Losing a parent is an emotional and stressful experience. On top of your grief, sorting out your parent’s financial affairs might feel overwhelming. Knowing the steps you need to take will help.
Even if you stand to inherit something from your parent’s estate, it can cost a lot when someone dies. The average funeral costs between $8,000 and $10,000, and the cost of estate administration will vary depending on the steps involved and your parent’s assets.
Here are the financial moves to make when a parent dies.
1. Figure out how to pay for the funeral
Planning a funeral takes work, but the funeral home can help you make arrangements and determine costs. Hopefully, your parent left written instructions behind in the form of a will or other document to make some of your choices easier.
Costs will fluctuate depending on the type of service, whether it’s a burial or cremation, where you live and other factors. Figuring out how to pay for it all may require a family discussion. If your parent had life insurance or final expense life insurance, the beneficiaries of those policies can use the payout to help cover funeral costs.
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2. Get copies of the death certificate
The death certificate is a legal record of your parent’s death that is filed with the state. The specific information contained depends on the state, and may include your parent’s name, Social Security number, date of birth, time and place of death and more. It is prepared by the funeral home or medical examiner and typically filed within 72 hours of death.
This document is vital for handling your parent’s estate. It is required to close bank accounts, notify government agencies, notify creditors, file life insurance claims and more. Copies of the death certificate are available by request to immediate family members.
Most activities related to administration of the dead person’s estate cannot be completed before you have death certificates, and they should be first priority, said Paul Berman, attorney at Berman & Berman, P.A., an estate planning, probate and tax law practice in Miami, Florida.
In some states, death certificates have long-form and short-form versions — the short form is an abbreviated version that does not contain the cause of death. Life insurance companies are the only third parties that care about the cause of death and require a long-term version, said Berman.
You will likely have to pay a fee, which varies depending on your state, to obtain copies from the funeral home or directly from the state’s vital records office. You will be required to show photo ID or documentation proving your identity as an immediate family member.
3. Locate your parent’s estate plan
If your parent created an estate plan before they died, it likely includes a will and may also include a trust. These documents must be located to begin administering your parent’s estate.
Last will & testament
A last will and testament, usually referred to as a will, spells out what should happen to your parent’s money, assets, property and dependents when they die. If your parent left a will, locating it and filing it with the local probate court will start the process of carrying out their wishes.
The will names an executor of the estate, also known as a personal representative, who will carry out the terms of the will. This could be a spouse, adult child, family friend or legal representative. The named executor has a right to turn down the position, and someone else can petition the probate court to become executor or the probate judge can appoint a replacement. Executors typically get paid for their duties as outlined in the will. If not, some states define minimum compensation that executors must earn.
If you are the executor, you will be responsible for many tasks related to the administration of the estate, including:
Filing the will and death certificate to the local probate court, a necessary step even if the will doesn’t end up going through probate, the process during which the executor works with the probate court to ensure the will is carried out properly.
Notifying other parties of the death, including beneficiaries, creditors, government agencies and more.
Opening an estate bank account to manage assets, handle daily expenses and settle debts and taxes.
Paying off outstanding debts from the estate and filing a final tax return.
Distributing the assets according to the will after debts and taxes have been paid.
Executors may need to retain the services of an estate lawyer or probate lawyer to navigate the process. Lawyers will be proficient in local probate laws and can help things go smoothly, especially when the estate is complicated, the executor lives out of town or when there are complications.
“Estate planning and probate attorneys can represent the executor but have a fiduciary duty to all involved parties. Probate has become an efficient process now if you know what you are doing,” said Berman, who recommended finding someone with a good balance of knowledge and empathy.
Trusts are legal entities that have specific rules about who should receive assets and how assets can be used. They offer greater control over how assets are passed on after death. They are also useful when providing for minor beneficiaries, and in most cases trusts do not go through probate. Not every estate plan has one, but you need to know if your parent left one.
What to do if your parent doesn’t leave a will
If your parent left no will, that's called dying in intestacy. Intestate laws vary between states, but generally the probate court will appoint an executor and determine how to distribute your parent’s assets according to state law. Typically assets will go to surviving spouses and close blood relatives, but the process can go much slower than when a will is left behind.
