Promissory Notes and Medicaid Planning


A Promissory Note is a Valid form of Medicaid planning

The Golden Years
Contrary to the popular belief that old age is the “Golden Years” a wise person recently said “Getting old is not for sissies”. Getting old is accompanied by new aches and pains, fatigue, forgetfulness and often financial worries. Lack of old age financial planning often results in additional, unnecessary stress and uncertainty.

Long-term Care and Nursing Home Care
One major consideration that requires financial planning is long-term care. When young, the thought of needing assistance to bathe, eat, or dress is unimaginable; generally it is not even considered until health has already deteriorated. The cost of long-term care is a major financial expense that can overwhelm all other necessary financial obligations.

Long-term care (in home or nursing home) can cost $ 5,000 to $ 12,000 a month. Many individuals who thought they were financially secure and who never thought they would need to qualify for Medicaid find themselves eager to qualify. Most individuals needing Medicaid are people who worked their own lives, lived within their means, and never thought they would need Medicaid benefits because they never count on spending $ 5,000 to $ 12,000 a month for a nursing home or for in-home care.

What is Medicaid?
The Deficit Reduction Act (DRA) was enacted February of 2006
Medicaid is a federal and state cooperative health insurance program. It is designed to help needy individuals unable to afford the costs of medical care. To qualify for Medicaid, an individual must have insufficiency income with which to pay for his care and he must have a limited amount of assets-financial resources. Unlike most health insurance programs, Medicaid will pay for long-term care costs, such as care in a nursing home or assisted living residence.

How do promissory notes fit in?
The individual seeking to qualify for Medicaid must have a limited amount of financial assets. Financial assets are separated as “cumulative resources” and “excluded resources”. An applicant is ineligible for Medicaid if countable resources exceeded the resource limit. There are three types of resources considered when determining Medicaid eligibility – real property, personal property and liquid assets.

Promissory notes, if properly drafted, are bona-fide excluded resources. Promissory notes can be used extensively as a Medicaid planning tool. The properly drafted note must satisfy these DRA PROMISSORY NOTE REQUIREMENTS:

(1) Be actuarial sound
(2) Provide for equal payments with no balloon payments
(3) Prohibit the cancellation of the note upon the death of the maker
(4) Be non-negotiable
The DRA contains no provision regarding the rate of interest that the note carries.

Properly drafted promissory notes are bona fide, non-negotiable notes. If the Promissory Note does not satisfy these requirements, the note is treated as countable asset, and the outstanding balance due as of the date of the Medicaid application is used as the value of the asset.

In a recent case the court held a promissory note “is a valid form of Medicaid planning. an anti-assignment clause meant it was not negotiable. The court rule that the fact the note could not be sold on the secondary market did not make it worthless. the state can not “penalize the applicant for taking advantage of a lawful loophole that Congress has not foreclosed.”

The Medicaid qualification rules vary from state to state and are often technical.

This is a complex legal area.

This article is not intended to be legally comprehensive, nor legally complete, nor legal advice.

Using promissory notes for Medicaid planning is not a “do-it-yourself project”.

Get competent, local legal advice to avoid harming yourself and your elderly loved ones

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