Loans to Children and Promissory Notes: What Florida Medicaid Actually Requires

Vivian's Check: Why a Family Loan Needs More Than Trust

Vivian is a composite I'm using to illustrate a pattern I see often in my Tallahassee practice, not an actual client. In 2023, at 84, she wrote her son a $50,000 check so he could put money down on a house. There was no note, no interest rate, no repayment schedule. Just a mother helping her son, the way families do.

Three years later, Vivian's health has declined and her family is looking at long-term care Medicaid. That $50,000 check, sitting in her bank records from inside the 60-month lookback window, is now a problem. Not because anyone did anything wrong, but because Florida's Medicaid program does not take a family's word for what a transfer meant. It looks at documents.

In my practice, I tell families that the difference between a loan and a gift, in Medicaid's eyes, is not what the parent intended in her heart. It is what was written down at the time the money changed hands.

What the Deficit Reduction Act Requires for a Loan to Count as a Loan

The Deficit Reduction Act of 2005 added a federal rule, now codified at 42 U.S.C. § 1396p(c)(1)(I), that governs how states treat promissory notes, loans, and private mortgages when someone applies for long-term care Medicaid. For a loan to a family member to be respected as a loan, rather than treated as a disguised gift, it generally must meet three conditions:

• Actuarially sound term. The repayment period cannot exceed the lender's life expectancy, as measured by life expectancy tables the Social Security Administration's actuaries publish. A note that assumes the lender will live to 100 when she is 84 will not qualify.
• Equal payments, no deferral or balloon. Repayment must occur in level installments over the life of the note, starting close to when the loan is made. You cannot structure a note so the child pays nothing for years and then makes one large payment at the end.
• No cancellation at death. The note cannot say that any remaining balance is forgiven if the lender dies before the term is up. If she dies early, the balance becomes part of her estate and the child keeps paying.

These three requirements are not guidelines or best practices. They are the line between an exempt transaction and a transfer the Department of Children and Families counts as a gift. Miss any one of them, and the loan can be treated as if the money were simply given away, or the unpaid note balance itself can be counted as a resource Vivian still owns.

How DCF Treats an Undocumented Loan Like Vivian's

When the Department of Children and Families reviews an application through the ACCESS system, it looks at bank statements and asset transfers going back 60 months. A $50,000 check to an adult child, with no note, no interest terms, and no repayment history, does not look like a loan on paper. It looks like a gift.

If DCF treats it that way, the full $50,000 becomes an uncompensated transfer. Florida calculates the resulting penalty period by dividing the transferred amount by the state's current average monthly cost of nursing home care (a divisor the state updates periodically). That calculation can produce a period of ineligibility for Medicaid-funded nursing home care lasting months, even though Vivian no longer has the money and genuinely needs help paying for care now.

Can Vivian Fix This Now? What Can and Cannot Be Repaired

This is the part families most want to hear, and the honest answer has two sides.

What can sometimes be fixed: If the loan is still being repaid, or repayment can still begin, it may be possible to paper the arrangement now with a formal promissory note going forward, document partial payments already made, and show a consistent, documented pattern of repayment from that point on. A partial return of funds, properly documented, can also reduce the amount treated as an uncompensated transfer. The sooner this is addressed relative to when Medicaid eligibility is actually needed, the more options tend to exist.

What generally cannot be fixed: A note cannot be backdated to 2023 in a way that accurately reflects actuarial soundness calculated from that date, because the math depends on Vivian's life expectancy at the time the loan was made versus now. DCF and the Office of Appeal Hearings have seen backdated documents before, and a note that does not match the real transaction history invites more scrutiny, not less. Nor can a transfer that was genuinely intended as a gift (an early inheritance, essentially) be relabeled as a loan after the fact simply to avoid a penalty.

This is exactly the kind of fact pattern where I'd want a family to sit down with an elder law attorney and an application specialist before filing anything through ACCESS, so the record reflects what actually happened and the available remedies are used correctly.

The Loan vs. the Early Inheritance: A Distinction That Matters

Many families use language like loan when what they really mean is an advance on inheritance. That is an entirely legitimate thing for a parent to do, but it is a gift, not a loan, and Medicaid will treat it as one. The two are not interchangeable once a Medicaid application is on the table.

A true loan contemplates repayment, with interest, on a defined schedule, regardless of what happens later in the parent's estate plan. An advance on inheritance contemplates no repayment at all; it simply reduces what that child receives later. Confusing the two, or trying to convert one into the other after the fact, is where many informal family arrangements run into trouble. If Vivian's son never intended to pay the money back, calling it a loan now does not change its character for Medicaid purposes.

Repayment as Income: The Tradeoff Families Often Miss

Even a properly structured note creates a new issue to manage. When the child makes a loan payment, that payment counts as income to Vivian in the month she receives it. For a Medicaid recipient who also must direct income through a Qualified Income Trust (because her income exceeds Florida's income cap), an incoming loan repayment can complicate that income budgeting.

A note built to convert a countable asset into an income stream has to be sized so the resulting monthly payments do not push total income in a way that undermines eligibility or creates unexpected administrative headaches with the Agency for Health Care Administration or the Aging and Disability Resource Center handling her waiver services. This is a math problem as much as a legal one, and it is worth running the numbers before, not after, a note is signed.

Sources

• 42 U.S.C. § 1396p(c)(1)(I), federal Medicaid transfer-of-assets statute (Deficit Reduction Act of 2005, Section 6016(c))
• Centers for Medicare & Medicaid Services, enclosure guidance on DRA Sections 6011 and 6016, 2006
• Family First Firm, "What Is a Medicaid Transfer Penalty? An Experienced Florida Medicaid Lawyer Explains," 2025
• Elder Needs Law, "Can I Gift or Give Away Assets if I Am on Medicaid or Want to Apply for Medicaid" (Florida), 2026
• Dorcey Law Firm, "Understanding Medicaid Look-Back Periods in Florida," September 2025

This article is for general informational purposes only and does not constitute legal advice, nor does reading it create an attorney-client relationship. Florida estate, elder, probate, and real estate law are fact-specific and change over time. Consult a licensed Florida attorney about your individual circumstances. Arthur Simpson, Esq. is licensed to practice law in the State of Florida. Attorney advertising.