PROMISSORY NOTES IN MEDICAID PLANNING

It is certain that the Department of Public Welfare will regard assets used to purchase a promissory note, loan, or mortgage to be subject to the Medicaid transfer penalty rules unless the note, loan or mortgage contains: (i) A repayment term that is actuarially sound (as determined in accordance with the actuarial publications of the Office of the Chief Actuary of the Social Security Administration). (ii) Provides for payments to be made in equal amounts during the term of the loan, with no deferral and no balloon payments made. (iii) Prohibits the cancellation of the balance upon the death of the lender. Therefore, under the Deficit Reduction Act (â'‚¬Å“DRAâ'‚¬Â) it appears that what is called a â'‚¬Å“safe harborâ'‚¬Â does exist for the limited use of notes in Medicaid Planning. Although the note need not grant any remainder or other interest to DPW, the balance due on the note would most likely be an asset of the estate of the deceased owner, and thus subject to estate recovery by DPW. Even if the note meets the DRA guidelines, nevertheless, according to an Operations Memorandum published by DPW, DPW states that it may or may not treat a DRA-compliant note as a resource. DPW has stated that it will make a determination on a case by case basis. The Operations Memorandum does not, however, describe the criteria the County Assistance Office should use in determining whether the note is to be regarded as a resource. If DPW were not to accept the promissory note and treat it as an asset, it is possible to argue that the assets were transferred solely for a purpose other than to qualify for Medical Assistance. If the argument is successful, then no period of ineligibility would result from the uncompensated value associated with those transfers. I must advise that in most cases, the County Assistance Office caseworker will presume that the disposition of assets, particularly gifting of assets, was to qualify for medical assistance. The burden is on the applicant, to show that the asset was transferred exclusively for a purpose other than to qualify for medical assistance. In order to rebut the presumption, an appeal to a Fair Hearing before an Administrative Law Judge will be necessary. The ALJ will not find the applicant to have rebutted the presumption if even part of the rationale behind the transfer was to qualify for Medicaid. In order to rebut the presumption, the evidence to be provided includes the following: (1) The purpose for transferring the asset. (2) The attempts to dispose of the asset at its fair market value. (3) The reasons for accepting less than the fair market value. (4) The means of or plans for self-support after the transfer. (5) The individualâ'‚¬'„¢s relationship to the person to whom the asset was transferred. One of the factors that the ALJ will consider is your health condition at the time of the transfers. A WORD OF CAUTION IF YOU ARE CONSIDERING USE OF A PROMISSORY NOTE AS PART OF MEDICAID PLANNING, YOU SHOULD NOT ATTEMPT TO DO SO WITHOUT CONSULTING AN ATTORNEY BEFORE YOU LEND THE MONEY TO YOUR CHILDREN.