Page 93

value is the fair market value of the income that the property could reasonably be expected to produce multiplied by the person’s life expectancy at the time of the transfer. If an individual rents real property for less than FMV, the uncompensated amount is the difference between the FMV of the rent and the amount of rent being received, based on the person’s life expectancy. Example 1: A 75-year-old recipient in a nursing home owns rental property with an equity value of $50,000 and is receiving $500 a month in rent. This rental amount is consistent with other similar properties in the neighborhood and is therefore considered the fair market value. After subtracting allowable rental expenses, he has $400 rental income in his Medicaid budget. Their legal guardian transfers full title of the property to member. The uncompensated value of the transfer of income is $400 x 110.88 months (9.24 years obtained from the life expectancy tables, $44,352. This is added to the uncompensated value of the property in excess of $6,000 for a total uncompensated value of $88,352. ($44,000 real property plus $44,352 income.).

Example 2:

A 70-year-old Medicaid recipient moves into a nursing home and signs the agreement to put their home up for sale or rent at fair market value. They hire a realtor who assesses the value at $95,000 with a rental value of $800 per month. Two months later, they rent the property to their child for $10 dollars a month. The child will pay the allowable expenses which amount to $150 per month. The uncompensated value is $640 ($800 - $150 - $10) x 184.20 months (15.35 years), $117,888. 2640.10.25.30 LOANS, PROMISSORY NOTES AS TRANSFERS OF ASSETS This provision applies to loans established on and after November 1, 2009. It applies to individuals who loan money directly to another as well as those who may purchase a loan or promissory note that was originally entered into between 2 other people. The likelihood of the latter may be small, however given the concern that many private loans are merely gifts appearing to be loans, it is important to understand the possible transactions that may occur by someone trying to shelter assets to become eligible for Medicaid. All promissory notes should be sent to PAL for review. Whenever an individual has a promissory note, loan agreement, or mortgage as presumed evidence that a transfer of money was not a gift but was made with the expectation of full repayment, the arrangement will be considered an improper transfer unless all the following criteria are met96: • The repayment term is actuarially sound in accordance with the Life Expectancy Table included at the end section 2640.10.25.10 • The agreement provides for payments to be made in equal amounts during the term of the loan, with no deferral of payments and no balloon payments, and