Check with numbers

New Decision Supports the Name on the Check Rule

Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.

 

The “name on the check” rule is the common guideline used by Medicaid in determining who owns income.  If a check is made payable to a particular individual, that individual is considered the owner of the income.  This guideline is most advantageous in cases involving married couples, where the institutionalized spouse owns an IRA.

 

For example, say we have John and Laura.  John enters a nursing home, while Laura continues to live at home.  They place all of their countable resources above the asset limits into a Medicaid Compliant Annuity owned by Laura, so that Laura receives the monthly income.  However, John has a sizable IRA.  If John was to transfer his IRA to Laura it would create a taxable event.  Instead, John opts to annuitize his IRA, and designate Laura as the irrevocable payee.  Under the “name on the check” rule, the income would then be Laura’s, and not considered in John’s eligibility.

 

While this may sound like a perfect solution to a very common problem, it is important to note that the “name on the check” rule’s success can never be guaranteed.  However, a couple in Maryland recently experienced success in a case involving an institutionalized husband’s IRA.

 

The husband, who resides in a long-term care facility, used the funds from his IRA to purchase a Medicaid Compliant Annuity.  His annuity named his community spouse and the state of Maryland as beneficiaries, and named his community spouse as the irrevocable payee.  In initially determining eligibility, the Maryland Department of Health and Mental Hygiene approved the Medicaid application, but considered the Medicaid Compliant Annuity income to be that of the applicant.  The husband appealed.

 

It was determined that under 42 U.S.C. 1396r-5, providing that only the income of the institutionalized spouse is considered in determining eligibility, the annuity income could not be considered in that it was payable to the community spouse.

 

Click here to read the full text of this decision.  The elder law attorney involved was David Wingate of Frederick, Maryland.

 

Click here to read a recent Arkansas decision involving the “name on the check” rule.

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  1. Avatar Leonard Berg says:

    Please explain how the Internal Revenue Code permits the wife to be named as the sole payee of the husband’s qualified annuity without this being a taxable event. Thanks

  2. I can see the result working with a Medicaid annuity, but don’t the IRA rules require that the owner receive the distributions from the IRA? How can they go to the spouse?

    • Avatar Dale Krause says:

      Gabe,

      The IRS has rules pertaining to account ownership; the physical receipt of payment is less of a concern. Furthermore, the insurance company issues the 1099 to the IRA owner; that individual still recognizes the income tax associated to the payments.

  3. Avatar Wayne Philpott says:

    I have used this methodology in Texas a number of times and it worked. I think the main thing that Medicaid wants to see is if it has the four qualities of post DRA annuities and that you have named the state somewhere as beneficiary. An opinion only as to why but it does in fact work.

  4. Avatar Wayne Philpott says:

    I should have included that in my cases, it never became a taxable event on the whole but only the distributions.

  5. Avatar Wes Coulson says:

    Hi, Dale. To your best knowledge, does Illinois still recognize the “name on the check” rule as to an IRA annuity? If so, that could be a good solution on the matter I conferred with you on about 3 or 4 months ago.
    Thanks,
    Wes

  6. Avatar Jeff says:

    Dale, has this strategy ever been tested using an adult child as name on check and not the spouse?

  7. Avatar Evan Farr says:

    Dale — have you had any success using this technique in Virginia?

  8. Avatar Shannon Mulkey says:

    Dale,
    Do you know if this has been used with success in Florida?

    Thanks,
    Shannon

    • Avatar KFS says:

      Good morning Shannon,

      The name on the check rule has been used with success in Florida. If you need any help utilizing this rule, please feel free to contact us at (866) 605-7437

      Thank you for reaching out!

  9. Avatar Patti Standen says:

    Hi Dale,

    Do you know if there has been any success using the “Name on the check” rule in the
    state of Massachusetts? I am working on a case at this time.

    • Avatar KFS says:

      Hello Patti,

      At the moment, we have yet to encounter a case regarding “Name on the Check” in Massachusetts. However, due to our interpretation of the rules, we believe the Name on the Check rule is viable in Massachusetts.

      If you have any other questions, please feel free to call us at (866) 605-7437