The Name-on-the-Check Rule: What Is It and Does Your State Recognize It?

The name-on-the-check rule is a simple concept that offers creative planning opportunities in the right Medicaid case. Lately, we've received a lot of questions about it from attorneys across the country. Some are familiar with the rule and want to know whether their state recognizes it. Others have heard the term but are not entirely sure what it means or how it works in practice.

The rule stems from federal law. Section 1924 of the Social Security Act addresses how income is attributed between an institutionalized spouse and a community spouse. Under 42 U.S.C. § 1396r-5(b)(2)(A)(i), income paid solely in the name of one spouse is treated as available only to that spouse.

In practice, Medicaid planners refer to this as the "name-on-the-check rule." If a payment is made solely in one spouse's name, Medicaid generally attributes that income to the spouse whose name appears on the payment.

The rule comes up when dealing with assets that cannot be retitled between spouses. A common example is an IRA owned by an institutionalized spouse.

In many states, an IRA owned by the institutionalized spouse is considered a countable resource for Medicaid eligibility purposes. An IRA Medicaid-compliant annuity allows qualified funds to be converted into an income stream rather than liquidating the entire account at once. This avoids paying taxes on the entire IRA in a single calendar year.

The IRA Medicaid-compliant annuity is structured so the institutionalized spouse owns the annuity while the community spouse is named as the payee.

Assume John is in a nursing facility and applying for Medicaid. His wife, Nancy, continues to live at home. John owns a traditional IRA.

The annuity could be structured as follows:

• Owner: John

• Annuitant: John

• Payee: Nancy

• Primary Beneficiary: Nancy

• Contingent Beneficiary: State Medicaid Agency to the extent Medicaid benefits are paid on John's behalf

• Tertiary Beneficiary: Children, a trust, charity, or another designated beneficiary

  
  

John still owns the annuity policy, but the payments are directed to Nancy. That's where the name-on-the-check rule comes into play. The result is a countable retirement account being converted into income for the community spouse.

Attorneys also ask what happens if the institutionalized spouse passes away before all annuity payments have been made.

When the community spouse is named as the primary beneficiary, there may still be funds remaining in the policy. Depending on the annuity policy and applicable tax rules, the community spouse may be able to continue receiving payments or elect a lump-sum commuted value and roll those funds into their own IRA.

State Medicaid agencies do not all interpret or apply the rule the same way. The federal statutory language is the same nationwide, but the outcome can be very different depending on where the Medicaid application is being filed.

Over the years, we've seen Medicaid agencies change their position, and we've seen different outcomes on very similar fact patterns. Arkansas, Missouri, and Wisconsin appear to recognize the rule, while states like Pennsylvania and Michigan have produced mixed outcomes. Other states have taken positions against the concept altogether.

The chart above reflects what we've seen around the country, but it should not be viewed as the end of the analysis or the final answer. State Medicaid agencies change their position all the time, and different fact patterns can produce different results. Before relying on the name-on-the-check rule, it's important to understand how the issue is currently being treated in your state.

If you have a case involving an IRA and questions about how your state treats the name-on-the-check rule, we're always happy to talk through the options.