This is always a question that comes up when we train new crew at BA.
What do you do with the body?
The toilet is always everybodys first instinct. But think about it. As has been said here already...it's your mother/sister/brother/aunt/wife/husbund/friend that's died. it's happened and your sat next to your loved ones dead body.
A crew member says "We're just moving them to the toillet".
Personally if it was my loved one I'd be outraged and want to be with them, and not with them in the toilet either! Someone also mentioned putting the body in a wardrobe, even worse!
It's a rare occurance, no doubt about it. Maybe yes a refund for the FIRST guests might be in order for having their flight disturbed in such a way. It's distressing for all concerned, but chiefly for the deceased's loved ones travelling with them. They are IMHO the people that in this situation need looking after.
Also in my experience FIRST guests are by far the nicest people on the aircraft and are an absolute pleasure to meet and get to know. They're at the top and have nothing to prove.