that no additional beneficiaries were intended where the trust passes under a will or by intestacy to the grantor's heirs when the grantor dies. Restatement (Second) of Trusts § 127, cmt. b (1959). This source explains that where the grantor gives himself a life interest and reserves power to appoint the remainder interest in his will with the remainder passing to his heirs if he does not make an appointment, the grantor will still be found to be the sole beneficiary. Id. In contrast, where the trust gives the remainder to a class of individuals such as the grantor's "children, or issue, or descendants," the grantor is not the sole beneficiary and the children, issue, or descendants are beneficiaries. Id. We believe that, under the facts of this case, SSA can consider that Mr. G~ intended to create a beneficial interest in the class of people specifically named in the trust document.
This trust limits Mr. G~'s power to name residual beneficiaries in his will. If he chooses to appoint beneficiaries by will, he can only name his "spouse, children, grandchildren, or other descendants." Article 3, § 2. If he does not appoint these people by will, the remainder goes to his "spouse, descendants, parents, siblings, or heirs." Id. We believe that these limitations are sufficient to show that the grantor intended to create specific residual beneficiaries, unlike a trust in which the grantor-beneficiary is able to nominate whomever he chooses in his will. See Restatement (Second) of Trusts § 127 cmt. b (1959)(stating intention of settlor to create residual beneficiaries, even if contingent, determines whether settlor is sole beneficiary). Because Mr. G~ would need the consent of those beneficiaries to revoke the trust, he does not have the power to unilaterally revoke the trust.
Can Mr. G~ direct the trustees to use the trust for his support and maintenance? No. The trust agreement provides that the trustees have "sole and absolute discretion" to pay assets from the trust to Mr. G~ or for his benefit. Article 2, §§ 1, 7. The trust states that its purpose is to supplement government benefits otherwise available to Mr. G~ and that the trustees should take no action that would reduce those benefits. Article 2, §§ 1, 6, 7, 8. When a trust instrument states an intent to supplement, rather than supplant, any government financial assistance most courts give effect to this intent and find that the trust is not an asset that is available to the beneficiary. See Matter of Leona Carlisle Trust, 498 N.W.2d 260, 265 (Minn. App. 1993). Mr. G~ has no power under the trust to direct the use of the assets, and the trust does not require the trustees to make distributions.
Can Mr. G~ sell his interest in the trust? No. Even assuming that it would be theoretically legal for Mr. G~ to sell his beneficial interest in the trust, his interest would presumably have no value on the open market. The trustee has full discretion to make no payments from the trust. No disinterested person or institution, therefore, would be willing to pay to receive nothing.
The trust property at issue should not be considered a resource to Mr. G~ for SSI purposes because he cannot unilaterally revoke the trust, direct the use of the trust for his support and maintenance, or sell his beneficial interest in the trust.
Notwithstanding the status of the resources in trust, distributions to or for the benefit of Mr. G~ may constitute countable unearned income in the month in which they are received, see 20 C.F.R. §§ 416.1121-.1124, or cause the "presumed value rule" or "one-third reduction rule" to reduce Mr. G~'s benefits. See 20 C.F.R. §§ 416.1130-1141 (1999); see also POMS SI 01120.200.
E. PS 00-226 Minnesota Review of a Questionnaire from Faegre & Benson Regarding Life Insurance Funded Burial Agreements; your ref: S2D5G3
DATE: December 22, 1998
This opinion provides answers to questions from a Minnesota law firm on SSA's policy regarding the use of life insurance policies to fund pre-need funeral agreements in Minnesota.
You forwarded a questionnaire from the Minnesota law firm of Faegre & Benson, LLP, requesting clarification on the SSA's policy regarding the use of life insurance policies to fund pre-need funeral agreements in Minnesota. The law firm requested that the questionnaire be completed by both the Office of the General Counsel and by "the appropriate claims representatives" so that the firm could "determine where discrepancies in interpretation (if any) may exist." We believe it would be inappropriate for a claims representative to submit such legal interpretation or for our office to respond directly to the law firm. Rather, we believe that the agency should provide one response, and that should come from the Regional office. We have suggested some language that may be helpful in responding to the law firm.
We agree with the law firm that, under 20 C.F.R. § 416.1201(a), a "resource" for SSI purposes generally includes any property that the individual "owns and could convert to cash to be used for his or her support and maintenance."
