How Does Equity Release Work When You Die

How Does Equity Release Work When You Die | March 2024

This article explores what happens to an equity release plan upon the homeowner’s death, detailing the process for settling the debt and the implications for heirs and the estate.

The article will help you do the following:

  1. Understand the importance of planning for the future when considering equity release.
  2. Learn the key differences between Lifetime Mortgages and Home Reversion Plans.
  3. Discover the main topics covered include equity release repayment, options for beneficiaries, and the legal and financial implications.
  4. Realize the benefits of understanding how equity release affects inheritance and estate planning.
  5. Consider actions to take for estate planning and discussions with family members post-reading.

Key Takeaways & Learnings From This Page on how does equity release work when you die

Here are 7 key takeaways from this article:

  1. Equity release provides a financial boost in retirement, but it’s essential to understand its impact on your estate after death.
  2. There are two types of equity release schemes: Lifetime Mortgages and Home Reversion Plans, each with specific repayment obligations upon the homeowner’s death.
  3. Beneficiaries must repay the equity release within 12 months of the homeowner’s death, potentially through selling the property.
  4. The plan for joint equity release plans continues for the surviving partner, maintaining their right to live in the home.
  5. Seeking advice from a financial advisor and discussing equity release plans with family are crucial steps to ensure informed decisions.
  6. Various options exist for repaying equity release without selling the property, including using savings, taking out a new mortgage, or using life insurance payouts.
  7. Understanding the legal and financial implications of equity release upon death is vital to ensure the family’s financial future is protected.

Topics that you will find covered on this page

How Does Equity Release Work When You Die?

When you pass away with an equity release scheme in place, the process for settling the debt generally depends on the type of plan you have chosen, with differences between a Lifetime mortgage and a Home Reversion Plan.

1 – Lifetime Mortgage

A lifetime mortgage, which is the most common type of equity release product in the UK, the loan, along with the accrued interest must be repaid in full. 

This repayment is typically achieved by selling the property. The estate’s heirs will be responsible for arranging the sale, and the proceeds from the sale will be used to repay the equity release provider. 

If the sale amount exceeds the debt, the surplus goes back to the estate and heirs. Suppose the sale proceeds do not cover the debt. In that case, most lifetime mortgages come with a “no negative equity guarantee,” ensuring that the debt will not exceed the home’s value, thus preventing the estate or any beneficiaries from owing more than the home is worth.

2 – Home Reversion Plan

With a home reversion plan, a portion or all of the home has already been sold to the equity release lender, in exchange for a lump sum or regular payments during the homeowner’s lifetime.

When the homeowner dies, the property’s ownership is fully transferred to the equity release provider. The family or heirs have no obligation to repay any debt, but they also do not inherit the portion of the property sold. 

It is essential for individuals considering equity release to discuss these implications with their family and seek independent equity release advice to understand how it affects their estate and heirs after they pass away. This is a really important decision, so you must ensure you get it right.

If you do have any problems with your lender, then the Equity Release Council may be able to help. In addition the Financial Conduct Authority, who regulate the providers may also be able to help.

You should also remember, that if in later life you end up going in to long term care, such as a care home, then the equity release usually has to be repaid.

How Quickly Must The Equity Release Plan Be Paid After Death?

The beneficiaries must inform the equity release providers after the property’s last owner dies or moves to a nursing home.

They need to show them the death certificate and other related documents to ensure that the lenders know that they now need to deal with you regarding the repayment of the equity release mortgage.

The equity release plan typically needs to be paid within a 12 month window period. Some estates decide to put the house on sale to get the money to pay the provider. Others opt to put the house up for rent as this ensures that the provider gets a certain amount at the end of the month. However, if you are looking to sell the house then having tenants could cause some challenges.

A point to note is that the interest keeps on the building during those 12 months. If the money can’t be repaid within the 12 months, the provider talks it through with the beneficiary to come up with a new plan to be able to pay the money. Ultimately the provider is able to repossess the house if the money is not paid back.

