Money is the last thing on your mind when you learn a loved one has died. When you lose a loved one, taking time to grieve is essential. Psychologists say that grief is a natural and important response that helps you process feelings of sadness. No two people grieve in the same way, but for most, the intense feelings of loss ease over time.
If the person who has died was very close to you, such as a parent or spouse, you will likely soon have to make decisions about a funeral and tend to their financial affairs. That means facing questions you may have long wondered about, such as: Can you inherit debt? What happens if you die without a will? Knowing the answers to these and other questions in advance can ease the burden during a difficult time.
How Will Funeral Costs Be Covered?
In the immediate aftermath of a loved one’s death, grief can be complicated by the stress of arranging a funeral. However, what can be a costly ordeal is greatly simplified if the person who died preplanned the details of their funeral, which may include setting aside money to cover the expense. Find out if the person who died had burial insurance, which is a type of life insurance that covers funeral expenses. Or if they had created a funeral trust, which pays all or a portion of these costs in advance. Money placed in a funeral trust is held by a trustee, such as a bank or trust company. When the person who created the trust dies, the money is used to pay for funeral costs.
If your family member (or legally recognized partner) served in the U.S. military, contact the Department of Veterans Affairs to find out if you’re eligible for an allowance to cover funeral and burial costs.
Get a Death Certificate
The funeral home, crematorium or other service you hire to handle a loved one’s remains can provide you with a death certificate, which is an official document that contains detailed information about the deceased, including their cause of death. The funeral home or other service is responsible for filing the death certificate with local or state authorities soon after a person dies. However, you will likely need copies of your loved one’s death certificate for several purposes, including the transfer of assets and property to their designated heirs.
Depending on what state you live in, two forms of death certificates may be available, known as informational and certified certificates. The former is primarily for personal records, while you will need to present certified death certificates to financial institutions and government offices to initiate the process of transferring assets to yourself and other heirs, including Social Security and veterans’ benefits.
Have Conversations With Family Members
When you feel the time is right, the first step to understanding a deceased loved one’s finances is to have honest and open conversations with other close family members and perhaps even close friends of the deceased. These conversations might help uncover vital information, such as where they kept important estate documents or stored usernames and passwords for financial accounts. Maybe they mentioned a financial advisor whom you didn’t know about, or showed someone where to find the key to their safe deposit box.
Stop Unnecessary Payments
At some point, it’s vital to do some sleuthing and identify any routine bills the deceased person was paying and ensure that needless costs are not incurred. If no one will be living in their home, create a plan for how long the utilities should be maintained. Cancel insurance plans (such as for health or auto) that are no longer needed, as well as subscriptions for cable television, magazines and newspapers.
Going through the deceased person’s mail is a good start for finding recurring costs, but keep in mind that some payments may have been made online. Recent bank and credit card statements can help you find digital payments.
Notify the Right People
Several key players may need to be notified when a loved one dies. If they had a job, contact their employer and find out if they had life insurance through the company and whether health insurance coverage will continue for survivors. The executor of a deceased person’s estate (see below) should contact providers of life insurance, if the person had a policy, so that benefits can be distributed. Likewise, banks and other financial institutions should be notified, especially if the deceased person had an individual account, in which case those funds pass to their estate or a beneficiary, if one was named.
A funeral home will usually notify the Social Security Administration when a person dies, but you may need to contact the agency if 1) the deceased person had been receiving Social Security benefits and they continue to be paid, in which case that money must be paid back, and 2) if you are eligible to receive those benefits as a surviving spouse or dependent, but have not received them.
Find and Review Estate Documents
While some people associate the word “estate” with wealth and privilege, from a legal standpoint it’s simply a term for everything a person owns, including homes, properties and land, stocks and bonds, cash, possessions and other assets. Likewise, there’s a perception that only well-to-do individuals establish wills and trusts. But having an attorney draft these important estate documents makes sense for just about anyone, so be sure to find out if a lost loved one had one or both.
