Take-Away: For Medicaid  planning purposes some states, but not Michigan, follow the ‘name on the check’ rule, that permits a shift of income from the institutionalized spouse to the community spouse without jeopardizing an institutionalized spouse’s Medicaid eligibility to protect the community spouse.

Background: The name on the check rule is a common guideline used by Medicaid to determine who owns income that is taken into account in determining Medicaid eligibility. The premise of the guideline is that income belongs to the person whose name is on the check. If the check is made payable to an individual, that individual is considered the owner of the income. This rule can be exploited in some states when one spouse becomes institutionalized and applies for Medicaid benefits.

  • IRA Planning with the Rule: For Medicaid planning purposes, few states treat an institutionalized spouse’s retirement assets as exempt. Thus, when the institutionalized spouse owns an IRA, odds are good that the IRA will be considered to be a countable asset, which must be ‘spent down’ before Medicaid eligibility can be established. The strategy employed to exploit the name on the check rule is for the institutionalized spouse to purchase a tax qualified/IRA Medicaid Compliant Annuity, pursuant to a direct custodian-to-custodian transfer of the institutionalized spouse’s IRA assets. While the institutionalized spouse is the owner and annuitant of the contract, the community spouse is irrevocably named as the payee of the  annuity contract. When the annuity designation is honored, the Medicaid  authorities will apply the monthly payments to whoever’s ‘name is on the check.’ This still leaves ownership of the tax-qualified Medicaid Compliant Annuity with the institutionalized spouse, and thus it avoids any negative income tax consequences. But the payments will be treated as income of the community spouse for Medicaid purposes since his/her name is ‘on the check.
  • Legal Authority for the Rule: The legal authority for the name on the check rule is found at 42 U.S.C. 1396r-5(b)(1) which provides, in part: During any month in which an institutionalized spouse is in the institution, except as provided in paragraph (2), no income of the community spouse shall be deemed available to the institutionalized spouse….(A) Non-trust Property- Subject to subparagraphs (C) and (D), in the case of income not from a trust, unless the instrument providing the income otherwise specifically provides- (i) if payment of income is made solely in the name of the institutionalized spouse or the community spouse, the income shall be considered available only to that respective spouse;
  • Rule Implements Spousal Protection Policy: The name on the check rule is a policy that attributes income payable to a certain individual to be solely the income of that individual. Consequently,  if the individual retirement account (IRA) of the institutionalized spouse is paid directly to the community spouse, then the payments are considered to belong to the community spouse rather than the institutionalized spouse. This rule allows a married couple to protect the entirety of an IRA or qualified retirement plan account despite the institutionalized spouse’s ownership of the account, all part of Medicaid’s general spousal protection rules which permit the community spouse to retain a community spouse resource allowance (CRSA) and  a minimum monthly maintenance needs (income) allowance.
  • Not a Tax Rule: The name on the check rule is not part of the Tax Code. It is just how Medicaid implements some of its community spouse protection policies.
  • Rule Not Followed in Michigan: Neighboring states Illinois, Indiana, Ohio and Wisconsin ( along with 27 other states) all follow the name on the check rule. Colorado, New Jersey, and Michigan do not. In Michigan, while there are certain planning steps that can be taken to improve the institutionalized spouse’s eligibility for Medicaid benefits, it seems the name on the check rule is not one of them. Obtaining a Protective Order from the local probate court to increase the community spouse’s minimum monthly maintenance allowance above the annual limit is probably the best way to keep more income in the hands of the community spouse in Michigan.