Using the “Name on the Check Rule” in Wisconsin

The Wisconsin state capitol at night

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.

The “Name on the Check” rule is a phrase used by Medicaid as a simple determinant for who has ownership of the income. The individual whose name is on the check (the payee) is the owner. If the institutionalized spouse in a marriage owns an IRA, this principle can benefit the couple greatly. We’ll take a look at how this guideline benefited one Wisconsin couple.

Unfortunately, not many states[i] will put an “exempt” status on the retirement assets of an institutionalized spouse for the purpose of Medicaid. This means that in most situations the IRA amount must be spent down due to it being a countable asset, and this is where many people decide to liquidate their retirement accounts. This isn’t the best idea since the entire amount of the IRA may then be taxed, not to mention a hefty penalty for early withdrawal. The “Name on the Check Rule” may be able to help.

What is the “Name on the Check Rule”?

To understand how this rule works, we’ll start by explaining the end goal: leaving the institutionalized spouse as owner of the Medicaid Compliant Annuity (MCA) without negatively affecting their taxes while keeping the community spouse as the noted recipient of payments. We’ll start by having the institutionalized spouse buy a Tax Qualified/IRA Medicaid Compliant Annuity with their IRA. This can be done one of two ways – direct transfer or rollover[ii]. By making payments go toward the community spouse, those assets will become exempt. While success isn’t guaranteed, it’s great to see that the “Name on the Check” rule is gaining traction.

 Wisconsin has Recently Honored the “Name on the Check Rule”!

In this case, the husband, who resides in a long-term care facility, used the funds from his IRA to purchase a Medicaid Compliant Annuity. The annuity was funded with a single premium of $256,415.00 and named his community spouse as the irrevocable payee. When initially determining eligibility, the Wisconsin Department of Health Services Estate Recovery Program approved the Medicaid application but considered the Medicaid Compliant Annuity income to be that of the applicant – the husband (institutionalized spouse). He appealed, and a fair hearing was scheduled.

Attorney Dale M. Krause drafted the fair hearing questions and testified as an expert witness. 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. It is noteworthy to mention that all of the annuity issuers utilized by the Krause Agency in the State of Wisconsin will allow for the owner of a Tax-Qualified/IRA annuity to direct the annuity payments to the spouse. We have the products, and now with this precedent-setting decision, we also have the confidence that the “Name on the Check” rule is a viable planning option in Wisconsin! Contact us today for more on the planning and products we have to offer.

Check out these links for other states’ favorable “Name on the Check” decisions, and more:

[i] Currently, only 11 states consider an institutionalized spouse’s (IS) retirement account to be an exempt resource: California, District of Columbia, Florida, Georgia, Idaho, Kentucky, Mississippi, New York, Rhode Island, South Carolina, and Vermont. Furthermore, 9 of these states will only consider an IS’s retirement accounts exempt if they are taking RMDs; the 2 states that do not have stipulations regarding RMDs are the District of Columbia and Kentucky.

[ii] Take note of the June 2014 update, regarding applying the Bobrow interpretation to rollovers. Read details here.