Navigating Finances After Death: A Guide to Handling Common Expenses and Accessing Funds
Dealing with finances after the loss of a loved one can feel overwhelming. Most estates take six to nine months to be fully settled, and some more complex estates can take even longer. A common question I receive is how to manage the immediate expenses like funeral costs, final medical bills, utilities, and ongoing obligations such as mortgages and credit card payments.
This guide outlines the most common ways to handle these financial matters after a death, who is able to do what, and how quickly funds may be accessed to cover necessary expenses.
Who This is For: Generally, if you are a surviving spouse, the transition to manage finances is easier as you’re most likely a joint owner on accounts. This guide is geared more towards people who are stepping into a role of taking care of finances for a non-spouse.
Initial Timeline and Actors
Immediate Steps after Death (Days 1-10)
- Notify Key Contacts: Inform family members, employers, healthcare providers, and key contacts.
- Secure Property: Safeguard the deceased’s home, car, and other valuables.
- Plan and Arrange Funeral: Coordinate with the funeral home and make arrangements, paying expenses if funds are accessible.
- Notify Financial Institutions: Notify any financial institution they are involved with of the deceased’s death. This will generally freeze the accounts to prevent fraud or further costs.
Initial Financial Actions (Weeks 1-6)
- Obtain Death Certificate: Request multiple certified copies from the local vital records office. Generally, it takes 2-4 weeks or longer to obtain official certified copies of the death certificate.
- Open Probate (If Required): File the will with the probate court, and apply to be the executor or administrator of the estate.
- Successor Trustees Take over Trust: With the death certificate in hand, a trustee can step in as a fiduciary for assets in the trust and manage them based on the terms of the trust.
- Establish Estate Bank Account: Open an account to receive funds, pay bills, and manage estate finances.
- Beneficiaries Claim Assets: If beneficiaries are named on accounts which is generally the case with most investment accounts today and life insurance, beneficiaries can present the death certificates, fill out some paperwork, and receive their share fairly quickly if everything is in good order.
What to Do About Expenses
A common question is how to handle or continue to pay the expenses of the deceased before you have access to the deceased’s assets. Most access to accounts begins with the death certificate being received.
Generally upon notification of death
It is important to note that not all expenses need to be paid right away while others you do need a plan to pay.
Expenses That Should be Paid
- Funeral Costs: Immediate, typically required within days.
- Housing Payments, Insurance, and Utilities: These should be maintained to avoid foreclosure, lapsed coverage, or disruption of essential services.
- Auto Payments and Insurance: Car loans and insurance policies should be kept current to avoid repossession or coverage gaps.
Expenses That Can Wait
- Outstanding Credit Card Bills: These are generally unsecured debts and can wait until the estate is settled.
- Final Medical Bills: While healthcare providers may seek payment soon, these are typically resolved through probate, and immediate payment is often not required.
How to Pay for Expenses
Now that you know what should be continued to be paid for, let’s go over a few common ways of how to actually pay these expenses.
1) Joint Account
- Overview: Having a joint account with the person who will handle your estate is a common way to ensure immediate access to funds.
- Pros: The co-owner has immediate access to the funds upon death and can cover expenses without delay.
- Cons: Joint accounts legally belong to the surviving co-owner, which means funds do not pass through probate and are not necessarily shared with other beneficiaries. Additionally, joint accounts are subject to the co-owner’s creditors, and funds could be withdrawn prior to death.
2) Payable-on-Death (POD) Accounts
- Overview: A POD account allows the account holder to designate a beneficiary who will receive the funds directly upon death, bypassing probate.
- Pros: Funds are accessible to the POD beneficiary relatively quickly after presenting a certified death certificate, allowing them to cover necessary expenses.
- Cons: The beneficiary must have the death certificate to access the funds, which may take 1-4 weeks to obtain.
3) Trust
- Overview: If the deceased set up a trust, a successor trustee can take over management of the assets held in the trust.
- Pros: Trust assets are accessible immediately to the successor trustee, who can use them to cover expenses per the trust’s terms, without waiting for probate. If the trustee is installed before the grantor passes away, the trustee will have immediate access.
- Cons: Trusts require pre-planning and can incur setup and maintenance costs. Only assets titled in the name of the trust are accessible this way.
4) Pre-Paid Funeral Plans or Funeral Payment Plans
- Overview: A pre-paid funeral plan covers funeral costs directly with the funeral provider. Some funeral homes may offer payments plans that allow delayed payment until probate.
- Pros: These plans can significantly ease financial and logistical burdens on family members by having expenses paid in advance.
- Cons: Pre-paid plans are limited to funeral expenses and require the deceased to have arranged and paid for the plan in advance. Additionally, pre-paid plans are location bound.
5) Self-Fund and Estate Reimbursement
- Overview: A family member or executor can temporarily cover necessary expenses using personal funds, with the expectation of reimbursement from the estate once probate is underway.
- Pros: Allows immediate payment of essential bills without waiting for probate.
- Cons: The family member or executor is using their own funds to pay for expenses. Reimbursement is only possible if sufficient funds are available in the estate, and repayment could take several months.
6) Life Insurance
- Overview: Life insurance policies often provide a quick source of funds to the beneficiary, usually within 1-2 weeks after a claim is filed.
- Pros: Life insurance bypasses probate and can provide immediate financial relief for funeral costs or other expenses.
- Cons: Only the designated beneficiary has access to these funds, so if the funds are needed for broader estate expenses, they may not be available.
Navigating finances after a loved one’s death is complex, but understanding the timeline and key methods to access funds can help make the process smoother. Prioritize essential expenses, use tools like POD accounts and life insurance to access funds quickly, and be prepared for probate and estate administration to take several months. With careful planning and clear steps, you can manage financial matters effectively during a difficult time.