IM-82 May 20, 2019; IM-98 December 3, 2012; IM-98 September 28, 2007
Take the following steps to establish if ‘Fair and Valuable Consideration’ was received for the assets:
- Fair Market Value (FMV) is an estimate of the prevailing price if sold on the open market.
- Fair and valuable consideration may be determined by calculating the FMV of real property as determined by the Assessor in the county in which the property is located, divided by the applicable percentage; for (residential – 19%, agricultural – 12%, or commercial – 32%) – compared to the cash or note received at the time of the transfer.
If current FMV of property cannot be obtained and/or agreed upon using this method, make a determination based on all available facts the applicant or recipient can furnish, together with all information the FSD staff can obtain. Take into account the purchase price and year of purchase, depreciation and state of repair, insurance valuation, appraisals made for the purpose of obtaining loans or mortgages, and known sales prices of similar property in the community.
- Determine the market value of assets minus any debts or liens that encumber the property’s value at the time of the transfer. Determine the amount of money or the value of other consideration (promise to pay, promissory note, etc.) received in exchange for the assets.
NOTE: This includes the value of a life estate withheld by the applicant/participant if real assets are transferred. Refer to the Carlisle Table Appendix A – Determination of the Value of a Life Estate or Dower Interest to determine the value of a life estate.
The applicant/participant must explain and provide documentation of the expenditure and disposition of funds received from the transfer to verify it is not an available resource to the applicant/participant.
- Compare the two amounts to determine whether a reasonable amount was received by the participant. ‘Reasonable amount’ does not mean the amount received must equal the appraised value. If in question, staff must consult with a supervisor to determine what is reasonable. If the amount is approximately the same, it is determined fair value was received.
Bona Fide Loans
If the participant states the transfer of cash or securities was repayment of a loan, evidence must be obtained with respect to the existence of a bona fide loan agreement. The burden of proof of the bona fide nature of the loan is with the participant.
A loan is bona fide if it meets criteria listed in IM Section 1040.015.10.05 Consideration of Certain Contracts.
If the documentation verifies the participant is/was repaying a bona fide loan, it does not affect eligibility on the factor of improper transfer of assets. If the documentation does not indicate the loan was bona fide, it will be considered an improper transfer of assets or transfer without fair and valuable consideration.
Transfer of Assets Policy for Promissory Notes, Loans, or Mortgages
The Deficit Reduction Act of 2005 Section 6016 (c) amended Section 1917(c)(1) of the Social Security Act 42 USC §1396p(c)(1)(i) effective February 8, 2006, adding additional rules related to the purchase of promissory notes, loans, or mortgages for individuals receiving MO HealthNet vendor level of care and HCB services. Policy located in sections 1040.000.00 Transfers of Property, 1040.005.00 Legal Basis, and 1040.010.00 General Provisions applies to transfers that occurred prior to February 8, 2006.
Steps to consider:
- Is the Note assignable?
- What parties are involved?
- What property? Has it already exchanged hands? Was it cash?
It is an improper transfer if an institutionalized person creates a promissory note prior to February 8, 2006, that has at least one of the following:
- A provision that forgives a portion of the principal
- A balloon payment
- Interest payments only, with no principal payments, or
- An inadequate interest rate (relative to current market rates) at the time the promissory note was created
Any funds (cash) used to purchase a promissory note, loan or mortgage on/or after February 8, 2006, shall result in a transfer of assets penalty unless all of the following criteria are met:
- The repayment term period must be actuarially sound
- Payments must be made in equal amounts during the term of the loan and with no deferral of payments, early payoff, or balloon payments; and
- Promissory notes, loans, or mortgages must prohibit the cancellation of the balance upon death of the lender
If the note does not meet the “safe harbor” (three requirements) listed above, consider the amount transferred at the time the agreement was created.
- If the note is unassignable (non-negotiable) it has no market value, and the transfer penalty is calculated based on the amount of cash given on the date the note was created minus payments received as of the date of the application.
- If the note is assignable (negotiable), or does not mention assignability/transferability, it can be sold but may still have no market value unless it is backed by a bank or other financial institution, or is bona fide.
NOTE: Assume there will be a transfer penalty for the amount of the balance owed unless the note is assignable and evidence is provided the market value is enough to avoid a penalty.
If staff is unable to determine eligibility using the steps provided; staff may send contracts for a Request for Interpretation of Policy through the proper supervisory channels for Income Maintenance programs. Program and Policy staff will review to determine if the Promise to Pay, Promissory Note, or Property Agreement is to be considered as income, a resource, and/or if a transfer of property has occurred without receiving fair and valuable consideration.
Personal Care Contracts
If the applicant/participant states the transfer of real estate, personal property, cash or securities made after August 28, 2007, was for personal care, the following conditions must be met:
- There is a written agreement between the individual or individuals providing services and the individual receiving care that specifies the type, frequency, and duration of the services to be provided. It must be signed and dated on or before the date the services began;
- The services do not duplicate those which another party is being paid to provide;
- The individual receiving the services has a documented need for the personal care services provided;
- The services are essential to avoid institutionalization of the individual receiving benefit of the services;
- Compensation for the services shall be made at the time services are performed or within two months of the provision of the services; and
- The fair market value of the services provided prior to the month of institutionalization is equal to the fair market value of the assets exchanged for the services.
NOTE: The fair market value for services provided shall be based on the current rate paid to providers of such services in the county of residence.
