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It’s upsetting enough losing a family member or loved one. But having to deal with the financial fall-out on top can feel like the final straw at a time when you’re at your lowest ebb.
In an ideal world, all the deceased’s financial arrangements will have been organised well in advance, perhaps by a professional wealth manager or independent financial adviser, who have a well-written will and related documentation to help guide proceedings.
But what happens to a deceased person’s investments when the paperwork is not in such good shape, non-existent, or where key pieces of information cannot be traced? We explain the steps you take now to make what can be a frustrating time a little more bearable.
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The City watchdog, the Financial Conduct Authority, recently announced a review of how consumer investment firms support bereaved customers following concerns the majority of people are not receiving the help they need.
The regulator says it will look at firms that advise, manage, or administer investments, including advisers, wealth managers, and platforms. The move follows research which showed that less than half of bereaved customers (47%) felt they received the support they needed from the investment industry after losing a loved one.
Kate Tuckley, head of department, consumer investments at the FCA, says: “When someone loses a loved one, the last thing they need is confusing letters, delays, and poor service from their provider.
“We want firms to design bereavement processes with people, not paperwork, at their centre. These processes are a real test of a firm’s culture and key to consumer trust.”
The FCA adds that the purpose of the review is to look at how bereaved customers of deceased investors are treated. From the communications they receive, to the processes that loved ones must undertake to unwind a portfolio that previously belonged to another family member. There is also the question of charges associated with unwinding any transactions.
Rachel Vahey, head of public policy at AJ Bell, says: “The FCA’s focus on bereavement support is an important reminder that firms should treat grieving customers with empathy as well as efficiency.”
James Scott-Hopkins, founder of EXE Capital Management, says: “The bereaved often face tedious administrative burdens at a time when they just don’t need it. There can be a lot of rummaging around in dusty old filing cabinets.”
Ideally, financial arrangements in the event of death would already exist and have been planned well in advance. Scott-Hopkins adds: “Continuity and being helpful is key following a bereavement. Having full access to a client’s investments and setting them up correctly in the first place, for example, in particular having a joint bank account, means financial life goes on.”
The FCA’s review, its findings, and any subsequent courses of action will likely be thorough. But it could take months, if not years, before any tangible changes are forced on the wider investment industry as a result.
So how do you prepare for the worst? If an individual already owns investment holdings, what can family members and loved ones do now to best head off future problems in the event that the investor passes away?
Isabella Galliers-Pratt, senior investment director, Rathbones says in the aftermath of someone’s passing many people worry they will say the wrong thing, miss a deadline, or be forced into a big financial decision before they are ready.
She says: “When someone dies, one of the most important things to understand is that investments don’t simply disappear or need to be dealt with overnight. In most cases, investment managers can continue to look after the investments after someone has died, giving families valuable time to grieve, gather paperwork and decide what to do next.
“After a death, many people assume they must make financial decisions straightaway. In reality most investment accounts can either continue to be managed or be placed on hold while the necessary paperwork is dealt with. That breathing space can make a huge difference. It’s designed to protect families, not put them under pressure.
Galliers-Pratt says: “The first practical step is simply to notify the investment firm of the death. The accounts are then marked as belonging to an estate. A copy of the death certificate will be needed once it is available, but there is no expectation that this happens immediately.”
Katy Allen, chartered financial planner at One Four Nine Wealth, says: “Most mainstream investment platforms and providers have a dedicated bereavement team to guide executors and families through the process. [But] dealing with investments can feel overwhelming during bereavement because each investment provider may have slightly different requirements in terms of documentation, funds may take time to liquidate, and the death of the policyholder may also trigger a tax liability on certain investments.
Having informed an investment provider, Allen says: “This should then be followed up by the provision of the death certificate. Investment providers may also wish to have sight of the will, or the Grant of Probate (or Confirmation in Scotland).
“Depending on the type of investment, for example whether it is an individual savings account (ISA) or a pension, there could be further paperwork required to facilitate the movement of these contracts into the name of the surviving spouse or nominated beneficiaries.
