Bereavement: how to handle your loved one's finances

Losing a loved one is a shattering experience – and dealing with the financial fallout can add to the pain and suffering.

Who do you need to contact? What documents must you produce? When do you need to let everyone know what’s happened?

It’s an emotionally draining period but the good news is it doesn’t have to be as overwhelmingly complicated as it first appears.

Here is our guide to unravelling the financial history of your loved one and dealing with all the administration in a calm, stress-free way.

You will have months of dealing with institutions ahead so getting organised will save you a lot of time and hassle.

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 at Howes Percival.

“It’s not unusual for the whole process to last up to 12 months,” she says.

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.

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 the 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. 

Read: how to make a cheap or even free will

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.

The average basic funeral costs £4,056, according to the SunLife Cost of Dying Report.

This cheerful document also reveals that back in 2004 this figure was just £1,920.

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.

Protect your loved ones with a life insurance policy

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.

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. 

Everyone will get a £325,000 allowance, which is known as the 'nil-rate band', while there is an additional 'main residence nil-rate band' worth £175,000 if your property is passed directly to a child or grandchild.

You can learn more about the costs involved and what you can do to minimise them in our guide to cutting Inheritance Tax.

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 incentive, HMRC will charge interest on late payments. 

Apply for the grant of representation involves completing a probate application form, an Inheritance Tax form, sending them in with a £273 application fee (there is no fee if the estate is valued at less than £5,000), and swear 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.

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 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.