TRANSFER FOR ADEQUATE CONSIDERATION
1. According to the law firm, the Minnesota Department of Human Services reviews an individual's financial transactions to determine whether the individual has made any transfers of assets for less than adequate consideration. Apparently, if such a transfer has been made, the asset transferred still is included among the individual's assets for purposes of determining eligibility. The law firm asked whether such a provision existed with respect to the SSI program or whether the agency anticipated implementing such a provision.
RESPONSE: Currently, the Social Security Act does not define as a resource assets that were transferred for less than adequate consideration. Therefore, the agency does not currently review transfers of assets to determine whether they were transferred for adequate consideration. An act of Congress would likely be required to impose any such eligibility factor concerning the definition of resources.
2. The law firm next asked whether, since SSI eligibility is not affected by issues of transfer for adequate consideration, an individual could transfer ownership of an insurance policy and "qualify the policy for exemption" for the full amount of the policy (disregarding any dollar limits on exemption imposed by state law).
RESPONSE: A life insurance policy would not be a "resource" under the SSI program to the extent that ownership of the policy (including the right to obtain the cash surrender value) is transferred to someone other than the eligible individual. If such ownership is transferred, the SSI recipient could not convert the policy to cash to be used for his or her support and maintenance. See 20 C.F.R. § 416.1201(a).
ASSIGNMENT OF THE DEATH BENEFIT/INCIDENTS OF OWNERSHIP
1. The law firm explained that, in order to avoid the transfer for adequate consideration issues involved in determining eligibility for medical assistance, individuals generally transfer only the death benefit proceeds of a life insurance policy to fund a pre-need funeral contract; they generally do not transfer ownership of the policy itself. The law firm noted that POMS SI 01130.425(D)(2) states that "[w]e are not aware of insurance companies that permit irrevocable assignment of policy proceeds without requiring the irrevocable assignment of ownership." The firm asked whether the agency has become aware of situations in which death benefit proceeds could be assigned without assigning ownership of the policy.
RESPONSE: At the time the POMS provision was prepared, the agency had not encountered an agreement that provided for the transfer of proceeds without also providing for the assignment of ownership. However, SSA looks at the cash surrender value of the policy to determine its value as a resource. 20 C.F.R. § 416.1230(a). Cash surrender value of a policy is available while the insured is living, and is a current resource. Proceeds, by contrast, are payable on death, and are not available during the insured's lifetime. Unlike the cash surrender value, proceeds would not be a resource, since the proceeds are not available to the individual during his or her lifetime. POMS SI 01130.425(A)(2). Therefore, if an individual were to transfer only the death benefit proceeds of the policy without transferring the ownership rights (such as the right to obtain the cash surrender value), the policy still could be a resource.
2. The law firm asked whether an insurance policy still would be a resource for SSI if the individual irrevocably assigned the death benefit proceeds and also relinquished all incidents of ownership in the policy.
RESPONSE: If an SSI recipient irrevocably assigns ownership rights (including the right to obtain the cash surrender value) of the policy, the policy is not a resource for SSI purposes, regardless of whether the individual assigned the death benefit proceeds of the policy. If, however, the individual does not assign ownership of the insurance policy, but merely states in the contract with the funeral home that he or she relinquishes all incidents of ownership in the policy, the policy still is a resource to the extent of its cash surrender value. The individual still owns the policy and can obtain the cash surrender value from the insurance company, even though it may be a breach of the individual's contract with the funeral provider to do so.
3. The law firm noted that, under Minnesota law, an individual who enters into a pre-need funeral agreement must be allowed to change funeral providers at any time. The law firm asked whether this right to change funeral providers under the pre-need funeral agreement would affect the resource status of the insurance policy used to fund the agreement.
RESPONSE: If ownership of the insurance policy (including the right to obtain the cash surrender value) is effectively and irrevocably assigned, the policy would not be a resource. The mere fact that the funeral provider who will provide the services and receive the funds from the insurance policy may change would not affect this conclusion so long as the SSI recipient cannot obtain the cash surrender for him or herself.
