If you don’t know what “medicaid estate recovery” is, you should – read about it here.

But to briefly recap – if you are on free healthcare you may be on “Medicaid.” Medicaid is different than “Medicare.”

Medicaid is a Federal program that gives states money to fund free health care plans like Mass Health or Husky D. If you don’t pay for your health insurance, you may be on Medicaid.

If you are on Medicaid, any money you spend over the age of 55 is recoverable by the state when you die.

Meaning, if you do into a nursing home for a few years and rack up a bill of $200k, the state can put a lien on your estate when you die and take your assets to pay them back.

They can take your house, your money, even the handful of vintage nickels in your security deposit box.

Medicaid cannot take anything that is legally not yours, which is why many people put their houses into life estate deeds or trusts to avoid medicaid recovery when they die. This is called “medicaid planning” – planning on how to avoid that Medicaid recovery if you ever have to get on Medicaid.

The biggest point of confusion with clients is that when you plan to avoid Medicaid, you must separate from the assets you want to protect ina legal way. The law is based on reasonableness, and the Medicaid regulations are very strict about actually giving up legal ownership of your assets if you want to avoid recovery.

Essentially, when you put your house in a life estate deed, or in a trust, you are literally giving it away. Same thing with your money, if you put it into a Medicaid trust, you are giving it away to the trust (and then when you die to the beneficiaries listed in the trust).

You’re gifting your things to someone else so that Medicaid can’t come after them because they’re not your assets anymore.

For a house you can still live in the property with a life estate deed. But with money, you must simply give it away to an irrevocable trust and you must not be able to use the money for the rest of your life.

Anyway, lawyers have gotten a little too cute in recent years and started proposing the absurd use of the “promissory note.”

This is essentially a credit agreement you have with a trusted person where you transfer your assets to them in exchange for an amount of money. You issue a promissory note for a specified amount that outlines a payment plan. It’s essentially a loan.

This may be advisable as a last ditch effort to get on Medicaid and avoid a “disqualifying” transfer.

But for people planning for the future prospect of being on medicaid at some point, I would be careful advising a client to use a promissory note.

In Massachusetts, MassHealth regularly rejects promissory notes, especially if they are between family members. Although MassHealth regulations permit promissory notes and include no bar to intrafamily transactions, MassHealth has an unwritten doctrine that transactions between family members are unenforceable.

On appeal, a number of MassHealth applicants have been successful in proving that promissory notes are legitimate planning mechanisms. However, success often hinges on whether there are favorable facts surrounding the transaction.

Given the risk of these notes so easily being considered “sham” transactions.. I wouldn’t recommend them.

If you need an estate planning lawyer, in MA or CT give me a call or email me

(860) 913 0210

dresslerjake@gmail.com