Medicaid Compliant Promissory Notes in Florida: The Rules, the Math and the Risks

Federal law counts money used to buy a promissory note, loan or mortgage as a transferred asset unless the note (42 U.S.C. 1396p(c)(1)(I)):

has a repayment term that is actuarially sound under the Social Security Administration's actuarial publications; provides for payments in equal amounts during the term, with no deferral and no balloon payments; and prohibits cancelling the balance at the lender's death.

Florida's manual adopts the same three tests. It phrases the third as "debt forgiveness is not allowed" (ESS 1640.0609.08). If a note fails, the transfer is valued at the outstanding balance on the date of the long-term care application.

"Actuarially sound" in practice means the term isn't longer than the lender's life expectancy under DCF's table. A woman aged 86 has a factor of 6.26 years, so a 10-year note would fail. A one-year note would generally pass on that test.

Meeting the transfer tests is only half the analysis. DCF also asks whether the note itself is an asset (ESS 1640.0561.03):

Negotiable note: the lender can sell it or convert it to cash, so it's a countable asset at its equity value. Only the interest portion of payments is income. A large negotiable note can keep the parent over the $2,000 limit. Non-negotiable note: it can't be sold, so it isn't an asset. Every payment, principal and interest, is counted as unearned income.

DCF presumes a note is "bona fide and negotiable" unless the evidence shows otherwise. That's why compliant notes are usually drafted with clear non-assignment and non-transfer language.

There's a knock-on effect. If the payments count as income, the parent's monthly income can rise above Florida's $2,982 income cap (DCF Appendix A-9). A Miller trust may then be needed for the parent to be "otherwise eligible." That status is what starts the penalty clock on any gift made alongside the note.

Half-a-loaf planning pairs a gift with a compliant note (or sometimes a compliant annuity). The gift creates a penalty period. Payments on the note, plus the parent's own income, are sized to cover the nursing home bill during that penalty. When the penalty ends, Medicaid can begin, and the gifted amount has stayed in the family.

Two Florida rules make it work:

the penalty is the gift divided by $10,645, with partial months converted to days; the penalty starts only when the person is otherwise eligible, meaning assets at $2,000 or less and income handled (Appendix A-8).

For a married couple, the spouse at home has separate tools, covered in married couples and Medicaid. Half-a-loaf is usually discussed for a single, widowed or divorced applicant.

A widowed mother, 86, enters a nursing home. She has $161,560 in countable savings and $2,200 a month in income. The facility's private rate is $11,500 a month, so the monthly gap above her income is $9,300. For simplicity, the example leaves out interest, taxes, premiums and the personal needs allowance.

Step Amount Gift to her three children $85,160 Penalty: $85,160 ÷ $10,645 8.0 months Loan to the children under a compliant note $74,400 Note terms 8 equal monthly payments of $9,300, no balloon, no forgiveness Term vs. life expectancy (A-14, female, 86) 8 months vs. 6.26 years: sound Kept by the mother $2,000 Income during the penalty $2,200 + $9,300 = $11,500, over the cap, so a QIT is likely needed

She applies right after the gift and the note are in place. If DCF agrees she's otherwise eligible, the eight-month penalty begins then. Each month her income plus the note payment covers the $11,500 bill. When the note is paid off, the penalty ends. Medicaid may then cover her care, subject to her patient responsibility. The children keep the $85,160 gift.

Change any number and the plan changes. If the facility raises its rate, the note payments fall short. In July the divisor may change, and if the application month slips, so does the start of the penalty.

The borrowers must pay, on time, every month. The note can't be forgiven. If a child stops paying, the parent may be unable to pay the facility during the penalty. Life happens to borrowers. A child's divorce, death, bankruptcy or creditor can complicate both the gift and the loan. Death mid-term. If the parent dies before the note is repaid, the balance is generally owed to her estate. That can mean probate and a claim by Florida's Medicaid estate recovery program (Fla. Stat. 409.9101). DCF review. DCF must still agree the note is bona fide, non-negotiable and compliant. It will also review the gift under its rebuttal process (ESS 1640.0616). Taxes. Gifts over $19,000 per recipient in 2026 generally require a federal gift tax return, though tax is rarely due (IRS; Form 709 instructions). Interest on the note is income to the parent. Loans at very low interest can raise imputed-interest questions, which is why many notes reference the IRS's monthly applicable federal rates. Family dynamics. Siblings who receive the gift but not the loan, or the reverse, may feel differently about it later. No guarantee. This is lawful planning under federal and Florida rules, but each piece is reviewed, and outcomes depend on the facts.