In a case that has taken five years and involved hearings, rehearings and two trips to court, a Massachusetts trial court rules that a husband's investment in his son's start-up business through promissory notes that almost immediately lost a significant portion of their value is not a a transfer that disqualifies the husband's wife from receiving Medicaid. Southwick v. Waldman (Mass.Sup., Plymouth, No. PLCV2006-01026-B, Sept. 9, 2010).
Raymond Southwick invested $250,000 in a business formed by his son. In return, Mr. Southwick received promissory notes from the company requiring repayment of the principal, with 5 percent interest, in two years. The notes also provided that Mr. Southwick could convert his notes into stock in the company if the company obtained "qualified financing." When Mr. Southwick's wife applied for Medicaid benefits, the Massachusetts Office of Medicaid found that the purchase of the notes was a disqualifying transfer of assets because the notes did not comply with the rules governing annuities. On appeal, a hearing officer concluded that the notes were not annuities and that the purchase was not a disqualifying transfer. However, the hearing officer determined that the notes were countable assets and he referred the matter back to the Office of Medicaid for further consideration. The Office of Medicaid then rejected Mrs. Southwick's application for being over assets and a hearing officer upheld the decision.
The Southwicks appealed. The trial court remanded the case to the Office of Medicaid for an additional hearing in front of a different hearing officer to determine the value of the promissory notes. If the hearing officer determined that the notes were worth less than their face value, the court also asked the hearing officer to determine if there was a transfer for less than fair market value. After disputing the trial court's authority to order a remand, the second hearing officer refused to reopen the hearing and instead issued a new decision that did not take the previous evidence into account. The hearing officer found that the promissory notes were worth their face value at the time of the purchase but then lost almost all of their value since there was no market for the notes. The second hearing officer considered this drop in value a disqualifying transfer and she assessed a penalty period. The Southwicks appealed this decision to the trial court.
Agreeing with the first hearing officer that "there is no Medicaid rule that prohibits an applicant, member or spouse from making speculative investments," and seeing no evidence that the loans were a sham, the Superior Court concludes that there was no disqualifying transfer of assets and orders that Mrs. Southwick be deemed eligible for Medicaid.The court explains that "[a]s a result of the second hearing officer's decision, the only issue before the court is whether the plaintiff's husband's investments in exchange for promissory notes constitute 'disqualifying transfers'."
Longtime Massachusetts elder law attorney Brian E. Barreira represented Mrs. Southwick.
Editor's note: One would have thought that the issue in the case would be the value and availability of the investment in the son's company and whether that caused Mrs. Southwick to be ineligible for benefits. But through the vagaries of legal action and a hearing officer's decision to wrangle with a superior court judge, the issue became one that was easier for the applicant to win.
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