The finances of bereavement

white roseGary Rycroft explains the key financial considerations when acting as executor of an estate during an often difficult and emotional time – and why planning for the inevitable is essential.

Death is the one certainty in life, yet we spend much of our lives doing our best not to talk about it.

Organisations such as the Dying Matters Coalition are making valiant efforts to break down the social taboos around death, but for many others, this lack of planning for the inevitable can mean that when a loved one dies, they are ill-prepared for it, both emotionally and financially.

The finances of bereavement encompass both the funeral itself, and what needs to be sorted out after that, in terms of winding up a deceased person's legal affairs.

The benefits of a pre-planned funeral

Not planning for death can mean that the funeral ends up being the ultimate distress purchase for those left behind. The person organising the funeral is often in great emotional turmoil, and may have no previous experience of the marketplace, and what it has to offer.

That’s why some kind of financial planning for a funeral can be a good investment. Until comparatively recently, it was commonplace for people on low incomes and without much in terms of capital assets to pay weekly into a ‘burial policy’, a type of life insurance. These are still available, as are other packaged pre-paid funeral plans. These are really just glorified savings plans. However, in some circumstances, they do offer the consumer the ability to freeze the cost of a funeral at today's prices, which as the cost of funerals is at present outstripping inflation, may not be a bad thing.

It is important to note that while the Financial Conduct Authority (FCA) does not regulate funeral plans covered by insurance or trust arrangements, it does stipulate rules for each method of investment, so in that sense, monies paid in are safeguarded and available to pay for a funeral when needed. However, as stated, a formal funeral plan is not compulsory; a standard savings account (such as an ISA) would be sufficient.

The other advantage of making financial plans for your funeral is that you can decide on the type of service you want, which in turn will dictate the expense to be incurred.

Funeral options and charges

Those buying a funeral are consumers just like any other scenario where goods and services are being offered for sale. There are lots of choices, so it is important to make the right decisions.

The charges made by a traditional funeral director will fall into two parts. First, an amount for their professional services, and second, the disbursements or fees paid to third parties, such as to the doctor's fee for a death certificate, crematorium or burial charges, flowers and newspaper notices.

While many funeral services follow a traditional pattern, there is no strict legal format to be adhered to, apart from the need for the body to be disposed of in a hygienic manner. Increasingly, there is a drive to make funerals more personal. This could impact both negatively and positively on the cost. A horse-drawn carriage with feather plumes is going to increase the cost, but not having traditional funeral cars and asking a family members or friend to conduct the service may be a saving.

The ideal is for the deceased to have discussed their wishes with their loved ones.

Like any professional service, funeral directors are there to offer advice and assistance based on many years of experience. They are there to help, and at a time of emotional distress, it can be reassuring and less stressful to have someone taking care of everything. Like any consumer, you are entitled to an estimate or breakdown of costs in advance, and can pick and choose what you want and what you don’t want.

Many funeral directors retain well-known local names, but are in fact part of big international businesses. But there are still small independent funeral directors operating, and my personal experience is that they often offer better value for money. You should never be too bashful to ask who actually owns the business you are transacting with.

Help with funeral costs

If you are on a low income and are organising a funeral for someone, you may be eligible for a funeral payment from the state, depending on your circumstances. To find out more, see this Funeral payments overview.

Also, if your spouse or civil partner has died, you may be entitled to a one off tax-free lump sum of £2,000. There are specific criteria and an application process, but you should qualify if you were under the state pension age when widowed, or you were over the state pension age, but your spouse or civil partner was not entitled to a state pension and either your spouse or civil partner paid enough national insurance contributions, or died as a result of an industrial accident or disease.

Other bereavement benefits include a bereaved parents allowance and bereavement allowance.

The importance of making a valid will

When someone dies, the funeral and costs associated with it should be paid out of the deceased's estate. After the funeral expenses have been met, other liabilities and debts should be settled, and anything that is left over may then be distributed in accordance with the last valid will of the deceased, or if there is not such a will, certain set legal rules, known as the Intestacy Rules. It is worth noting that under the rules of intestacy, unmarried partners are not recognised. Clearly, it is not desirable to leave who gets your estate to chance, so it is always better to set out your wishes in a will.

Consumers have considerable choice when it comes to preparing wills. DIY packs are available in shops or online, but often lead to documents being invalid, because they are not witnessed properly, or have unexpected outcomes, because they are not drafted accurately.

