To get Medicaid benefits in Indiana, your income or assets cannot exceed the state’s Medicaid limits. If you don’t qualify because of having more assets than the state limits, you may have to pay out of pocket for your long-term care. Some people spend their assets on long-term care until they qualify, but there could be a better way. One of those ways is through a promissory note.
What Is A Promissory Note?
A promissory note is a signed legal document that contains a written promise to pay a stated sum to a specific person or entity. For example, when you take out a mortgage, you also execute a promissory note, agreeing that you will pay the bank X amount of dollars over a period (e.g., 30 years).
Using A Promissory Note In Medicaid Planning
- The loan term must not last longer than the anticipated life of the lender.
- Payments must be made in equal amounts during the loan term.
- The debt cannot be canceled at the lender’s death.
First Element: Term Of The Loan
Federal law provides that an excludable promissory note must have an actuarially sound repayment term. The actuarial soundness of the term is determined by actuarial publications of the Office of the Chief Actuary of the Social Security Administration (“Office of the Chief Actuary”). Here is the Office of the Chief Actuary’s life table. If the table says you only have 15 years left to live, then the promissory note must be for no longer than 15 years. If the promissory note has a term of 25 years, it may be found invalid and likely disqualify you from Medicaid.
Second Element: Equal Payments
Federal law provides that an excludable promissory note must have a repayment schedule of equal amounts during the entire term of the loan, with no deferrals or balloon payments. In other words, you cannot keep the payment low for the first 14.75 years and then have large payments for the last .25 years of the loan. Additionally, you cannot defer payments during the life of the loan because it may then become non-excludable and disqualify you from Medicaid.
Third Element: No Debt Cancellation
This element is likely the most straightforward as you cannot cancel the remaining debt for any reason, or you will be disqualified from Medicaid.
How Promissory Note Payments Are Calculated
A promissory note payment is calculated as income for the Medicaid recipient, so it is essential to consider how that payment impacts your total monthly income. For example, suppose you are a single parent applying for nursing home Medicaid. You cannot exceed $2,523 in total income per month. You could get disqualified for benefits if the promissory note payment brings you above that point each month. To make sure that the promissory note is an effective Medicaid planning tool, contact an experienced Medicaid planning attorney about your situation.
Medicaid Planning Attorney In Indiana
If you’re planning for Medicaid long-term care benefits, contact the Medicaid planning attorneys at Hawkins Elder Law. We can evaluate whether a promissory note is right for you. Contact us today by calling (812) 268-8777 or online for a free consultation.
About The Authors
Jeff R. Hawkins and Jennifer J. Hawkins co-author this blog with Thomas E. Hynes, a lawyer admitted to practice in Pennsylvania, New Jersey and Florida who has a background in estate planning and elder law. Jeff and Jennifer are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers. They are also active members of the Indiana State Bar Association and the Indiana Chapter of the National Academy of Elder Law Attorneys (NAELA). Jeff is also a member of the Illinois NAELA Chapter.
Jeff is a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation. He is also a member of the Illinois State Bar Association and he served as the 2014-15 President of the Indiana State Bar Association.
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