4. Notify all affected parties
Friends and family members aren’t the only ones who need to know that your parent passed away. Some third parties will be notified by the executor, while others must be notified outside of estate administration.
Who you need to contact depends on what businesses, financial institutions, government agencies and other third parties your parent had dealings with. It also depends on whether your parent had a surviving spouse or other beneficiaries.
Parties that you may need to notify include:
Insurance companies: Cancel any of your parent’s insurance policies that are no longer needed. Beneficiaries of life insurance, accidental death or dismemberment insurance (when the cause of death applies) or final expense life insurance policies will need to file a claim.
Employers: If your parent was employed, their employer will need to be notified. The human resources department can inform you of benefits including additional life insurance and continuation of health insurance for survivors, and retirement plan information.
Financial institutions: Every financial institution where your parent held bank accounts, retirement accounts and investment accounts will need to be notified. If your parent shared accounts with a spouse or other person, that person will assume control of the money in the account. If your parent was the sole account owner, the money will pass to the beneficiary named on the account. If there is no named beneficiary, the money will pass to the estate and be distributed according to your parent’s estate plan.
Social Security Administration: If your parent was receiving Social Security, the funeral home can report their death to the SSA to stop benefits. You will want to ensure that this happens to avoid your parent receiving continued payments, which will have to be paid back. A surviving spouse or dependent may be able to receive survivor’s benefits.
Lenders and creditors: Lenders and creditors must be notified of the death. Debts will be settled by the executor. If you aren’t the executor, you may be able to help them track down the debts your parent had.
Service providers: Canceling bills from service providers, such as phone service and Netflix, is important. You don’t want unpaid bills to stack up, or unused services to continue to automatically debit your parent’s account every month. Some services, such as electricity to your parent’s home, may need to continue to be paid as the estate is settled.
Department of Veterans Affairs: If your parent was a veteran, the VA may support funeral arrangements and survivor’s benefits.
Berman recommended monitoring your parent’s mail and having it forwarded to an appropriate party if necessary. It’s possible there are service providers, financial institutions and other third parties you were unaware of, and going through your parent’s mail will help you identify anything you missed.
5. Settle debts & taxes
All debts must be paid or settled from the estate before assets can be distributed to your parent’s beneficiaries. The executor will pay off creditors and dispute bills when necessary. In the event your parent didn’t have enough money in their estate to pay off creditors, the family and beneficiaries can’t be held responsible for any outstanding debt (unless it was cosigned with your parent).
“Don’t pay any debts until everything is organized,” said Berman. You don’t want to make a mistake or pay a debt that doesn’t need to be settled from the estate, he said.
The executor must file your parent’s final income tax return with the IRS, and report all income, credits and deductions up to the date of death. Large estates may incur a federal estate tax, which the executor must pay using the estate’s bank account. You may need to contact your parent’s accountant or find a local reputable tax professional to help.
If your parent lived or owned property in Iowa, Kentucky, Maryland, Nebraska, New Jersey or Pennsylvania, beneficiaries should know that those states charge inheritance tax.
6. Start your own estate plan
If you didn’t already have an estate plan, dealing with your parent’s financial affairs may be the kick in the pants you need to create one. Having a will in place makes the process of distributing your estate much easier, and it ensures your assets will go to the people you want to receive them.
Even if you’re young, in good health and don’t have dependents, an estate plan can help make things easier for your loved ones when you’re gone. At the very least, it will reduce the number of decisions they need to make while they’re grieving.
To create an estate plan, you can talk to a local estate planning lawyer. Alternatively, you can now create a will with Policygenius without paying lawyer fees, using our app to guide you through the process.
Here’s our guide on setting up an estate plan of your own.
Death certificates are important for many reasons, but not everyone has access to them.
If you are the executor of your parent’s estate, here’s a breakdown of your duties.
Here’s how much a funeral costs.
If you or a family member are a beneficiary of your parent’s life insurance policy, it’s important to know how to file a claim.
Here’s how the probate process works.
If your parent dies without a will, things get a little more complicated. Here’s what intestacy means.
Image: Robert Lang Photography