07 Feb Who gets paid first after someone dies? Home loans or Medicaid?

Q. I am wondering who has priority to be paid first after someone dies in New Jersey, a mortgage, home equity line of credit or Medicaid?
— Beneficiary

A. You’re correct to wonder.

When someone dies, there is an order in which funds from that person’s estate are distributed.

In New Jersey, when a someone’s estate is insufficient to satisfy all of their debts, the court, upon application by the personal representative — the executor or the administrator, may declare the estate “insolvent,” said Samantha Rocco, a tax and estate attorney with Einhorn, Barbarito, Frost & Botwinick in Denville.

She said under New Jersey Court Rule 4:91-1(a), after reviewing the reports and information about the estate, the court will make a determination about the amount of each claim and its priority for payment.

Under New Jersey law — specifically, N.J.S.A. 3B:22-2 — the personal representative is required to pay creditors in the following order where there are not sufficient assets to satisfy all claims in full:

1. Reasonable funeral expenses;
2. Costs and expenses of administration;
3. Debts for the reasonable value of services rendered to the decedent by the Office of the Public Guardian for Elderly Adults;
4. Debts and taxes with preference under federal law or the laws of New Jersey;
5. Reasonable medical and hospital expenses of the last illness of the decedent, including compensation of persons attending him;
6. Judgments entered against the decedent according to the priorities of their entries respectively;
7. All other claims.

Additionally, it is important to note that under the statute, within a class — meaning, within each of the above-listed categories of debts — no claim has preference over any other claim, Rocco said.

“Per literature disseminated by the State of New Jersey regarding its Medicaid Program and Estate Recovery, repayment of certain Medicaid expenses falls into category 4, `debts and taxes with preference under federal law or the laws of the State of New Jersey,’ and as such, would be priority over a mortgage or home equity line of credit,” she said.

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This story was originally published on Feb. 7, 2023.

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