How can we use inherited 401k distribution to pay for funeral expenses without screwing up our son’s SSI and Medicaid and my wife’s Pell grant?

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How can we use inherited 401k distribution to pay for funeral expenses without screwing up our son’s SSI and Medicaid and my wife’s Pell grant?

My brother-in-law passed away at 39 and left his 401k distribution to my wife. It wasn’t quite enough to cover funeral expenses so we won’t have anything left in the end. We tried to get the check made out to his partner, so he could pay for everything and we wouldn’t have to deal with it, but they said they couldn’t do that. If we take this money it will show up as income and we will make too much for SSI, Medicaid and the Pell grant. On top of that, we will have to pay taxes on it at the end of the year. Can someone help, if this happens, we will loose everything.

Asked on August 17, 2011 Indiana

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

I am so sorry for you loss and for your situation.  I think that you need to seek help from someone in the area that can look at the paperwork involved and can let you know what the tax consequences are on top of the other issues you have here.  If the money is used to pay the debt of the estate - which the funeral is the primary debt of the estate - I wonder if you can have your wife appointed as the personal representative of the estate, refuse the distribution and ask that it be made payable to the estate, and then pay the funeral expenses and be done with it. Or work it in some way that the money is paid to the estate to pay the debt without liability to your wife.  But you really need someone in the area who can look at everything that is at stake.  Get help.  Good luck.


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