“If the deceased had a financial adviser or planner, this person could collate documents, liaise with providers, and co-ordinate valuations, ultimately reducing the administrative burden at a difficult time.”
Ian Futcher, financial planner at Quilter, says “Most firms aim to make the process as straightforward as possible, and you will often be guided by a dedicated bereavement team. It will explain what happens next, what documents are needed and how the deceased’s investments will be handled.
“Expect to receive a clear bereavement pack setting out the steps involved, what paperwork is required, and how different accounts will be handled. Firms are increasingly focused on making the process simple and transparent.”
Futcher says that it can help to gather key documents early, such as the death certificate and account details, although providers should guide you through this at your own pace. He adds: “Some providers adopt a ‘tell us once’ approach, so that once you’ve shared key details, they are recorded and used across the firm, reducing the need for difficult conversations to be repeated.”
As well as the support provided by financial firms, other organisations exist to offer both emotional and practical guidance. These include the charity Cruse Bereavement Care and the Bereavement Advice Centre.
Nino Sheikh-Thompkins, associate director, Bereavement Hub at Fidelity International, says: “Losing someone close to you can be difficult. Importantly, we are here to help. The three things you need to think about are: letting us know; obtaining probate; and distributing the assets.”
Sheikh-Thompkins adds that, because of the legal language, obtaining probate can be the element people find most daunting. “However, it’s very important. Without it, we cannot distribute any assets in line with the instructions in the will.”
Woody Snapper, independent financial adviser at Veracity Financial Planning, says it’s worth understanding how different types of investments are handled. Take ISAs, for example. Snapper explains that: “When you die, your ISA immediately loses its tax-advantaged status, although any income or gains that occurred before death remain tax-free.
“The value of your ISA becomes part of your estate for inheritance tax purposes. Your ISA provider will freeze the account upon notification of your death until they receive further instructions from the executor.”
Snapper reminds surviving spouses or civil partners, that there is a valuable benefit known as the Additional Permitted Subscription (APS). “This allows them to inherit an additional ISA allowance equal to the value of the deceased’s ISA at the time of death, regardless of whether they actually inherit the ISA assets. This means they can transfer the inherited ISA funds into their own name while maintaining the tax benefits.”
Special circumstances apply to ISAs following the death of the holder. Woody Snapper says: “The ISA wrapper does not immediately disappear but remains in place for a maximum of three years following the account holder’s death. After this three-year period, and where no action has been taken, the tax wrapper will be removed, and the investments will lose their protected status.”
Snapper adds: “For beneficiaries other than a spouse or civil partner, the ISA assets will be distributed according to the instructions in the will and may be subject to inheritance tax as part of the overall estate valuation.
“Spouses wishing to take advantage of the APS must act within specific time constraints which is within three years of death or 180 days after the administration of the estate is complete, whichever is later. This deadline is strict, and failing to act within this timeframe means the valuable tax benefits will be permanently lost.”
General Investment Accounts (GIAs) hold investments outside of tax-efficient wrappers such as ISAs and are fully subject to probate and inheritance tax. On death, these investments become part of an estate and are distributed according to the deceased’s will.
Veracity’s Woody Snapper says GIAs have specific tax implications when transferred after death:
A concerted move to online and ‘DIY’ investing over the past decade means that millions of investors have exposure nowadays to assets held either on investment trading platforms or may also have bought into so-called digital assets such as cryptocurrencies.
Digital investments can therefore present a unique set of challenges:
Ian Futcher acknowledges that death can be a difficult topic to broach but suggests having open conversations with loved ones about an individual’s wishes, where their accounts are held, and who to contact can make a significant difference later on.
He says: “Keeping a simple record of key details such as accounts and contact details and, where appropriate, introducing family members to a financial adviser early can help build familiarity and trust.”
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says: “Letting people know in advance where you’re keeping your key documents, such as your will and any financial statements around pensions, savings or investments, will really help your loved ones when it comes to dealing with different providers. Having your affairs in good order will help reduce any unnecessary delays when it comes to paying out the right money to the right people.”
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