So-called will writers may in fact have no legal qualifications or experience, and may not be insured if things go wrong. Ensure that you check who you are engaging with, and what their qualifications and experience are, as well as their regulatory body.

Solicitors have to be qualified, regulated and insured, which for consumers means that they have the best possible protection. The best way to find an expert local solicitor is via the Law Society’s directory, the representative body for solicitors in England and Wales (or the Law Society of Scotland and the Law Society of Northern Ireland).

Asking an expert solicitor to draft your will should ensure that your assets pass on to your chosen beneficiaries in the most efficient manner, taking into account knowledge of the latest developments in tax, and also ensuring that the risk of challenges to the will after death are minimised.

Solicitors add value to the process and should think of scenarios and outcomes that the will maker may not have thought of. The cost of a solicitor drawing up a will varies, depending on the complexity of the situation, but should be around £200 to £500, a small amount when compared with the value of the assets passing under the will.

If there is no will, the rules of intestacy dictate who is entitled to organise the funeral and deal with the estate of a person who has died. If there is a will, it is the named executors who have this role.

The role of executors

As well as paying outstanding tax and other debts out of the estate, executors must collect in and secure the assets of the estate and then distribute what's left to those entitled. Executors must ensure the assets of the estate are secure until it is time to pass on to the beneficiaries. This may well involve obtaining keys to the deceased's house, going through papers and arranging the valuation and ongoing insurance of valuable items.

Acting as an executor is onerous and many executors choose to delegate estate administration to solicitors.

Solicitors should provide details of their charging structure before you engage their services. The usual options would be to charge according to an agreed hourly rate, or according to a percentage value of the estate (rather like estate agents often do for house sales), or according to an agreed fixed-fee based on the value and complexity of the estate, and hence the likely time to be spent dealing with it.

Tackling inheritance tax (IHT)

IHT has become more complex over the last 10 years. If IHT is an issue, calculating the actual sum payable on death will involve consideration of lifetime gifts, the allowance available to the deceased (which will be different depending on marital status and whether there is a transferred allowance from a deceased spouse or civil partner), whether there is agricultural or business property, as well as gifts to charity, and from April 2017, an extra allowance to be attached to the family home passing to direct descendants.

Joint assets that pass automatically to the surviving joint owner may also be relevant for IHT and other reasons. The usual rule is that a joint owner inherits the joint asset on the death of the other joint owner, but this may be rebutted by evidence of contrary intention.

Grant of probate: the golden ticket

The grant of representation (grant of probate if there is a will, grant of letters of administration if there is no will) is the legal document issued by the probate court, which allows the relevant persons (executors if there is a will, or administrators if not) to actually deal with the assets in the estate.

If probate were the Roald Dahl story about a chocolate factory, the grant is the golden ticket, which allows access to the assets of the deceased, so they can be obtained and distributed. At present, the probate court fees are exempt for estates under £5,000 and around £155 for estates above that figure. There is a government consultation open until 1 April about proposals, which if implemented, would significantly increase these costs.

Some banks and building societies operate a small estates procedure whereby assets under a certain value may be released without a grant from the probate court. This can lead to complications, including the wrong people handling the money, if caution is not exercised. 

After obtaining a grant of probate, the executor should be certain that they are aware of all the debts and liabilities they are obliged to pay before finalising the estate. In most estates, it’s not possible to be absolutely sure that all creditors have been identified, but protection against unknown claims can be obtained by placing a deceased estates notice in The Gazette and a local newspaper.

An aspect of modern life is our digital footprint, and this is highly relevant to the administration of estates. We must now consider digital assets of financial value (such as online bank accounts, Paypal accounts, bingo and bitcoins), as well as digital assets of sentimental value (music and photographs), social value (social media profiles and friends) and intellectual value (websites and blogs).

The death of a loved one has a massive impact on those left behind. The financial aspects of bereavement should be the least thing to worry about, so that the emotional aspect of loss can be properly addressed over time.

About the author

Gary Rycroft is a solicitor at Joseph A Jones and Co Solicitors in Lancaster. He is Chair of The Law Society Private Client Section Advisory Committee and a member of The Law Society Wills & Equity Committee. He is also a trustee of the National Council for Palliative Care and chair of the Dying Matters Coalition. Follow @GaryRycroft

See also: Executors: settling estate debts and Planning a funeral: avoiding the pitfalls