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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.