A will is a legal document that spells out a person’s final wishes, including how to pay off debts and distribute remaining assets to heirs, and who should assume guardianship of any minor children. When you set up a will, you appoint a person to serve as executor, whose role is to ensure that your wishes are followed. If your loved one had a will, it may have to be administered through a legal process called probate, which in some cases can be costly and delay transfer of assets to heirs (see below).
Instead of a will—or possibly in addition to one—some people choose to transfer assets upon their passing through a trust. As with a will, a trust dictates which heirs receive what assets. However, trusts have certain advantages over wills, notably that they don’t have to go through probate court, which speeds up the transfer of assets. On the other hand, your loved one may have established certain trust rules for how money or other assets passed down must be used, such as to pay education expenses. In that case, accessing funds left in a trust for other purposes could be a challenge, if not impossible.
If your loved one had a will or set up a trust for passing down their assets, ideally these important documents were maintained in a safe place, such as a fireproof safe, in the home. Storing the sole copies of wills, trusts and other estate documents in a bank safe deposit box is a mistake, since a survivor may face legal challenges in obtaining them. A deceased person’s financial or legal advisor may have these documents, too.
What Is Probate?
As mentioned above, probate is a legal process that may be necessary when someone dies. Probate is conducted in a court and has several purposes, including proving that a will is valid, as well as listing and appraising the deceased person’s property. The probate process then ensures that outstanding debts and taxes are paid and oversees distribution of remaining assets according to the terms of the will. The executor named in a will files the necessary paperwork for probate. If the deceased person didn’t have a will (known as dying intestate), a probate court judge will decide who gets what.
Probate laws vary by state, and most allow for the process to be bypassed under certain circumstances, such as if the deceased person’s estate is relatively modest. Certain types of property, such as assets that the deceased left to designated beneficiaries (from a life insurance policy, for example), don’t go through probate. An attorney can advise you on how to navigate the probate process.
What If There’s No Will or Trust?
If a person was married when they died, in most cases a surviving spouse inherits all or at least some of the estate, though children and other blood relatives, including parents, may receive part of the inheritance, too. In some states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), anything purchased or acquired during marriage is considered “community property,” meaning it’s owned equally by both spouses. In those states, surviving spouses typically get most or all community property, as well as some from outside the marriage (known as separate property).
Whether a domestic partner is entitled to any inheritance varies by state, too. If a single person dies without a will, their parents inherit the estate; if neither parent is alive, siblings may be the primary heirs.
What Happens to Debt When You Die?
Does your debt die with you? No, for the most part. If a person who passed away owed money to a creditor, it must be repaid. That includes many common forms of debt, including mortgages, credit card balances and student loans. However, you are probably not on the hook for coming up with the cash to cover those debts. Instead, they will be paid off with money from the deceased person’s estate, a task handled by the executor or other person managing their affairs.
There are a few exceptions, though. If you co-signed a loan with the deceased person, the lending institution will seek payment from you. Likewise, you’ll be called upon to pay any due balances on a joint credit card, which is an account shared by two people. If your spouse dies, check the laws in your state, which may call for you to assume certain debts. What’s more, in community property states, the law dictates that assets you co-owned with the deceased should be used to pay off any debt.
Consider Your Own Estate
Losing a loved one may leave you thinking about your own estate plan. If you don’t have one in place, now is the time to meet with an attorney who specializes in estate planning to discuss not only wills and trusts, but also documents that set forth your instructions in the event you become ill and can’t make healthcare decisions (a living will, or advance healthcare directive, and healthcare power of attorney). If you have an estate plan, it makes sense to review it periodically to ensure it still reflects your wishes, and to provide family and friends with any essential details they need to know.
Timothy Gower is an award-winning journalist whose work has appeared in more than two dozen major magazines and newspapers, including Prevention, Reader’s Digest, Esquire, Men’s Health and The New York Times.
Illustration by Jack Hudson.
Estate planning is a process that should involve those closest to you in your family to ensure that they are prepared to honor your wishes and understand your financial situation—read to learn more about how to discuss an estate plan with your adult children.