A Massachusetts trial court rules rules that a MassHealth (Medicaid) applicant's transfer of the remainder interest in her property in exchange for a promissory note for a balloon payment constitutes a disqualifying transfer for purposes of MassHealth eligibility. Wilson v. Dehner (Suffolk County Super. Ct., Civ. Act. No. 08-5304G, Aug. 6, 2009).
This decision seems in stark contrast to the recent ruling of another Massachusetts trial court in Clark v. Dehner (Middlesex County Super. Ct., No. 12-177-09, July 23, 2009), which ruled against MassHealth in finding that a promissory note between family members was fully enforceable, and thereby an effective cure for what would have otherwise been a disqualifying transfer. In contrast to the Middlesex case, in this case the applicant was under guardianship and her guardian was a beneficiary of the transfer. In addition, the balloon nature of the payments is problematic.
In Wilson, Margaret Wilson, through her guardian, who was also her daughter, reserved a life estate in New Hampshire property held by Wilson and transferred the remainder interest, valued at $267,355, to Wilson's children, including the daughter serving as her guardian. Her children executed a promissory note calling for one balloon payment of $170,000 plus interest accruing at 4.93 percent per year, payable in 2016.
In denying Wilson's subsequent application for long-term care benefits, MassHealth's hearing officer determined that the promissory note did not represent fair market value and was not enforceable or binding. Although MassHealth may not impose a period of ineligibility for assets transferred for a purpose other than qualifying for MassHealth, or if the applicant intended to transfer the asset at fair-market value or for other valuable consideration, the court finds that Wilson failed to prove either of those alternatives.
In so holding, the court looked to Wilson's acknowledgment that at least $97,355 of the transfer was technically a gift. Further, the court agreed with MassHealth's determination that the promissory note was unenforceable, and thus void of value. MassHealth reasoned that should Wilson's children fail to act in accordance with the note, there would be no one to bring suit against them, or alternatively, bring foreclosure proceedings against the property interest.
The court agreed with the hearing officer's determination that the transfer of the property and subsequent execution of the promissory note was not an arm's-length transaction given that Wilson's guardian/daughter negotiated the terms of the note and entered into the terms of the note on Wilson's behalf as lender, as well as on her own behalf as a borrower.
This is in contrast to the Clark decision, which found that the intra-family nature of a transaction does not mean that it is automatically not for fair market value. In contrast with the decision in this case, the Clark court held that whether a transaction is for fair market value depends on the terms of the deal, not the parties involved.
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