Joint Equity Release Plans After One Partner Dies

When taking on a joint equity release plan, it’s important for both partners to understand what happens when one partner passes away. This ensures that the surviving partner is prepared and can make informed decisions about their future living arrangements.

1 – Continuation of the Plan

In the event of one partner’s death, the equity release plan typically continues unchanged for the surviving partner. This means that the surviving partner can continue to live in the home without any immediate obligation to repay the equity release loan. 

It’s important that both partners understand this aspect of their plan, as it provides you with security and peace of mind.

2 – Options for the Surviving Partner

The surviving partner has several options following the death of their partner.

 If they wish to remain in the home, no immediate action is required regarding the equity release plan. However, if the surviving partner decides to downsize or move, they should consult with their equity release provider to understand any implications for the equity release plan. 

Some plans offer the flexibility to transfer the equity release plan to a new property, subject to the provider’s approval and the new property meeting certain criteria. It’s important that you engage your provider early if you are considering this.

3 – Advice for Joint Plan Holders

Joint plan holders should discuss their equity release plan with a financial adviser to fully understand the terms and conditions, especially regarding the death of one partner. This discussion should include the implications for the surviving partner and any actions they may need to take to ensure the plan continues to meet their needs.

equity release what happens when you die

Equity Release Calculator

An equity release calculator is a specialised online tool designed to help you estimate the amount of money they can potentially release from the value of their home.

By entering information such as the age of the youngest homeowner, the property value, and any outstanding mortgage or debt secured against the home, you can get an indicative figure of how much equity they could access. 

Try the calculator below to get an estimate.

Try Age Partnership’s equity release calculator and estimate how much money you could release from your property.

If you take out a product from Age Partnership, we will receive a fee for introducing you to them. This helps support the site and for us to produce more content.

Is There Any Need For a Solicitor in Case One Spouse Dies?

Depending on the complexity of the affairs of the person who died, there may be a need to apply for probate . In this circumstance you will probably need to engage with a probate specialist or solicitor.

In the case of a joint plan, and one spouse dies, the other partner in the agreement will continue taking responsibility for the equity release (assuming they are receiving regular payments) until they die or move to a nursing home.

You might also choose to involve the solicitor once both partners have died.

You can also choose to get advice from a financial adviser.

A financial adviser can help you devise a plan to pay the lender’s money back. They can also help you find some benefits that can help you with additional income to help you pay the provider’s money.

Options for Repaying Equity Release Without Property Sale

When planning for the future, understanding all your options regarding repaying your equity release loan is important.

1 – Repayment from Savings or Investments

One option for repaying the equity release without selling the property is using savings or investments. 

Beneficiaries may choose to use their personal savings or liquidate investments to repay the equity release loan instead of selling the house. This option is particularly viable if the beneficiaries wish to keep the property within the family.

2 – Taking Out a New Mortgage

Another option is for the beneficiaries to take out a new mortgage on the property to repay the equity release.

 This can be a feasible solution if the beneficiaries have a stable income and can afford the mortgage repayments on the new loan. It allows the family to retain property ownership while settling the equity release debt.

3 – Life Insurance Payouts

Life insurance payouts can also be used to repay the equity release. If the homeowner has a life insurance, or death in service policy, the payout from this policy upon their death can be directed towards repaying the equity release loan. This planning ensures that the property does not need to be sold to settle the debt.

4 – Gifts from Family Members

In some cases, other family members may gift the necessary funds to the beneficiaries to repay the equity release loan. This collective family effort can be a way to keep the property within the family and avoid selling it.

Some of the Best Equity Release Interest Rates as of 11 March 2024

The table below shows you some of the best equity release rates, as of 24 February 2024, for lifetime mortgages from some of the leading equity release providers in the UK. 

