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MEDICAID COMPLIANT PROMISSORY NOTE
Using a short-term Medicaid compliant promissory note can usually protect 100% of a couple’s assets that would otherwise need to be spent down for the spouse in the nursing home to get Medicaid long-term care coverage. When one spouse in a couple enters a nursing home, they often need Medicaid long-term care benefits.
The Medicaid program allows the well spouse (“community spouse”) to keep a portion of the couple’s countable assets (“CSRA”). The CSRA is determined by adding all the couple’s countable assets together on the first day of continuous long-term care (“snapshot date”) and dividing the result by two. This is where the common misconception that a community spouse gets to keep 50% of the couple’s assets. It can be 50%, but it could also easily be 100% of 10%. There is a minimum and maximum range for CSRA; the range is $24,720 – $123,600 for 2018.
If the couple has $300,000 in countable assets on the snapshot date they would get the full CSRA of $123,600; without planning, they would need to spend down $176,400 before getting Medicaid benefits, or roughly two years in the nursing home. With a Medicaid compliant promissory note, we can protect the entire $176,400.
The way this type of planning works is that Medicaid only looks at a couple’s joint assets for the first month of Medicaid eligibility; after the first month, MDHHS does not count a community spouse’s assets when determining the nursing home spouse’s continuing Medicaid coverage. That means, after the first month, the community spouse could win the lottery and not have any effect on the other spouse’s Medicaid coverage. We must also be aware of the rule that states there is not divestment penalty for transferring assets from one spouse to another.
When we enact this type of plan, we would put all the excess countable assets ($176,400 in this example) in the name of the community spouse. We would then give $176,400 to the couple’s children and draft a Medicaid compliant promissory note that requires the children to pay it back over a short-term period (usually 3-6 months). The first payment is scheduled for the month after Medicaid coverage is obtained, and because the assets were all in the community spouse’s name, the payment comes to the community spouse alone. This allows the excess countable assets to become non-countable for the minimum amount of time required. When the all the payments are made, the community spouse will be holding 100% of the couple’s assets, and the nursing home spouse will have ongoing Medicaid long-term care coverage.
Medicaid compliant promissory notes are a powerful tool to protect a couple’s assets from a Medicaid spend-down. It is relatively simple, conducted over a short period of time, and often 100% effective for protecting excess countable assets. I will summarize the planning below:
1. The nursing home spouse give all the marital assets to the community spouse;
2. The community spouse gives the excess countable assets to the children;
3. The children enter into a Medicaid compliant promissory note;
4. We apply for and obtain Medicaid long-term care coverage for the nursing home spouse;
5. The children make 3-6 monthly payments to return 100% of the borrowed funds to the community spouse; and
6. All the assets are protected, and the nursing home spouse has ongoing Medicaid long-term care coverage.
If you live in northern Michigan, are facing long-term care expenses, and would like to speak to one of our Medicaid planning attorneys, please contact us for a free consultation.