In 2024, the average daily cost for a shared room in a Muskegon nursing home was $352, and that figure continues to rise. For many families, Medicaid is the only way to afford these long-term care expenses. But qualifying for Medicaid isn’t simple. The health care program has strict income and asset limits, and if you have too much in savings, you won’t qualify for assistance until you’ve spent most of it.
- How the Classic “Half-a-Loaf” Promissory Note Works
- Risks, Alternatives, and When the Strategy Still Makes Sense
- Protect Your Assets—Schedule a Medicaid Planning Review with Bowen Hoogstra Law
That’s why many seniors and their families explore asset-transfer strategies to qualify for Medicaid without losing everything. One of those strategies is the Half-a-Loaf promissory note. It’s a legal planning tool used to preserve a portion of savings while still securing Medicaid eligibility. But is it still viable in 2025?
Let our local Muskegon attorney discuss how the Half-a-Loaf promissory note approach works and whether it still has a place in your Medicaid planning strategy.
How the Classic “Half-a-Loaf” Promissory Note Works
Medicaid, a joint federal and state program, provides healthcare coverage to millions of Americans, including those who need extensive long-term care services in nursing homes or through home and community-based programs. To prevent people from giving away all their assets just before applying to qualify for benefits, Medicaid imposes a 60-month look-back period. That means when you apply for long-term care Medicaid, the state reviews all your financial transactions, including gifts and transfers of assets for less than fair market value, that occurred in the 60 months immediately preceding your application date.
If you made certain uncompensated transfers during the look-back period, Medicaid imposes a penalty, a waiting period during which Medicaid won’t pay for your care. The penalty period is determined using a simple formula—take the total value of the uncompensated transfer and divide it by the average monthly cost of nursing home care, also known as the penalty divisor. As of 2025, the penalty divisor for Michigan is $11,842 per month. Note that the penalty period does not begin until you are otherwise eligible for Medicaid, meaning your assets are within the prescribed limits and you have applied for benefits.
Half-a-Loaf Medicaid Promissory Note Strategy
The term “Half-a-Loaf” comes from the idea that it’s better to save half your assets than lose them all. The Half-a-Loaf Medicaid promissory note strategy is designed to mitigate the impact of the look-back period and preserve a portion of your assets. It’s often employed when someone needs nursing home care relatively soon and hasn’t done prior long-term care planning. Here’s how it works:
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- You gift one-half of your excess countable liquid assets to your chosen heirs, typically adult children.
- You loan the other half to a trusted person through a Deficit Reduction Act (DRA)-compliant promissory note.
The gifting of the first half of your assets triggers the penalty period. However, because the loan portion is considered a recoverable asset, it doesn’t count toward the initial gift calculation for the penalty. The monthly repayments you receive from the promissory note are designed to cover your nursing home expenses during the penalty period incurred.
Essentially, you’re using your own money, returned through the loan payments, to pay for your care until you become eligible for Medicaid. The goal is for the loan repayments to last exactly as long as the penalty period. Once the penalty period ends, you can then apply and qualify for Medicaid benefits, while your heir already has the gifted half of your assets.
Risks, Alternatives, and When the Strategy Still Makes Sense
The Half-a-Loaf Medicaid promissory note strategy can be effective in the right situation, but it’s not without its risks. The promissory note is designed to provide you with an income stream to cover nursing home costs during the Medicaid penalty period. However, if you, the applicant, pass away before the promissory note is fully repaid, the remaining balance of the loan becomes an asset of your estate.
In Michigan, Medicaid has an Estate Recovery Program that allows the state to seek repayment for Medicaid benefits paid on behalf of certain recipients. Estate recovery applies to assets that go through the probate process. Since a Medicaid-compliant promissory note is an asset that would be part of your estate after your death, the state could potentially file a claim against your estate to recover those outstanding funds and reimburse Medicaid expenses.
Furthermore, if the note isn’t drafted with strict compliance, such as having equal payments, no balloon payments, or a reasonable interest rate, Medicaid might deem it a non-compliant transfer, causing the entire amount to be penalized as a gift. That’s why you should never attempt the strategy without working closely with competent Muskegon attorneys who understand both Medicaid rules and the realities of elderly estate planning.
Alternatives to Promissory Notes
Given the potential risks associated with promissory notes, it’s worth exploring other Medicaid planning strategies that might be more suitable for your specific circumstances.
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- Medicaid-Compliant Annuities
Similar to a promissory note, a Medicaid-compliant annuity converts your countable assets into a steady income stream. However, instead of lending money, you purchase an immediate annuity from an insurance company. These annuities must be irrevocable, non-transferable, and name the state as a beneficiary in case you pass away early.
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- Caregiver Agreements
If a family member has been providing substantial care to you, a caregiver agreement enables you to compensate them legally for past or future services. Medicaid permits it as long as the agreement is in writing and the payments are reasonable and fair. It’s a way to transfer value to a loved one without triggering a penalty.
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- Lady Bird Deeds
A Lady Bird deed allows you to transfer real estate to a beneficiary while retaining an enhanced life estate, meaning you have the right to live in, use, sell, or mortgage the property during your lifetime without the consent of the beneficiary. The property passes outside of probate and avoids Medicaid estate recovery if drafted correctly.
Even with these alternatives, the Half-a-Loaf Medicaid promissory note approach can still be a viable and beneficial option in specific situations. The success of a promissory note heavily relies on the borrower making consistent and timely payments. If you have a highly trustworthy adult child or other family member, for instance, who is financially responsible and committed to fulfilling the terms of the note, the strategy can work well, and the funds remain in the family.
The Half-a-Loaf Medicaid promissory note strategy requires careful planning, compliance with Medicaid rules, and full awareness of the risks. It’s not a one-size-fits-all solution, and it’s definitely not something you should attempt without expert guidance. A seasoned Muskegon attorney can help you weigh the pros and cons of each option and build a custom plan around your goals and financial situation.
Protect Your Assets—Schedule a Medicaid Planning Review with Bowen Hoogstra Law
If you’re facing a Medicaid crisis or simply want to prepare ahead, Bowen Hoogstra Law can guide you through all your options. Our experienced Muskegon attorneys are here to help you protect your assets and find the best path to Medicaid eligibility. We offer flat-fee eligibility audits, draft DRA-compliant promissory notes, and provide assistance with Medicaid application preparation. Contact us today at (231) 726-4484 or here to schedule a consultation. Let’s help you make informed choices and keep more of what you’ve worked hard to save.