Video: Should You Pay Bills Prior to the Death of a Special Needs Trust Beneficiary?
Sadly, the beneficiary of a Special Needs Trust will be dying soon will necessitate winding up the trust. Payments will be owed to creditors and there will be administrative expenses of winding up the trust, including legal and accounting fees. These expenses are deductible in determining the amount payable to the state of NJ as reimbursement of the nursing home expenses that the state Medicaid department has paid.
Priority of Payments From a SNT Upon the Death of the Beneficiary
Following the death of the beneficiary, prior to reimbursing Medicaid, the trustee can pay Federal and/or state taxes that are due from the trust because of the death of the trust beneficiary. In addition, the trust can also provide for the payment of reasonable fees for the trust administration, including trust accountings submitted to a court and the completion and filing of documents, such as tax returns, or other actions that are required to terminate and wrap up the trust. However, the trustee cannot pay creditors prior to reimbursing Medicaid after the beneficiary dies so you should try to make those payments before the beneficiary dies.
Also, the SNT cannot pay for funeral and burial costs before reimbursing Medicaid, so a prepaid arrangement is usually a good idea.
Some commenters note estate administration expenses are not automatically allowable. I believe they are allowable if reasonable, which, like beauty, may be in the eyes of the beholder. It’s not usually an issue in NJ, but it certainly could be where the lawyer wants substantial legal fees, but again, pre-death legal fees are treated as a general creditor claim that comes after Medicaid so pay all bills before death for pre-death work.
If you are looking for additional details on this topic or if you require advice about your situation, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.
By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Estate Administration Attorney