APPLICATION OF MINN. STAT. § 149A.97
The law firm noted that, under Minnesota law, the legislature has expressed an intent to limit the manner in which funeral providers can "accept funds in prepayment of funeral services to be performed in the future." Minn. Stat. Ann. § 149A.97(1). The statute provides that any money paid to fund a pre-need funeral contract will be held in trust. That trust is revocable unless it specifically provides that it is irrevocable, and it can be irrevocable only up to an amount equivalent to the allowable SSI asset exclusion used for determining eligibility for public assistance. Id. at 149A.97(2)-(3).
The law firm asserts that, if the individual irrevocably assigns only the death benefit proceeds of the policy to the funeral provider, no money is paid to the funeral provider, therefore no trust is required, and there are no limitations on the amounts that can be irrevocably transferred. The firm argues that this is inconsistent with the "SSA's practice whereby exemption of the value of an insurance policy intended to fund pre-need funeral arrangements is limited to $2000." The firm refers to a memorandum to Gloria J. P~ from the Office of the General Counsel dated October 17, 1996.
RESPONSE: We do not believe we need to address any state-law imposed limitations on the irrevocable assignment of the death benefit proceeds of an insurance policy to fund a pre-need funeral contract. If the individual assigns only the death benefit proceeds of the policy, the policy remains a resource for SSI purposes, regardless of any revocable or irrevocable assignment of death benefit proceeds. This is not inconsistent with our prior memorandum, which addressed a case in which the individuals had transferred current ownership rights, including the right to obtain the cash surrender value.
EXEMPTION OF "BURIAL SPACES"
The law firm noted that under the SSI program, to qualify for the burial space exemption, the individual must have paid the purchase price for the burial space, such that the burial space is "held for" the individual. See 20 C.F.R. § 416.1231(a)(2). The law firm concluded that, if an individual had a pre-need funeral contract funded with an assignment of the death benefit proceeds of a life insurance policy, the funds would not be excluded under the burial space exemption because the purchase price is not actually paid until the individual dies. The law firm also concluded that "[w]hen the Burial Space is to provided under the terms of an agreement or contract with a [funeral] Provider, the cost of which is to be covered through the irrevocable assignment of the death benefit of an insurance policy (and all other incidents of ownership have been surrendered) the value is unavailable to the Recipient [of SSI benefits], and would therefore be exempt."
RESPONSE: As we previously stated, if an individual assigns only the death benefit proceeds of an insurance policy to fund a pre-need funeral contract, the policy is still a resource to the individual in the amount of any cash surrender value of the policy. This is so even if the individual "surrenders" the incidents of ownership, including the right to obtain the cash surrender value. So long as the individual still owns the policy, the policy is a resource, since the individual still has the power to obtain the cash surrender value from the insurance company (although it may be a breach of the individual's contract with the funeral provider to do so). Therefore, the entire cash surrender value of the policy is a countable resource, unless some exclusion applies. See, e.g., 20 C.F.R. §§ 416.1230, 416.1231(b)(1) (discussing exclusions for life insurance and for funds set aside for burial expenses).
We agree that the burial space exclusion would not apply to any amounts designated in the contract for a burial space, since the individual does not currently own or have the right to use the burial space, and the funeral provider is not currently obligated to provide the space. See POMS SI 01130.400. Rather, the purchase of the burial space or container is deferred until the individual's death and therefore is not currently "held for" the individual. See 20 C.F.R. § 416.1231(a)(2).
Finally, the law firm submitted a sample form entitled "Irrevocable Assignment of Life Insurance/Annuity Policy Death Benefits" for our review, to determine whether a life insurance policy used to fund the sample agreement would be a resource to an SSI applicant or beneficiary. Consistent with our analysis above, we conclude that an insurance policy used to fund the sample agreement would be a countable resource for SSI purposes to the extent of any cash surrender value of the policy, unless some exclusion applied. See, e.g., 20 C.F.R. §§ 416.1230, 416.1231(b)(1).
Although the agreement assigns the right to obtain the death benefit proceeds of the policy, this would not affect the status of the policy as a resource, since proceeds can be obtained only at death and are not a current resource. And although the individual makes an agreement with the funeral provider not to surrender the policy for its cash surrender value, the individual does not transfer that right, and therefore still has the power to obtain the cash surrender value from the insurance company, even if it would be a breach of the individual's contract with the funeral provider.
These responses should adequately address all of the questions the law firm presented. We believe that the agency should present only one response to the law firm's questionnaire, rather than providing separate responses directly from our office and from individual claims representatives. If the law firm has further questions, it should submit them in writing to its local Social Security office.