How a Promissory Note Can Salvage a Late Medicaid Plan in New York

Much of the Medicaid work that comes into my office arrives late. A parent has already had the fall or the stroke, the hospital is discharging them to a skilled nursing facility, and the family is learning for the first time that Medicaid reviews five years of financial history before it pays a dollar toward that care. Planning done well in advance is always cleaner. But a late start does not mean a family must watch a lifetime of savings disappear at private-pay rates. For an unmarried applicant in exactly this position, a properly drafted promissory note, used alongside a gift, is frequently the tool that preserves a meaningful portion of what is left.

A transfer creates a penalty, not a denial

Giving money away inside the look-back period does not disqualify a person from Medicaid forever. Nursing home Medicaid in New York carries a sixty-month look-back, and any uncompensated transfer made within that window produces a penalty period: a stretch of months during which the applicant is otherwise eligible but Medicaid will not pay for nursing facility services. The length is arithmetic. The state divides the amount given away by the regional rate, which is the average monthly private-pay nursing home cost for the region where the facility sits. According to the Department of Health's published 2026 regional rate chart, that figure is $15,282 per month for the five boroughs. A $100,000 gift made by a Queens resident therefore produces roughly six and a half months of ineligibility, not a permanent bar.

The timing of that penalty is what makes the strategy possible. The clock does not start when the gift is made. It starts only once the applicant is actually residing in the facility, has spent countable resources down to the 2026 limit of $33,038, has filed an application, and is otherwise eligible in every other respect. That rule is also the danger in the plan, because during those penalty months somebody still has to pay the nursing home.

How the note fills the gap

The note exists to solve that funding problem. Rather than transferring everything, we divide the countable assets. A portion is gifted outright to the children or other intended recipients. The balance is lent to a trusted family member in exchange for a written promissory note that obligates them to repay the applicant in fixed monthly installments. Only the gifted portion is treated as an uncompensated transfer. The lent portion is not a gift at all, because the applicant received something of equal value in return.

The note payments then come back to the applicant month after month and are applied, together with Social Security and any pension, to the facility's bill. The plan is built so that the note runs out at approximately the same moment the penalty period expires, at which point Medicaid begins paying and the gifted portion is safely out of reach. The split between gift and loan is not a rule of thumb but a calculation driven by the applicant's monthly income, the facility's actual private rate, and the regional rate that governs the penalty.

What the note itself must contain

This only works if the instrument satisfies the requirements Congress imposed in the Deficit Reduction Act of 2005, which New York applies without softening them. The repayment term cannot exceed the lender's life expectancy under the Social Security Administration's actuarial tables. The payments must be made in equal amounts with no deferral of principal and no balloon at the end. The note must prohibit cancellation of the outstanding balance upon the lender's death, which means the remaining obligation has to be payable to the estate.

Miss any one of those three conditions and the entire outstanding balance is treated as an uncompensated transfer, which converts the careful half of the plan into a second penalty.

Where these plans go wrong

The most common failure is human rather than legal. The borrowing child spends the money and cannot make the payments, and the applicant is left with an unpaid facility bill and no income to cover it. The second is budgeting. Note payments are income in the month received, so they are counted in the net available monthly income calculation once eligibility begins. The third is filing at the wrong moment, since the penalty clock will not start until the application is in and the applicant is otherwise eligible.

Married couples usually have better options before we reach a note, including spousal transfers and the community spouse resource allowance, and, as I discussed in a prior article on Medicaid asset protection trusts, a family that begins five years ahead of need rarely requires this technique at all. That is why I advise families who still have time to plan to use it, and families who have run out of time to sit down with the numbers before anyone signs or transfers anything.

If you or a loved one is entering a nursing home in New York with assets which need to be protected, contact us today at (347) 766-2685 for a free phone consultation.

Contributed by Roman Aminov, Esq, a Queens estate attorney in New York City.