Ithat tax exempt feature won't work for what you are needing.  If Sage can't provide a specific tax rule...I'd set up a new earnings code using a tax rule with the "subject to" you need..like maybe 800073 "Adoption Assistance" as is shows to be subject to SS-EE, MC-EE, SS-ER, MC-ER...and eliminates Fed/State wh.  In my experience, I've also always received guidance to make sure the check is written to "The Estate of ________" rather than to the employee...as it's payable now to the surviving spouse/dependents.

I thought payment like that is made to the "estate" or surviving spouse or named beneficiary, and not the actual deceased employee, then reported on a 1099-Misc Box 3.  I did not think payments like that go through Payroll.  

Whatever you do get the CPA instructions in writing including who gets what form and whether a W9/1099 is required for the estate.

Yes, it's the CPA's written instructions that we are following.  Sage was able to help yesterday.  We had to set up a special tax profile and assign it to the employee.  That did the trick.