North Carolina Medicaid Manual

Execution of Promissory Notes and Deeds of Trust is Transfer for ...

Leola Joyner had been a Medicaid recipient since November 2005. She executed two promissory notes on March 1, 2006, secured by correlating deeds of trust in favor of her son. The first deed reimbursed the son for past expenditures for his mother in the amount of $68,000. The second compensated him for future personal services in the amount of $88,615.80. Together, they fully encumbered Leola's home. In June 2006, Medicaid informed Leola that her Medicaid would be terminated as a result of the notes and deeds; Medicaid took the position that they were uncompensated transfers. She appealed that decision, dying in January 2007, prior to a hearing. Her estate continued the appeal. A hearing took place in July 2008, where the Department's determination was affirmed. After the Commissioner affirmed, the estate appealed to superior court where the decision was reversed; the superior court concluded that execution of the promissory notes and deeds of trust was not a transfer or disposal of any asset. The Department then appealed that decision to the court of appeals. The court of appeals initially found that execution of the deeds of trust was a transfer of legal title since it places the property in the hands of a trustee for the purpose of securing the debt. It then found that it also constitutes a transfer or disposal of assets for purposes of 42 U.S.C. 1396p. Having found a transfer, the Court looked next at consideration; it found that the Medicaid Manual's insistence on a prior written agreement was not dispositive; “merely explains the definitions that currently exist in federal and state statutes, rules” and “...[is] of no effect unless the act or omission in question amounts to a failure to meet the requirements set out in the federal and state statutes and regulations.” Thus, the original finder of fact should have considered whether the first note was supported by adequate consideration and any evidence rebutting presumptions of inadequate consideration. Since it failed to do so, the case was remanded. The court then rejected the argument that the second note was supported by adequate consideration since it “is difficult for us to see how a lump sum advancement for future services could ever actually represent the fair market value of those services.” There are simply too many contingencies to make that determination.

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