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State of Wisconsin |
HISTORY |
The policy on this page is from a previous version of the handbook.
17.12.1 Promissory Notes Prior to 01/01/09
17.12.2 Promissory Notes on or After 01/01/09
It is divestment if an institutionalized person signs a promissory note prior to January 1, 2009, that has at least one of the following:
A provision that forgives a portion of the principal,
A balloon payment,
Interest payments only, with no principal payments, or
An inadequate interest rate (relative to current market rates) at the time the promissory note was signed.
The purchase of a promissory note, loan or mortgage, on or after January 1, 2009, is a divestment unless such note, loan or mortgage meets all of the following criteria:
Has a repayment term that is actuarially sound (paid out in the individual’s life expectancy). The standards that must be used to decide whether or not a note, loan, or mortgage is actuarially sound are those determined by the Office of the Chief Actuary of the SSA. The standards are found in a table (called the Period Life Table), which can be found on the following SSA Web page: http://www.ssa.gov/OACT/STATS/table4c6.html. Use this table to calculate the individual’s life expectancy as of the date the note, loan, or mortgage agreement was initiated. Determine if the lender was expected to live long enough so that he or she would receive payment in full during his or her lifetime,
Provides for payments to be made in equal amounts during the term of the loan, with no deferral or balloon payments made,
Does not allow cancellation of the note, loan or mortgage upon the death of the lender. Under Wisconsin law, the outstanding loan balance on these types of contracts is not automatically cancelled upon the death of the lender. Cancellation of the loan balance can only occur if the contract contains specific language to this effect. If a note, loan or mortgage contains language to cancel the balance upon the death of the lender, the note, loan or mortgage can be amended to remove this language and avoid a divestment penalty, and
If all of the criteria above are not met, the purchase of the promissory note, loan, or mortgage is a divestment. The divested amount is the value of the outstanding balance due on the note, loan, or mortgage as of the date of application for Medicaid long-term care services.
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Example 1: On February 1, 2009, Mary gave her adult daughter $50,000 in exchange for a promissory note, which was expected to be paid back in full during her life expectancy. The terms of the note required Mary’s daughter to repay the loan within a 48-month period by making payments of $100 per month for the first 47 months and a $45,300 payment in the 48th month. Twelve months later, on February 1, 2010, Mary enters a nursing home and applies for Medicaid. She is otherwise eligible for Medicaid but acknowledges the promissory note transaction that occurred during her look-back period.
Since the terms of the promissory note contained a provision for a balloon payment, the purchase of the promissory note is a divestment. As of the date of Mary’s application for Medicaid long-term care services (February 1, 2010), Mary’s daughter has repaid her mother only $1,200, and the outstanding balance on the note is $48,800. Mary’s divested amount is $48,800 which will be used to calculate a penalty period beginning February 1, 2010. |
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Example 2: John purchased a $60,000 promissory note from his brother Al on April 1, 2009. At that time, John was 80 years old, with a life expectancy of 7.62 years. The terms of the note required equal monthly payments over a 10-year period. Since John’s life expectancy was less than the repayment term, the note is not actuarially sound. Several years later, John enters a nursing home and applies for Medicaid. The outstanding balance on the promissory note on the date of John’s application for Medicaid long-term care services is $40,000. The divested amount that will be used in calculating John’s divestment penalty period is $40,000. |
This page last updated in Release Number: 10-02
Release Date: 06-22-10
Effective Date: 01-01-09
The information concerning the Medicaid program provided in this handbook release is published in accordance with: Titles XI and XIX of the Social Security Act; Parts 430 through 481 of Title 42 of the Code of Federal Regulations; Chapters 46 and 49 of the Wisconsin Statutes; and Chapters HA 3, DHS 2, 10 and 101 through 109 of the Wisconsin Administrative Code.
Notice: The content within this manual is the sole responsibility of the State of Wisconsin's Department of Health Services (DHS). This site will link to sites outside of DHS where appropriate. DHS is in no way responsible for the content of sites outside of DHS.
Publication Number: P-10030