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.
Chances are, if you’ve used a Medicaid Compliant Annuity (MCA) in Medicaid planning for senior clients, you’ve probably heard of the “Name on the Check Rule” strategy. This strategy is based on a rule used by state Medicaid agencies to determine to whom the income belongs. That is, if the community spouse’s name is on the monthly income check, the income belongs solely to the community spouse.
In the context of an MCA, the “Name on the Check Rule” may be used to protect retirement accounts belonging to the institutionalized spouse. Since IRAs cannot be transferred, attorneys and their senior clients who are looking to qualify for Medicaid may believe they have to deal with the hefty income tax consequences of liquidating the account. In many states, however, the institutionalized spouse’s IRA can be annuitized, and the community spouse can be designated as payee. With this approach, the value of the IRA is eliminated for Medicaid purposes, and the community spouse, as the payee, is the sole owner of the income because their name is on the check.
An attorney recently used this strategy in Wisconsin. The state Medicaid agency, however, incorrectly attributed the income to the institutionalized spouse. After presenting the facts at a fair hearing (with the help of Krause’s complimentary fair hearing support), the Administrative Law Judge concluded the income did indeed belong solely to the community spouse.
Are Denials Common with the “Name on the Check Rule?”
No, these denials are not common. We use the “Name on the Check Rule” strategy with attorneys and their clients on a regular basis and with great success. That said, with this strategy, you may receive some questions or pushback from the state Medicaid agency, especially if the caseworker is unfamiliar with MCAs or the “Name on the Check Rule.” In order to prepare you for potential questions so you can ensure the case is being treated appropriately, we have developed some best practices for you.
“Name on the Check Rule” Best Practices
1. Work with a Krause Benefits Planner.
If this is your first time using the “Name on the Check Rule” strategy, contact us before you begin. Our Benefits Planners are well-versed in this MCA strategy and are a great resource for you and your clients. Plus, they can give you insight into how the strategy has been treated in your state.
2. Use the full life expectancy for the MCA term.
The most conservative approach is to use the institutionalized spouse’s full Medicaid life expectancy when choosing the MCA term. Since this minimizes the income being produced by the MCA, it draws less attention from the state Medicaid agency. Plus, when an institutionalized spouse purchases an MCA, they can name the community spouse as the primary beneficiary. So, if the institutionalized spouse predeceases the annuity, the community spouse takes control of the funds as the primary beneficiary and can remove the state Medicaid agency’s claim from the contract.
3. Forego direct deposit and use paper checks.
Although direct payments may be more convenient, we recommend waiving the direct deposit option offered by most insurance companies. Instead, the community spouse should receive paper checks. This serves as evidence to the caseworker that only the community spouse’s name is on the monthly MCA check—something that is significantly harder to prove when the client receives their payments electronically.
Are You Ready to Learn More?
If you live in a state where an IRA is considered a countable asset for the institutionalized spouse, it’s crucial that you have a solid understanding of the “Name on the Check Rule” strategy. Contact our office to learn more about how the strategy works, our experience with it in your state, and how it can benefit your clients.
As Marketing Director, Amy is responsible for all company communications and ensuring our clients have the most accurate and up-to-date information. In addition to her communication expertise, she has prior experience as a paralegal and a Krause Benefits Planner.