Promissory Notes and MassHealth Planning

Promissory notes are a tool that attorneys have relied on in MassHealth planning. A promissory note is essentially a written promise to pay someone a certain amount of notemoney at a certain time. In this post, I use one of our recent successful appeals of a MassHealth decision to illustrate the regulatory requirements that a promissory note must meet to avoid being deemed a disqualifying transfer. In our case, “Glenda” applied for MassHealth long-term care benefits but was denied because MassHealth determined that a promissory note between Glenda’s husband and her son was a disqualifying transfer.


In March of 2015, Glenda’s husband “Hugo” entered into a promissory note with their son, “Sam.” The promissory note had a principal value of $15,000 with an annual interest rate of 1.47% (the “Note”). The Note provided for 84 consecutive equal monthly payments of $188.03 beginning in April of 2015, with full repayment due in April of 2022, approximately seven years from the issuance date of the Note. In April of 2015, Sam began making monthly payments to Hugo as required by the Note. In June of 2015, Hugo unexpectedly died. After Hugo’s death, Sam continued to make monthly payments to Hugo’s Estate.

Glenda applied for MassHealth benefits in May of 2015. That October, MassHealth denied Glenda’s application because it determined that the Note was a disqualifying transfer.

The Appeal

To successfully appeal MassHealth’s decision, we had to show that the Note met the five requirements outlined in the MassHealth regulations. First, the repayment terms of a promissory note must be actuarially sound, meaning that a note’s terms must show that the loan will be repaid within the Lender’s life expectancy, as determined by the Social Security Actuarial Life Table.

For an 82-year-old male (Hugo’s age at the time of the Note’s execution), the Social Security Actuarial Life Table provided a life expectancy of 7.14 years. Hugo’s transfer of $15,000 to Sam was in exchange for a promissory note that required repayment with interest in about seven years, which was within Hugo’s life expectancy.

Second, the promissory note must require repayment in consecutive equal payments, and there can be no deferrals or balloon payments. In our case, the Note stipulated that repayment must be made in equal monthly installments over the course of about seven years. The Note had no required balloon payments or allowances for deferrals.

Third, the outstanding balance of the promissory note cannot be cancelled upon the Lender’s death. The MassHealth regulations do not require that a promissory note explicitly state that the note’s balance cannot be cancelled upon the Lender’s death. There is a presumption under Massachusetts law that a promissory note balance cannot be cancelled upon death unless the note’s terms expressly permit cancellation. However, given MassHealth’s frequent challenging of promissory notes, it is recommended that promissory notes specify that they cannot be cancelled upon the Lender’s death.

The Note in our case, while not expressly prohibiting cancellation upon the death of the Lender, did not have any language stating that the balance would be cancelled upon the Lender’s death. The Note was later amended to explicitly prohibit cancellation upon the death of the Lender. The amendment to the Note removed any doubt about the cancellation issue by clearly stating that the Note could not be cancelled upon the Lender’s death.

Fourth, a promissory note must have an ascertainable fair-market value. In our case, the transferred asset was cash, making the fair-market value determination relatively simple. In March of 2015, Hugo loaned Sam $15,000; in return, Sam executed a promissory note for $15,000 with a fixed rate of interest of 1.47%, which was the IRS’ applicable federal interest rate for that month. Since the terms of the Note provided for repayment of the original loan amount plus the market interest rate applicable at the time of the transfer, the Note had ascertainable fair-market value.

Fifth and finally, the promissory note must be a valid, enforceable contract. A promissory note is a written contract; by signing a promissory note, the maker promises to pay according to the terms and conditions of the note.

The Note in our case provided the terms, obligations, and conditions under which Sam promised to pay, and it provided enforceable legal rights. The Note set out in detail what would happen upon default and made clear that Sam, as the Borrower, would be responsible for any attorneys’ fees and other costs arising out of any disputes or enforcement actions on the Note. Although the Note stipulated that the parties waived their right to a jury trial, they still had the right to enforce the Note at a bench trial.

Another issue influencing the enforceability analysis in MassHealth matters arises in cases where the parties to a promissory note are relatives. While there is nothing in the MassHealth regulations stating that transactions between relatives are automatically disqualifying transfers, MassHealth has taken a staunch stance against promissory notes between family members. However, Massachusetts courts generally do not hold promissory notes between family members to be, by their very nature, disqualifying transfers. Instead, courts look to other factors, such as the terms of payment within the note and the fair market value of the note.

 The Note in our case was between family members. However, the language of the Note plainly showed that it was enforceable, and there was nothing to indicate that Hugo, and then Hugo’s Estate, would not take action against Sam to enforce it. Sam had been making regular payments on the Note, and he was continuing to do so. The Note did not provide for balloon payments, and the transaction was for fair-market value. The Note’s intra-family nature was of negligible importance since the Note was fully enforceable.


We proved that the Note satisfied the five requirements under the MassHealth regulations and was not a disqualifying transfer for purposes of Glenda’s MassHealth application. The Board of Hearings reversed MassHealth’s decision and approved Glenda’s application.

Although we were successful, it is important to stress that not all promissory notes will meet these requirements. The specific facts of a particular case are critical. And it took a long time to get this win. As previously noted, MassHealth does not take too kindly to promissory notes between family members, and the existence of such is likely to rise to the appeal level.

Promissory notes can be a useful MassHealth planning tool in limited circumstances, but their use often necessitates a lengthy application process. It is always best to consult an attorney before relying on this method.


About Emily Crim

Emily is an associate with Mirick O'Connell's Trusts and Estates Group. She concentrates her practice on estate planning, estate and trust administration, probate litigation, and elder law matters. Prior to joining Mirick O’Connell, Emily was an attorney with the Elder, Health & Disability Unit of Greater Boston Legal Services.
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