Medicaid Planning for Nursing Home Care: Promissory Notes

Medicaid planning for nursing home care is just what it sounds like - taking action to prevent the total loss of your assets in the event you require long-term care in a nursing home.  Ideally, Medicaid planning is done at least five years before your anticipated need for nursing home care.  This is because when you apply for chronic care Medicaid, you must show not only that you qualify by having countable resources of less than $16,800 for the year 2022, but also that you did not gift or transfer assets to an entity like a trust or a person within the last five years with the intention of covering the cost of your nursing home.  This is the five-year look-back period about which so much has been written.  If you have gifted assets within five years of your application for Medicaid, a penalty period will be assessed based on the value of the gift and you will have to pay privately for the cost of your care for the length of the penalty period.

If you transferred most of your assets to an irrevocable trust more than five years before applying for Medicaid, the value of the assets in the Trust would be protected and thus not included in the calculation of any penalty period.  If, however, you did not engage in Medicaid planning five years before requiring nursing home care, and you don’t meet any of the Medicaid exempt transfer rules, you do have the option of engaging in something called promissory note planning.  This type of planning does require that a large portion of your assets be spent down on your care, but it does allow you to also protect a large portion of your assets and thus it is nearly never too late to do asset protection planning.

Medicaid compliant promissory notes must be very specifically drafted and executed.  They should only be entered into under the guidance of an experienced elder law attorney as a mistake can result in periods of ineligibility and penalties.  They must follow certain specific criteria and be actuarially sound.  They work essentially by taking roughly half of your excess resources (those above the current resource limit of $16,800 in 2022) and gifting them to a trust or family member or close friend.  You will the loan the rest to a trusted person.  This second amount will be treated as a loan pursuant to the terms of a promissory note.  The gift portion of the transferred assets will trigger a penalty period and a period of ineligibility. The loan portion of the transferred excess assets will be calculated as part of your income and spent on the cost of your care during the period of your ineligibility.  The gifted portion is ultimately what you have saved from the need to spend down on the cost of your care.  This usually amounts to around half of the excess resources, but this depends upon what your other income is and the cost of the facility at which you are receiving care.


Whether you engaged in Medicaid planning ten years ago and are seeking to protect the remaining assets in excess of the current resource limit, or you never gave your future long term care needs a serious thought, call the Law Offices of Roman Aminov, P.C. to speak to a knowledgeable elder law attorney about promissory note planning and the possibility of preserving your hard-earned assets.

This article is for educational purposes only - to provide you with general information, not to provide specific legal advice.  Use of this post does not create an attorney-client relationship and information contained herein should not be used as a substitute for competent legal advice from a licensed attorney in your state.

 

 

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