Are you curious to know how death affects your equity release plan?

In a time of increasing life expectancy and economic uncertainty, equity release has emerged as a significant tool for retirees.¹ 

However, you cannot afford to ignore the implications for your estate and beneficiaries.

Our team of financial experts at EveryInvestor has scoured the equity release industry to help you navigate the complex and often difficult-to-deal-with nature of equity release after your passing. 

Therefore…

What Is Equity Release in Retirement?

Equity release, available to homeowners aged 55 and over, enables them to access the monetary value in their home, serving as a strategic option for equity release in retirement.

It is an appealing choice for those seeking financial support in retirement or needing to manage large expenses.

In the equity release sector, the most common products are lifetime mortgages and home reversion plans.

A lifetime mortgage involves borrowing against your home, with repayment occurring from your estate.

Alternatively, home reversion entails selling a portion of your home for an upfront payment or ongoing income, with the privilege of remaining in your home.

Equity Release: What Happens to Your Plan When You Pass Away?

When you pass away, your equity release plan becomes due for repayment. 

Typically, in this case, repaying equity release is done through the sale of your home, unless your beneficiaries can repay the amount through alternative means. 

After your passing, a typical period of twelve months is allowed for the plan to be repaid without incurring additional interest.

What Should Your Beneficiaries Do When You Pass Away?

After your passing, it is crucial for your beneficiaries to notify the equity release provider as soon as possible. 

They will ask for a copy of your death certificate and probate document so that they can communicate with the executors of your estate.

How Quickly Must Equity Release Be Repaid After Death?

Equity release generally needs to be repaid within twelve months² of your passing, which is the industry standard, designed to give beneficiaries adequate time to decide the best course of action.

However, some providers may allow as little as six months, or as long as three years to settle the plan. Be sure to confirm these details when setting up your equity release agreement. 

This period allows your beneficiaries time to sell your home at market value, if necessary, or arrange alternative financing. 

If the plan is not repaid within this timeframe, additional charges may apply.

Does Your House Need to Be Sold to Repay Equity Release on Death?

Selling your house is the most common way to repay the plan, but it is not mandatory. 

If your beneficiaries can repay the equity release plan through other means, such as from their savings or another form of finance, they can retain ownership of the property.

Additionally…

If there are enough funds in your estate to settle what is due on the equity release plan, your executor may facilitate the repayment from these funds, without the need to sell your home. 

Joint and Individual Plans on Death

Managing an equity release loan after the passing of the borrower involves different processes for individual and joint plans. 

Understanding the process in both cases is crucial for borrowers and their families. 

It is advisable to discuss the plan and it’s implications with all parties involved, including beneficiaries, to ensure a smooth transition and repayment process after the borrower’s passing.

Joint Plans When the Last Applicant Has Passed Away

In the case of joint equity release plans, the plan continues as normal after the first applicant passes away, allowing the surviving partner to continue living in the property without worrying about repayments. 

However, it is important to note that for lifetime mortgages, the interest will continue to accrue, increasing the debt until the plan concludes.

Ultimately, when the surviving partner passes away or moves into long-term care, the property will be sold, and the proceeds used to repay the debt and any associated fees. 

Any remaining funds will then be distributed to the beneficiaries as specified in the will or, if there is no will, according to the laws of intestacy.

Single Plans on Death

For single equity release plans, the repayment process starts after the passing of the plan holder. 

The loan, including any interest accrued from a lifetime mortgage or the percentage share from a home reversion plan, is due and must be repaid to the provider from the sale of the property. 

The beneficiaries are responsible for repaying the loan within the set timeframe.

Will a Solicitor Need to Be Involved?

Yes, in most cases, a solicitor will need to be involved to handle the legal aspects of the estate, including the sale of the property if this is the chosen route. 

They will ensure that all legal processes are followed correctly during this period.

Should Your Beneficiaries Speak to a Financial Adviser?

Yes, it is highly recommended that your beneficiaries speak to a professional financial adviser. 

An adviser can explore possible options for repaying the equity release plan and can help them make informed decisions that align with their financial situation and objectives.

Making the Final Arrangements

Concluding an equity release plan after death involves a systematic process. 

After your passing, your beneficiaries should…

• Notify the equity release provider and provide them with a copy of the death certificate.
• Consult a solicitor to manage the legal aspects of the estate.
• Consider speaking with a financial adviser to explore the best options for repaying the equity release loan.
• Decide whether to sell the property to repay the loan or if they can afford to repay it through other means.
• Ensure the equity release plan is repaid within the provider’s timeframe (usually twelve months) to avoid additional charges.

How Does Equity Release Impact Wills and Bequests?

Equity release can have a direct effect on your will, especially if the loan needs to be repaid from your estate after your passing.

When using equity release, any remaining debt is usually paid off by selling your property, which could impact the inheritance left to beneficiaries.

It’s crucial to review your will and consult with a financial adviser to understand how your equity release plan could affect specific bequests or arrangements.

If you want to ensure certain items or sums are left to loved ones, consider the potential balance of the loan against your home’s value.

For those with a particular inheritance plan in mind, reviewing your equity release arrangement periodically can help align it with your wishes, ensuring any specific gifts or requests are respected as closely as possible.

How Does Equity Release Affect Inheritance Tax for Your Beneficiaries?

Equity release can reduce inheritance tax liabilities, as the outstanding loan amount is deducted from the estate’s overall value before calculating tax.

However, it’s essential to consult a financial expert to understand this impact fully, as the reduction depends on the remaining equity after repayment.

This can benefit beneficiaries by reducing taxable estate value, but the remaining inheritance may be lower if the loan has grown substantially over time.

Common Questions on Equity Release When Someone Dies

Equity Release: What Happens When You Die?

Navigating the complexities of passing away and equity release requires a clear understanding and careful planning. 

This involves equipping your beneficiaries with the knowledge and resources for repayment, grasping the impact of Inheritance Tax, and understanding the advantages of a Protected Equity Guarantee. The journey is complex and multi-dimensional.

By staying informed and seeking professional advice, you can ensure you and your loved ones are fully equipped to navigate the complexities of death and equity release in 2025.