Death of a loved one: how to handle the financial fallout

While it's understandably the last thing on your mind, the death of a loved one will bring with it a host of financial considerations. To help you keep things in order, we'll run you through the next steps.

Love Money
Last updated:12 October 2017 - 03.25pm

Losing a loved one is a traumatic and emotionally draining experience.

And while it'll be the last thing on your mind at the time, it also creates a host of financial complications that may need resolving.

Take a look at this guide to unravelling the financial history of your loved one and dealing with all the administration in a calm, stress-free way.

Step one: Get yourself organised

Keep all documents and correspondence in one place. Consider putting the information on a spreadsheet so you can keep track of everything.

Also, mentally prepare yourself for the long haul. It’s likely to take a while, according to Sharon Eyre, Associate Solicitor with Howes Percival. “It’s not unusual for the whole process to last up to 12 months,” she says.

Read more: All you need to know about prepaid funeral plans

Step two: Sorting the admin

The first few days after someone dies are a whirlwind. At this stage, you have three priorities: obtaining a medical certificate from a GP or hospital doctor; registering the death; and starting the funeral arrangements.

The medical certificate is free and can be issued straight away, unless the circumstances surrounding the death are unclear and require a coroner’s inquest to be held.

Once this has been collected you need to make an appointment to formally register the death and the location depends on where you live. For England and Wales, it will be your local Register Officer. For Scotland, it will the Registrar of Births, Deaths and Marriages, and in Northern Ireland it’s the District Registration Office.

This process is also free but official copies of the death certificate cost between £4 and £10. It’s worth getting some copies immediately as various organisations will need one.

Step three: Find a copy of the will

This is a vital document. It details who the deceased wants to inherit their state, an outline of their last wishes, and states who is responsible for carrying out these requests.

This person – or persons – will be known as executors.

They may have to apply for a grant of representation – often known as a grant of probate – which is an official document that executors may need to administer the estate.

Eyre says this is crucial: “It’s a legal document that allows you to transfer shares to beneficiaries, sell property and cash bank accounts to settle debts or creditors,” she explains.

However, before this is granted the estate of the deceased person must be valued and, potentially, some Inheritance Tax paid. 

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Step four: Letting people know

There are loads of institutions and Government departments to notify – and that’s before you start tracking down various banks accounts and insurance policies.

Depending on where you live, it may be possible to access the ‘Tell Us Once’ service that enables you to report the death to most Government organisations in one go.

For example, it will notify HM Revenue & Customs for tax issues, the Department for Work and Pensions to cancel benefits, and the Passport Office to cancel that person’s passport.

It will also contact the Driver and Vehicle Licensing Agency to cancel the driving licence and the local council to remove the person from the electoral register.

You’ll need the deceased person’s date of birth, National Insurance number, driving licence number, passport number, and details of benefits or services received, such as the Blue Badge.

If ‘Tell Us Once’ isn’t available you will need to contact the following organisations yourself:

HM Revenue and Customs; National Insurance Contributions Office; Child Benefit Office; Tax Credit Office; and the Department for Work and Pensions.

Remember to keep a record of conversations, including names of those you spoke to and what you were told.

Don’t forget to contact organisations such as insurance companies, utility firms, telephone firms and providers of internet and satellite television services.

Step five: Making the funeral arrangements

The average funeral costs £4,078 – which represents a rise of 4.7% over the past year, according to the SunLife Cost of Dying Report.

This cheerful document also reveals that back in 2004 this figure was just £1,920, while even a decade ago in 2007 it was only £2,390.

Discretionary expenses – such as the memorial, flowers and a wake – can easily push the overall outlay up by another £4,000.

Although the study showed 58% of people had made specific financial provision in their will to help pay for their funerals, relatives are often left to shoulder the cost.

In fact, one in nine families hit financial problems paying these bills with 27% borrowing money from friends or relatives, 23% using credit cards and 13% taking out loans.

Understandably, many families admitted to cutting back on certain costs. For example, 38% chose a cheaper coffin and 17% used their own vehicle instead of a hearse.

You can arrange the funeral yourself – but most people prefer to use a funeral director who can help guide you through the process. They will also collect, look after and prepare the deceased before bringing them for the funeral or cremation.

Always ensure they are members of either the National Association of Funeral Directors, the National Federation of Funeral Directors or the Society of Allied and Independent Funeral Directors as they have agreed to abide by codes of practice.

Step six: Information gathering

You will need to find everything from bank accounts and loyalty card points to investments and pensions, warns Danny Cox, a chartered financial planner with Hargreaves Lansdown.

“Go through bank accounts because inflows and outflows will normally give you some very good clues as to where assets may be held,” he suggests.

For example, pension companies write to their holders every year giving a summary of their pension’s value and what it might be worth at retirement so you may find paper copies.

The Unclaimed Asset Register and the Pension Tracing Service can also assist in tracking down policies and investments.

It’s also worth finding out if the deceased used an accountant or independent financial adviser as they could be a useful source of information.

Step seven: Valuing the estate

You need to value the money, property and possessions of the deceased person before you can obtain a grant of representation.

This requires establishing the realistic selling price of assets at the time the person died. Use a professional valuer for anything over £500.

Include money in accounts, property, land, personal belongings, furniture, cars and shares, as well as cash or assets given away in the seven years before they died.

Debts can be deducted from their total assets, as well as liabilities such as household bills and even funeral costs. Outstanding mortgages are also taken off the property’s value.

Tax reliefs could help reduce the value. For complicated estates, it’s worth seeking professional tax advice. 

Step eight: Inheritance Tax

If the calculations value the estate above the current nil rate band of £325,000 then there’s Inheritance Tax to pay. This is usually calculated at 40% of the value above the threshold.

The tricky element for executors is that at least some of the Inheritance Tax must be paid before probate is granted. This can require them to take out bank loans.

In fact, Inheritance Tax must be paid by the end of the sixth month after the person died. So, if they passed away in January, it must be paid by the end of July.

As an added blow, HMRC will charge interest on late payments.

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Step nine: Applying for probate

Applying for the grant of representation involves completing a probate application form, an Inheritance Tax form, sending them in with a £215 application fee, and swearing an oath.

Further information on this process can be obtained by ringing the Probate and Inheritance Tax Helpline on 0300 123 1072.

You will also need to keep certain records after you value an estate, including the will, copies of signed Inheritance Tax forms, how you worked it out, and how you distributed any belongings.

Step 10: What you can do while you are still alive

Make life easier for your loved ones by ensuring your own finances are in order and keeping a detailed list of your investments, suggests Danny Cox at Hargreaves Lansdown.

“You should have an asset register with a list of accounts and investments, who they are with and the account numbers,” he says. “This can be held along with your will.”

You can even consider setting money aside to pay for your funeral with organisations such as Co-op offer pre-paid funeral plans.

It’s even possible to take out a life insurance policy, held in trust, that can be used to settle your Inheritance Tax bill and ease the burden on your family.

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