Elder Law – Promissory Notes May Not Be So Promising

Transfers to Children of Medicaid Applicant in Exchange for Promissory Notes Not Actuarially Sound

As some of you may know, the guidelines surrounding eligibility for Medicare or Medicaid can be fairly rigid. They exist to ensure people aren’t gaming the program, but sometimes even who aren’t gaming the program (and have legitimate need) can unintentionally run afoul of the rules.

When Raymond Duclos was entering a nursing home, his wife was making transfers to their children: $176,000 to their daughter, Susan; $11,787.83 to their son, Raymond, Jr.; and $3,000 to their other son, Michael. No good story about Medicare/Medicaid eligibility begins with the word, “transfer.” Why? Because of the look-back period for determining eligibility.

In the case of the Duclos family, as opposed to these direct transfers being made without any value exchanged in return, each transfer was made in exchange for promissory notes. In fact, the largest note was an immediate annuity. Nevertheless, in the end this was considered a distinction without a difference.

The state (Massachusetts) denied the claim and the appeals court upheld the state’s decision. The court’s basis: Those promissory notes weren’t “actuarially sound.” For one thing, there was no proof of Mrs. Duclos life expectancy at the time she transferred the assets and the smaller promissory notes from the sons did not prohibit cancellation at the death of the lender. This “cancellation” made the transaction appear as if there was little intention of actually fulfilling the notes. Furthermore, the larger note from the daughter was turned into an annuity, but it did not name the state as a “remainder” beneficiary. Each transfer, then, was a disqualifying one.

You can learn more about elder law planning in the Elder Law Planning Practice Center on our website. Be sure to sign up for our free e-newsletter to stay abreast of issues like these that could affect you, your loved ones and your estate planning.



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