Promissory Notes and Medicaid Qualification in Virginia

Elderly with health issuesIn order to be eligible for Medicaid benefits, a nursing home resident may not have more than $2,000 in assets (in most states). If used properly, a promissory note can help a nursing home resident reach the appropriate level of assets.

Medicaid can mean a world of difference when it comes to ensuring proper care for your elderly loved ones, especially when they are running out of assets. When their major remaining “countable” asset is an illiquid asset, what are their options short of depleting it or risking a fraudulent transfer?

As you may well know, Medicaid is the source of nursing home care for many indigent Americans. Still others are caught in a netherworld of being above the minimum asset threshold for qualification, but having too few assets to realistically pay for their care.  It’s a sticky situation.

A promissory note may be one alternative to explore, as noted in a recent article at ElderLawAnswers.com titled “How Can Promissory Notes Be Used in Medicaid Planning?”   The focus of the article is a recent federal case out of Oklahoma, but the basics apply generally. Essentially, an elderly woman transferred her farm and accounts to her son in exchange for a promissory note. A note is a legally binding contract to repay as fixed sum and so it clears the Medicaid hurdle in question.

In this instance, this approach indeed saved the farm and the elderly woman received her nursing home care through Medicaid. Nevertheless, a promissory note is not a full-proof plan. For one, many states reject the idea and refuse to recognize promissory notes. For another, the plan can only work because promissory notes are legally binding contracts, and so if the note cannot be repaid there are potential tax burdens that may be triggered.

The article also points out there are several tools, like the promissory note, that can prove useful when seeking legitimate Medicaid qualification. This especially is true if you plan well in advance.

Danger! The Medicaid qualification rules vary from state to state. This is not a self-help project, as you may find yourself (and your elderly loved one) in a tricky financial and legal purgatory if you make any missteps.

You can learn more about this topic as well as other strategies on our website under the tab entitled: elder law planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.

Reference: ElderLawAnswers (May 15, 2013) “How Can Promissory Notes Be Used in Medicaid Planning?

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