Promissory Note Is Not a Countable Resource

A Georgia Superior Court rules that a promissory note received in exchange for a nearly $400,000 loan should have been fully excluded in determining a Medicaid applicant's eligibility for coverage of nursing home benefits. Lowry v. Georgia Department of Human Resources (Super. Ct., Fulton Cty., No. 2004CV83633, Oct. 15, 2004).

Lillian Lowry, a nursing home resident, transferred $393,835 in exchange for a promissory note. The note contained no rate of interest and provided for a loan repayment of $150 each month. When Ms. Lowry applied for Medicaid coverage, the Georgia Department of Human Resources assessed a 125-month period of ineligibility, concluding that the transfer was for less than fair market value since it was not an interest-bearing note, and that the payments indicated little or no consideration, benefit or value to Ms. Lowry other than to qualify for Medicaid. Ms. Lowry appealed.

The Superior Court, Fulton County, reverses, finding that the Department's decision is wholly unsupported by the facts and applicable law. The court observes that the applicable regulations provide that for purposes of eligibility for Medicaid coverage of nursing home costs, promissory notes may be excluded if the resource is owned by the applicant (or transferred to a spouse or to a sole-benefit trust) and the owner is receiving regularly scheduled payments. "The regulations do not support an inquiry as to the nature, timing, and circumstances of the loan as argued by the Department, but rather, only an inquiry as to the validity of the loan," the court writes. Because Ms. Lowry's promissory note meets all requirements for a valid loan, the court rules that the transfer of assets penalty was in error and the promissory notes' value should have been fully excluded in determining Ms. Lowry's Medicaid eligibility.

Atlanta ElderLawAnswers member David Paul Pollan represented Ms. Lowry and brought this ruling to our attention.

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