A promissory note is a legal contract between two parties, typically a Medicaid applicant and their loved one, where one party promises to pay a specified amount of money to another party. Much like a Medicaid Compliant Annuity (MCA), the purpose of a promissory note is to eliminate your excess countable assets in exchange for future payments. Once the contract is established and your assets are below the Medicaid limitation, you can qualify for benefits.
While a promissory note may be a viable Medicaid planning product in a handful of states, most states will view it as either a countable asset or a divestment for Medicaid purposes. In these states, an MCA would typically be the better option. Make sure you work with a legal or financial professional to determine whether a promissory note is right for your specific situation.
The main component that separates a promissory note from a Medicaid Compliant Annuity is who the contract is with. An MCA is a contract with an insurance company, while a promissory note is a contract with a loved one. Although this might sound more appealing to some, it also comes with more risk. If your loved one goes through bankruptcy, divorce, or some other adverse financial event, the funds within the promissory note are exposed. Meanwhile, an insurance company is obligated to provide payments every month without fail.
Since promissory notes are only allowed in a handful of states, you’ll want to be sure you can use this product for Medicaid planning in your state.
Although you might think you’d rather entrust your funds to a loved one rather than an insurance carrier, make sure you consider all possibilities. For instance, if your loved one goes through bankruptcy, divorce, or some other unfavorable financial event, your promissory note funds may be at risk.
A promissory note can be risky, so your funds may be better protected if you purchase a Medicaid Compliant Annuity through an insurance company. Learn more about Medicaid Compliant Annuities here.
MAKE SURE YOU SPEAK WITH A QUALIFIED PLANNING PROFESSIONAL TO DETERMINE WHETHER A PROMISSORY NOTE IS RIGHT FOR YOUR SITUATION.