In many states, executing a promissory note is a viable and attractive strategy when engaging in Medicaid-eligibility planning. This strategy is usually used in a crisis planning case, where the applicant needs to qualify for long-term Medicaid benefits soon.

This is how it works: A promissory note is executed between the Medicaid applicant and another party, usually a friend or family member of the applicant. There is also a gift and this transfer creates a penalty period, whereas the applicant will not be eligible for benefits for a certain amount of time. The income from the promissory note helps to pay the cost of care during the penalty period. The gifted portion of the transferred funds is protected and does not have to be paid towards the applicant’s cost of care. But can the promissory note be construed as a trust-like device under applicable rules? And what makes such transaction bona fide? These issues were recently litigated in the United States Court of Appeals for the Tenth Circuit.

Elder Docx™ offers many amazing documents to draft, but today we are going to focus on the Medicaid Asset Protection Letter (MAPL). Let’s explore this long-term care planning document and its amazing capabilities.

The MAPL is a planning letter. You would use it after being hired to set out the roadmap for the client’s case in order to get the client qualified for Medicaid. The MAPL lists the client’s income and assets and then details strategies for dealing with excess income or assets. For example, if you are planning in an income cap state and the client has too much income, the letter may suggest using a Miller Trust. If a client has $100,000 in excess assets, then you can select the planning strategies to deal with the excess assets and get the client qualified for Medicaid. You may suggest using a Medicaid Asset Protection Trust, buying an exempt asset, or more. There are about 23 strategies that you can select from, or you can formulate your own strategy!

A power of appointment is a provision that gives a person, the powerholder, the opportunity to change the ultimate beneficiary of the property subject to the power. Retaining a power of appointment can provide flexibility for future planning and can also provide taxation benefits, such as including the property in the powerholder’s estate.

A general power of appointment, per 26 U.S. Code § 2041(b)(1), “means a power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate.” A limited power of appointment limits to whom the property can be appointed. While a general power of appointment is not advisable when planning using a Medicaid Asset Protection Trust, a limited power of appointment is acceptable in many jurisdictions. But what if the limited power of appointment allows property to be appointed to a non-profit organization and the Medicaid recipient is receiving care at a non-profit facility?

This issue was recently litigated in Massachusetts.