How the “Name on the Check” Rule Helps Clients and Practitioners

When the Check Clears, So Does the Eligibility Question

Elder law practitioners know the scenario well. A married couple walks in. One spouse is heading into an institutional care setting. The other is staying home. There is no long-term care insurance policy or other pre-planning. And sitting right in the middle of their balance sheet is an IRA, 401(k), or similar retirement account titled to the institutionalized spouse.

In states that treat that account as countable for Medicaid eligibility, that single asset can be the difference between a qualifying application and a denial. It can also be the difference between a community spouse who keeps their financial footing and one who does not. Luckily, there is a federal statute that solves this problem. Unluckily for practitioners, case workers often perform linguistic gymnastics in an attempt not to give that statute its clear and unambiguous meaning in certain scenarios.

One such scenario pertains to one of our most frequently requested topics: the “Name on the Check Rule” (NOTCR). Because some states have taken odd positions on the NOTCR strategy, we thought this topic deserved more attention. Let’s walk through the NOTCR strategy, its legal basis, and related considerations elder law practitioners should take under advisement when evaluating a client’s case for the strategy’s viability.

Why the Retirement Account Creates the Squeeze

Retirement accounts are a unique category of asset for Medicaid planning purposes. They carry their own tax rules, their own distribution rules, and their own transfer restrictions. A couple cannot simply re-title the account from one spouse to the other without triggering adverse tax consequences. And that is just to mention constraints imposed by the IRS.

The Medicaid program introduces an entirely separate set of rules to navigate. In states where retirement accounts owned by the institutionalized spouse are treated as a countable resource, it often puts the institutionalized spouse well over the resource limit. That leaves two obvious but painful options for a married couple.

Option one: liquidate the account, absorb the tax hit, move the cash to the community spouse, and apply for Medicaid.

Option two: hold the account, forgo Medicaid eligibility, and self-fund care until the retirement is exhausted.

Neither is a good outcome. And neither serves congressional intent of preventing spousal impoverishment. Fortunately, there is a third path, and it starts with the federal Medicaid statute.

What the Statute Says

42 U.S.C. § 1396r-5(b)(2)(A)(i) provides that when income is paid solely in the name of one spouse, that income is attributed only to that spouse for Medicaid purposes. Moreover, the name on the underlying asset is not determinative for purposes of establishing ownership, attribution, or availability of the income derived from that asset. That means the name on the payment instrument controls. As the name of the NOTCR strategy affirms, it’s not the name on the contract. Rather, it’s the “name on the check.”

That provision enables a strategy that threads the LTC Medicaid eligibility needle, complies with the tax code ownership provisions for retirement accounts, and makes it possible to spread out the tax hit over time rather than take a large hit for lump sum liquidation. So how does this work?

How the NOTCR Strategy Works

The “Name on the Check Rule” strategy operates as follows:

1. The institutionalized spouse uses their retirement account to fund a Medicaid Compliant Annuity (MCA).
2. The MCA is structured such that the institutionalized spouse is the owner and annuitant, which fosters compliance with the IRS rules.
3. When the MCA contract is formed, the community spouse is listed as the irrevocable payee, meaning that the income generated by the annuity is irrevocably assigned to the community spouse who then takes payment consistently with the MCA’s payment schedule.
4. Funding is typically accomplished through a direct rollover or trustee-to-trustee transfer, meaning tax deferral is preserved at the funding stage. Tax on the annuity payments is deferred until the payments are received. No single large tax hit. See IRS Publication 575.
5. Because the income is paid solely in the community spouse’s name, the income is attributed to the community spouse for Medicaid eligibility purposes. That income is not available to the institutionalized spouse. Accordingly, the structure supports both the institutionalized spouse’s application for benefits by eliminating a problem asset and resolving an excess income issue. Moreover, it does so consistent with congressional intent: avoiding spousal impoverishment of the community spouse.

Read More: How to Use the “Name on the Check Rule” MCA Strategy to Protect the Institutionalized Spouse’s IRA

When States Push Back Against the NOTCR Strategy

Despite the statutory clarity and operational simplicity, not every state embraces this outcome. Some have pushed against NOTCR planning in administrative proceedings and at fair hearings. But federal law forecloses most of those arguments at the threshold.

42 U.S.C. § 1396a(r)(2)(A) clearly states that a state’s income and resource eligibility methodology “may be less restrictive, and shall be no more restrictive” than the federal standard. The statute then defines a “no more restrictive” methodology as a state methodology that does not disqualify any individual who would otherwise be eligible under federal law. § 1396a(r)(2)(B). The Supreme Court has long confirmed that state Medicaid plans must conform to federal statutory requirements as a condition of program participation. See Schweiker v. Gray Panthers, 453 U.S. 34 (1981).

Stacking those provisions together yields a clear rule: a state can adopt rules more generous than federal law. However, a state cannot adopt rules that are more restrictive and which would result in someone eligible under federal law ineligible under their state law. Any state methodology that attributes the community spouse’s MCA income back to the institutionalized spouse in a NOTCR scenario is, by definition, more restrictive than what § 1396r-5(b)(2)(A)(i) permits.

Execution Matters

The NOTCR strategy only works when the structure is precise. There are a few things practitioners should think through before deploying the strategy in each case:

• Size of the retirement account. Smaller accounts may not justify the complexity. The tax hit from outright liquidation is sometimes the simpler path. Larger accounts more often justify its use.
• Beneficiary designation. Because the institutionalized spouse is the owner and annuitant, a community spouse or minor/disabled child can be named primary beneficiary under § 1396p(c)(1)(F)(ii), with the state in second position. This is meaningful estate recovery protection that a community spouse-purchased annuity structure does not offer.
• Annuity term. In states that scrutinize NOTCR arrangements, stretching the annuity term to the community spouse’s actuarial life expectancy can reduce friction and lower the per-payment tax burden.
• Communication with the caseworker. How the strategy is framed at application often determines how it is received. A written explanation detailing the statutory framework is one of the most valuable tools a practitioner brings to the case.

Closing Thought

The Medicare Catastrophic Coverage Act of 1988 put the spousal impoverishment protections into federal law for a reason. Congress was not comfortable with the idea that a long-term care diagnosis should drain the community spouse’s financial life. The “Name on the Check Rule” is one way that congressional intent manifests. Further, with Congress having recently considered the Medicaid program at great length during debate around the “One Big Beautiful Bill,” and having made no changes as a result of that debate that would impact this strategy, that is another clear manifestation of congressional intent.

For practitioners willing to structure a NOTCR MCA correctly and advocate for it clearly, this strategy can deliver fantastic client outcomes.

Krause is committed to keeping elder law attorneys informed regarding the statutory and regulatory framework shaping Medicaid planning. If you have questions, comments, or a particular planning strategy you would like Krause to review, please contact our EVP and General Counsel, Scott Engstrom, at [email protected].