A Personal Care Contract is to render services to help keep individuals from becoming institutionalized. When considering whether fair and valuable consideration was received, staff must determine the value of the services provided prior to the date the participant entered the nursing facility, and that they are equal to the fair market value of the assets exchanged for the services.
A personal care contract not meeting the conditions stated above is considered to be a transfer of assets without receiving fair and valuable consideration and is subject to a penalty.
If there is any question of whether or not fair and valuable consideration for the assets was received in exchange for the personal care contract, a Request for Interpretation of Policy and a summary of the situation must be sent to State Office Program and Policy Unit through the proper supervisory channels for Income Maintenance programs. Provide specific case details along with a copy of documentation of the asset transfer and personal care contract.
EXAMPLE 1: Ellen Red enters a nursing facility on July 25, 2007. On September 01, 2007, Mrs. Red’s daughter, Sara, enters into a Personal Care Contract with Mrs. Red. The contract states that Sara will prepare nutritious meals, clean Mrs. Red’s house and do her laundry; assist with grooming, bathing, dressing and personal shopping. Sara will also arrange for social outings for Mrs. Red and visit her weekly. Duties also include monitoring Mrs. Red’s physical and mental condition and carrying out the instructions and directives of her attending physicians. Sara has the responsibility of interacting with any healthcare provider, long-term care facility administrator, social services, insurance companies and government workers in order to protect Mrs. Red’s rights, benefits and assets.
On December 6, 2007, Sara, the Care Provider, filed the contract as well as a petition for expenses with Probate Court. The same day the court awarded a payment of $12,000.00 to Sara as the conservator under the contract. Sara came to the local Family Support Office and applied for Medical Assistance Vendor Benefits for Mrs. Red on December 16, 2007. An application was submitted along with a copy of the check for $12,000.00 dated December 14, 2007, and a copy of the Personal Care Contract.
In this situation, the transfer of funds does not meet the conditions of fair and valuable consideration. Services rendered must be essential to avoid institutionalization of the individual receiving benefit of the services. Sara’s services began September 01, 2007; this is after Mrs. Red’s admission date of July 25, 2007. In addition, compensation for services must be made at the time services are performed or within two months of the provision of services. Sara did not petition the court until December 2007 for the payment of services. Sara received payment for services provided on December 14, 2007. Payment of Sara’s services does not fall in the time frame of when services were rendered or within two months following. Therefore, the entire $12,000.00 is considered a transfer of assets without receiving fair and valuable consideration.
EXAMPLE 2: Mr. Archie and his daughter, Millie, sign a Personal Care Contract on September 1, 2007, and $20,000.00 is transferred to Millie on November 1, 2007, for services rendered to Mr. Archie beginning September 1, 2007. In the written agreement Millie’s duties and type of services are listed along with the frequency and duration of those services. There is a statement provided from Mr. Archie’s physician verifying his need for the services. Mr. Archie entered a nursing facility on October 14, 2007, and applied for Medical Assistance Vendor Benefits on November 2, 2007.
A Personal Care Contract is to render services to help keep individuals from becoming institutionalized. When considering whether fair and valuable consideration was received in exchange for the assets transferred the eligibility specialist must look at the value of the services provided to Mr. Archie prior to the date he entered the nursing care facility to determine how much of the $20,000.00 will be considered fair and valuable consideration and how much will be considered a transfer of assets. The eligibility specialist must determine if the services provided to Mr. Archie prior to entering the nursing facility are equal to the fair market value of the assets exchanged for the services. In Mr. Archie’s county, the current rate paid to providers for such care is $75.00 per day. Millie took care of Mr. Archie from September 1st through October 13, 2007, which is 43 days. 43 days of care x $75.00 (current rate paid to providers of such services in Mr. Archie’s county of residence) = $3225.00 fair and valuable consideration to Millie. The total value of the assets transferred to Millie was $20,000.00. Therefore, $16,775.00 ($20,000- $3,225.00) is considered as a transfer of assets without fair and valuable consideration.
Purchase of a Life Estate
A life estate is created when a property holder transfers ownership of the property to someone else and retains the right to live on the property and receive the income from it. The new owner of the property is referred to as the remainder person. The purchase of a life estate results in a transfer of asset penalty unless:
- Payment for the life estate is at or near the fair market value of the life estate as calculated in accordance with the Carlisle Table in Appendix A – Determination of the Value of a Life Estate or Dower Interest.
If payment exceeds the fair market value the difference between the amount paid and the fair market value is treated as a transfer of assets.
In addition to the requirement that the payment for a life estate be at or near the fair market value, the purchase of a life estate in another individuals’ home occurring on or after February 8, 2006, results in a transfer of assets penalty unless:
- The individual purchasing a life estate in another individuals’ home resides there for a period of at least one year following the date of purchase.
If the individual does not reside there for at least one year following the date of purchase the entire amount used to purchase the life estate is treated as a transfer of assets.
EXAMPLE: Mr. Webster is 72 and lives in his son’s home. Mr. Webster purchases a life estate in his son’s home for $39,000.00 on December 17, 2006. The value of his son’s home is $120,000.00. Using the Carlisle Table the value of the life estate is: $120,000.00 x 6%= $7200.00 x 5.424= $39,052.80. The life estate was purchased at or near fair market value. Mr. Webster enters a nursing facility on January 21, 2007. Mr. Webster purchased the life estate on or after February 8, 2006 and did not reside on the property for at least one year following the purchase of the life estate. Therefore, the entire purchase amount is considered a transfer of assets without fair and valuable consideration. $39,000.00 is used to determine the penalty period.