For Medicaid planning purposes, income is attributed to the person whose “name is on the check”. If two names are on the check, income will be allocated equally. In a married couple case, where one spouse is applying for Medicaid (institutionalized spouse (IS)/Medicaid applicant) and one spouse resides at home (the well/community spouse (CS)), the community spouse may have unlimited monthly income without having to contribute towards the IS’ cost of care[1]. If the CS does not have enough of his/her own monthly income to meet his/her Monthly Maintenance Needs Allowance (“MMNA”), he/she receives a portion of the IS’ income. Any income the IS has left after shifting to the CS goes towards the IS cost of care.
Name on the check rule can be very advantageous when the institutionalized spouse owns an IRA or other qualified retirement account that is considered to be a countable resource for Medicaid planning purposes. Currently 40 states consider an IRA or qualified account owned by the institutionalized spouse to be a countable resource. In order to convert the retirement account from a countable resource into a non-countable resource, we can transfer the IS’ qualified retirement account into an IRA Medicaid Compliant Annuity owned by the IS. For example, if John and Nancy are married, John resides in a nursing home and owns an IRA, we would transfer his qualified account to a MCA owned by John. The MCA will generate additional monthly income that is considered to be income belonging to the IS, unless we name the community spouse as the payee. Therefore, instead of the MCA income belonging to the IS, we can instruct the insurance company to name the community spouse as the payee of the MCA. Assuming the State Medicaid agency honors the MCA income to belong to the CS, we have successfully converted a countable resource owned by the IS into an income stream that benefits the CS.
For Medicaid planning purposes, the name on the check rule can be found in 42 U.S.C. 1396r-5. It’s important to realize that name on the check rule is not an IRS rule and will not be found in any IRS regulations.
[1] Currently, Illinois and New York are the only two states that may require the CS to use a portion of his/her monthly income to assist with the IS’ cost of care if the CS’ income exceeds the MMNA.