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Promissory Notes and Medicaid
- March 12th, 2013
A promissory note is normally given in return for a loan and it is simply a promise to repay the amount. Classifying asset transfers as loans rather than gifts can be useful because it sometimes allows parents to "lend" assets to their children and still maintain Medicaid eligibility.
Before Congress enacted the Deficit Reduction Act (DRA) in 2006, a Medicaid applicant could show that a transaction was an (uncountable) loan to another person rather than (countable) gift by presenting promissory notes, loans, or mortgages at the time of the Medicaid application. Congress considered this to be an abusive planning strategy, so the DRA imposes restrictions on the use of promissory notes, loans, and mortgages.
Local Elder Law Attorneys in Ashburn, VA
Margaret A. O'Reilly, PC
Margaret A. O’Reilly is an estate planning and elder law attorney with over thirty-five years of legal experience. Attorney O’Reilly graduated from Duke University with a degree in psychology, and received her law degree from Northeastern University School of Law in Boston, Massachusetts. For over 15 y...
Hale Ball Carlson Baumgartner Murphy PLC
Loretta Morris Williams is a certified elder law attorney by the National Elder Law Foundation. Ms. Williams was admitted to the Council of Advanced Practitioners, National Academy of Elder Law Attorneys (NAELA) in 2012. She serves as President of the Virginia Academy of Elder Law Attorneys. Ms. Willia...
In order for a loan to not be treated as a transfer for less than fair market value (and therefore not to interfere with Medicaid eligibility) it must satisfy three standards: (1) the term of the loan must not last longer than the anticipated life of the lender, (2) payments must be made in equal amounts during the term of the loan with no deferral of payments and no balloon payments, (3) and the debt cannot be cancelled at the death of the lender. If these three standards are not met, the outstanding balance on the promissory note, loan, or mortgage will be considered a transfer and used to assess a Medicaid penalty period.
Last Modified: 03/12/2013