21st Century Promissory Notes

by Ira M. Leff, Esq.

February 23, 2010

For many years, Elder Law Attorneys in Georgia used promissory notes as a simple way to convert countable assets into exempt resources. Unfortunately, these rules changed effective October 1, 2006. Under the revised rules, notes are either going to count as resources, or will be treated as transfers.

However, there is one notable exception to this rule. An unsecured note that is: actuarially sound; paid in equal monthly amounts with no prepayment option; and is not cancelable on the death of the lender, is neither a resource nor a transfer. The payments, however, are treated as income to the recipient. MEDICAID MANUAL § 2313. In effect, these rules describe a private annuity which is an alternative to using an insurance company to convert excess assets into income.

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