Provider NameProduct NameInterest RateType of productOffers
Standard LifeHorizon 200 Drawdown5.37%FixedFree Valuation
Standard LifeHorizon 220 Drawdown5.38%FixedFree Valuation
More2LifeCapital Choice Ultra Lite Drawdown 15.51%FixedFree Valuation
No application fee
Scottish WidowsFR15.60%FixedCashback
Free Valuation
No application fee
Standard LifeHorizon 280 Drawdown5.65%FixedFree Valuation
Scottish WidowsFR25.67%FixedCashback
Free Valuation
No application fee
Legal & GeneralInterest Roll-Up 45.69%FixedFree Valuation
Legal & GeneralOptional Payment 45.69%FixedFree Valuation
Standard LifeHorizon 280 Drawdown Fee Free5.70%FixedFree Valuation
No application fee
Standard LifeHorizon 280 Lump Sum Fee Free5.70%FixedFree Valuation
No application fee

The equity release rates have been sourced by UK Care Guide from the Equity Release Supermarket website. These rates may have changed since this table was created and should be taken as indicative only. There may be other providers not listed on this table that could offer better deals.  In addition, the providers and products noted may not be right for your particular circumstances.  Therefore, they should only be taken as a guide, and we cannot guarantee their current accuracy. Please also note that we do not provide advice on or endorse any particular product listed here. The rate you are offered will depend on your individual circumstances and subject to lender approval. Therefore, we strongly recommend that you speak to an equity release adviser, who will be able to provide you with information on the latest rates that apply to you.

Speak To An Equity Release Specialist Today

Call Boon Brokers on 0333 567 1607 to discuss your equity release requirements and see what deals are available to you.

can i sell my house if i have equity release

Preparing for Equity Release Repayment

Preparing for the repayment of an equity release plan is important for beneficiaries. This preparation ensures a smooth transition and financial stability after the homeowner’s passing.

1 – Discuss Plans with Family Members

Homeowners need to have open discussions with their family members about the equity release plan and its implications. These conversations should cover the plan’s terms, the expected repayment process, and any homeowner’s wishes regarding the property after their death.

2 – Consult with Financial Advisors

Seeking financial advice is a critical step in preparing for the equity release repayment process. Financial advisors, or equity release advisors, can provide insights into the best repayment strategies, potential impacts on inheritance tax, and how to manage the repayment to align with the family’s financial goals.

3 – Understand the Equity Release Provider’s Requirements

Homeowners and their beneficiaries should familiarise themselves with the equity release provider’s repayment requirements upon the homeowner’s passing.. 

This includes understanding any timelines for repayment, options for repaying the loan without selling the property, and the process for notifying the provider after the homeowner’s death.

4 – Legal Consultation

Consulting with a solicitor can clarify the legal aspects of repaying an equity release plan. This is particularly important when considering the probate implications and the legal process for transferring or selling the property.

5 – Financial Planning for Repayment

Beneficiaries should engage in financial planning to prepare for the repayment of the equity release. This planning may involve setting aside funds, considering the sale of other assets, or exploring financing options to repay the loan while keeping the property within the family.

Legal and Financial Issues of Equity Release Upon Death

When considering whether to go ahead with equity release, it’s essential to understand the legal and financial implications that arise when the homeowner does. Understanding this ensures that homeowners and their beneficiaries are fully prepared for the future.

1 – Repayment and Inheritance Tax Planning

Upon the homeowner’s death, the equity release plan must be repaid. 

This repayment is typically achieved through the sale of the property. Beneficiaries have to be aware that if the property’s value does not cover the equity release loan, the no negative equity guarantee ensures that no more debt than the property’s value can be passed on to the estate. This helps to make sure that you don’t end up owing more than the house is worth.  However, this could significantly reduce the inheritance left for beneficiaries.

In terms of inheritance tax, the value of the equity release loan reduces the value of the estate, potentially lowering the liability of inheritance tax. 

We recommend that beneficiaries speak with a financial advisor to understand how equity release affects the estate’s overall value and the inheritance tax planning implications.

2 – Legal Process and Probate

The legal process following the death of a homeowner with an equity release plan involves probate. 

Probate is the legal process whereby the will is validated and the estate is administered. During probate, the equity release provider must be repaid the loan that they provided.

