Promissory notes are back!

In 2015, Wisconsin essentially outlawed “promissory notes” that had been in use for years as a Medicaid planning tool. The 2015 law created so many strings on the use of these notes that it was almost impossible to effectively use them as a planning tool. A group of elder law attorneys called the Wisconsin Chapter of the National Academy of Elder Law Attorneys (WI-NAELA) sent a letter to the federal Medicaid agency stating our opinion that the new law was in violation of Federal Medicaid laws. And now…..promissory notes are back! Wisconsin has issued a memo withdrawing the policy that it put in place following the enactment of the law. The law itself has not been rescinded, but the policy has been withdrawn and a new policy is in place allowing promissory notes to be used if specific requirements are met.

What is a promissory note? A promissory note is a tool whereby we can take a sum of money that would otherwise be considered an available asset for Medicaid eligibility, and turn it into an income stream. We do this by loaning the excess funds to a responsible person or persons in return for regular payments over a period of time. A promissory note is also something that could be used to cover the costs of care during a penalty period if a person has divested funds.  The promissory note has to meet certain requirements regarding the interest rate to be used, payout period, and other terms. You should ask an experienced elder law attorney about these requirements.

How does it work? Here is an example:

Bob and Jane are a married couple, and Bob is in a nursing home. He is 80 and Jane is 75. They have $300,000 in liquid assets in savings, checking and CDs.  For Medicaid, their asset limit would be  $120,900 plus $2000. (This is based on spousal impoverishment rules which are explained generally in this post, although the figures have changed a bit.) Right now, they currently have $177,100 more assets than allowable. Assuming they can find something else to spend $100 on, we are working with a figure of $177,000 to do the promissory note. (Their elder law attorney might tell them there are other ways to spend down that would be a better fit, especially if they have debts or a mortgage to pay.)

Assuming they decide to use the promissory note, the note could be structured to make monthly payments to Jane over a period of time no longer than her life expectancy. Using a period of 12 years, and the interest rate that would apply this month, the monthly payments would $1424.02.  Bob would be immediately eligible for Medicaid if this technique were properly used.

How does it help? The advantage is that getting eligible for Medicaid allows a person to buy care at a lower rate. So instead of spending all the excess money paying the private rate to a nursing home, the person pays a lower rate to receive the same care through Medicaid. It may also have the result of protecting additional funds in some cases. It is a relatively quick process to choose this route.

Are there concerns? Yes, there are downsides to using promissory notes, and they might not work well for everyone. First, interest must be paid by the borrowers so they do not get the money for nothing. Second, the monthly payment is an income stream. For a single person, most of this income will need to be paid to the nursing home. For a couple, the additional income may affect whether or not the nursing home spouse can transfer any funds to the spouse living in the community. Third, if there is not someone who is financially stable and reliable to be the borrower, this process will not work. Fourth, if the lender dies before the note is fully paid out, and does not have a surviving spouse or a disabled or minor child, the State will be able to obtain some or all of the funds through Estate Recovery, depending on how much was paid in Medicaid benefits. Even so, because the care costs less per month than paying privately, it may still result in some savings.

There is no one-size-fits all approach for using promissory notes. Factors such as income, age, whether the person is married or not, and the amount of assets to be used will all affect how useful they will be in any individual case.

It is good to have these back in our toolbelt, especially since many elder law attorneys felt the 2015 law was improper. If you would like to see whether this is a good fit for you in Medicaid planning, make sure you reach out to an attorney who is a member of the Wisconsin chapter of NAELA since these things are discussed regularly among attorneys who are members of that group. Both of the attorneys at Wessels Law Office, Attorney Carol Wessels and Attorney Jessica Liebau,  are members of WI-NAELA. You can find NAELA members in your area of the state by going to and using the Find a Lawyer feature.





About Carol J. Wessels

I am an Elder Law Attorney practicing in Wisconsin. I am the owner of Wessels Law Office LLC in Mequon, WI. I handle Medicaid, Long Term Care planning, special needs trusts, guardianship, advance directives, elder abuse and other related issues for elderly and disabled clients and their families. My Mother Velma lived with Alzheimer's for fifteen years until she died on Jan. 24, 2015, which has given me a personal perspective on elder law issues as well.
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