Medicaid-Compliant Promissory Notes: A Smart Tool for Florida Families Planning for Long-Term Care
If you've been looking into ways to pay for long-term care without spending down every dollar your family has worked for, there's a tool worth knowing about: the Medicaid-compliant promissory note. It's one of the more underused strategies in Florida elder law planning, but for the right family, it can make a real difference.
What Is a Medicaid-Compliant Promissory Note?
At its core, a promissory note is a loan agreement between two people. In the Medicaid planning world, that usually means the Medicaid applicant (or their spouse) lends money to a trusted family member, most often an adult child.
Here's how it typically plays out: let's say Mom needs care and Daughter is healthy, responsible, and closely involved in Mom's life. Mom becomes the lender. Daughter becomes the borrower. Mom transfers a lump sum, say $100,000 or $200,000, to Daughter in exchange for a signed promissory note. Daughter then repays Mom in equal monthly installments, either over the term of the loan or Mom's life expectancy, whichever is shorter.
The Three Rules That Make It Medicaid Compliant
Not just any loan between family members will satisfy Florida Medicaid rules. To count as a proper planning tool rather than a disqualifying gift, the note has to meet three requirements:
Actuarially sound. The repayment term can't exceed the lender's life expectancy. A 50-year payback plan for someone in their eighties won't hold up.
Level payments. The note has to pay back in equal monthly amounts for its full term. An interest-only note with a balloon payment at the end doesn't meet the standard.
Irrevocable. Once signed, the note can't be canceled just because circumstances change. This one detail is exactly why this strategy isn't the right fit for every situation, more on that below.
When these three conditions are met, the lump sum transferred to the borrower is no longer a countable asset for Medicaid purposes, while the lender begins receiving structured monthly repayments instead.
Why We Don't Usually Recommend This for Nursing Home Care
Because the note can't be undone once it's signed, it works best when the Medicaid recipient's care needs are stable and expected to continue for a while, think home care or assisted living, not a nursing facility.
Here's why: the monthly payments coming back to Mom count as income. In an assisted living or home care setting, that additional income might mean turning to a Miller Trust (also called a qualified income trust) to stay within Florida's income limits. But in a nursing home setting, that same monthly income becomes part of the patient's cost-share obligation to the facility. Since the note can't be canceled once care needs change, a family could end up locked into payments that no longer serve their situation. That's why we generally steer away from this strategy once nursing home placement becomes likely.
How This Compares to a Personal Services Contract
Many Florida elder law attorneys, ourselves included, also use personal services contracts as a planning option. The two strategies look similar on the surface: a lump sum moves from parent to child. The difference comes down to taxes.
With a personal services contract, the money paid to the child is treated as income, and the child pays tax on it. With a promissory note, the lump sum is a loan, not income, so the child doesn't owe income tax on the amount received. The parent will owe a small amount of tax on the interest portion of the repayments (every valid note needs some interest rate attached), but that amount is typically modest.
Who This Strategy Is Built For
Married couples in a first marriage where the healthy spouse isn't expected to need care soon, and the family wants to protect savings above Florida's Community Spouse Resource Allowance.
Single individuals expected to stay in an assisted living facility or receive care at home for the foreseeable future.
Families with a trusted adult child who has solid finances and won't be facing a divorce or other complications that could put the funds at risk.
Medicaid planning is never one-size-fits-all, and a promissory note is rarely used alone. In our practice, we layer strategies together (perhaps a note alongside a Miller Trust, or paired with other planning tools) to protect as much as possible while keeping your family qualified for benefits.
Want a deeper look at how Medicaid planning works in Florida? Jason Neufeld's book, Medicaid Secrets: How to Protect Your Family's Home and Savings from Long-Term Care Costs, walks Florida families through the strategies available to them. Find it on Amazon: https://www.amazon.com/Medicaid-some-your-long-term-expenses/dp/1513634712
Every Family's Situation Is Different
If you or someone you love in Florida needs help paying for care at home or in a facility, without a five-year wait, without losing the house, and without spending down everything first, let's talk about what's possible for your family. Schedule a consultation at elderneedslaw.com or medicaidplanninglawyer.com.