The probate process can be complex, especially if the affairs were complicated,  and may require the services of a solicitor, especially if the estate’s assets are not straightforward.

Beneficiaries should be prepared for this process and consider the potential time and costs involved. Probate is currently taking around 12 months, and even up to 24 months for complex cases. 

It’s advisable to discuss the equity release plan with a legal professional in advance to ensure a smooth process for the estate’s executors.

3 – Protecting Your Family’s Financial Future

Homeowners considering equity release should discuss their plans with their family members and seek advice from both legal and financial advisors. 

This ensures that all parties are informed and can make arrangements to protect the family’s financial future, considering the implications of equity release upon death.

How Equity Release Affects Your Inheritance After You Die

Most people opt for equity release as a way to sustain their livelihood.

Equity release can be very helpful if you have no other source of income.

However, they do impact your inheritance after you die, as quite simply, you won’t have a house to pass on. This means that your family don’t get to inherit your home, which is something neither you nor the family may want.

Our Final Thoughts

Equity release offers a pragmatic solution for financial support in retirement but necessitates careful consideration regarding its impact on your estate and heirs. Here are key considerations and recommended actions:

1 – Discuss Equity Release Implications

It’s essential to have open conversations with family members about the terms of the equity release plan and its implications for the estate.

2 – Seek Professional Advice

Consulting with financial advisors and solicitors can clarify the best equity-release repayment strategies and legal matters.

3 -Understand Repayment Obligations

Familiarise yourself with the equity release provider’s requirements for loan repayment upon death, including potential options besides selling the property.

4 – Consider the Impact on Inheritance

Equity release may affect the amount of inheritance left for beneficiaries, underscoring the importance of estate planning.

5 – Protect Your Family’s Financial Future

Making informed decisions about equity release can safeguard your family’s financial stability, ensuring all parties understand the implications and are prepared for the future.

We recommend discussing your plans with your family and seeking advice from legal and financial professionals to make informed decisions about equity release and its effects on your estate and inheritance.

Speak To An Equity Release Advisor Or Use the Equity Release Calculator Below To Estimate How Much You Can Borrow

The UK Care Guide works in partnership with Boon Brokers, one of the UKs leading equity release specialists.

You can contact them on 0333 567 1607 , or use the equity release calculator to estimate how much you can borrow.

Here is what Boon Brokers Offer

Whole of market access
Over a decade of experience
Great customer service

5 star client testimonials, on Trustpilot, about Boon Broker’s support and hands-on service

Call Boon Brokers on 0333 567 1607 to discuss your equity release requirements.

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All equity release and mortgage advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757. 

If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation.  By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.  

The fee we receive is used to help keep this site operational and to produce new content.  

Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

Meet the author

Saq Hussain

Saq is a financial expert, and is responsible for the day-to-day running of the UK Care Guide website.  Prior to taking on the operation of this site, Saq was a Director and the UK Head of DC Pensions, Benefits and Wellbeing at PwC.  Saq is also a part of the steering group at the Living Wage Foundation that has developed the UK’s National Living Pension standard.

Saq has regularly featured in the press, with examples including:

UK Care Guide is really proud to have been featured on some of the UK’s leading websites

Financial Promotions Sign-off

Where applicable, the adverts for Boon Brokers on this page have been signed off as a Financial Promotion by Boon Brokers Limited, to ensure that they are in compliance with Section 21 of FSMA. Boon Brokers Limited is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757.

The Age Partnership equity release calculator has been approved and provided by Age Partnership. Age Partnership is a trading name of Age Partnership Limited, which is authorised and regulated by the Financial Conduct Authority. FCA registered number 425432.

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If you take out a product from Boon Brokers, we will receive a fee for introducing you to them.

Unlike most equity release advisors, Boon Brokers do not charge any fees! Have a free consultation to see how they can help.

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Use the equity release calculator and see how much money you could receive.

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All equity release advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757. 

 

If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation.  By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.  

The fee we receive is used to help keep this site operational and to produce new content.  

 

Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

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