All You Need to Know About Death and Equity Release

Explore the Critical Steps to Manage an Equity Release Plan After a Homeowner’s Passing in the UK. Learn About Repayment Timelines, Inheritance Tax Implications, and Protecting Your Family’s Financial Future. Get Clarity on Death and Equity Release.
  • Last Updated: 06 Feb 2024
  • Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui

Key Takeaways

  • Upon death, equity release plans require repayment, typically through home sale or other means by beneficiaries.
  • Beneficiaries must inform the provider and handle repayments within a specific timeframe to avoid extra charges.
  • In joint plans, the surviving partner continues living in the property, with repayment due after their death or move to long-term care.
  • Solicitors are usually involved in legal processes post-death, including property sale if chosen.
  • Beneficiaries are advised to consult financial advisers for repayment strategies and estate management.

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.

In This Article, You Will Discover:

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

    Let’s go through it together…

    What Is Equity Release In Retirement?

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

    It's 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.

    What Happens to Your Equity Release Plan When You Die?

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

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

    After your death, a typical period of 12 months is allowed for the plan to be repaid without incurring additional interest.

    What Should Your Beneficiaries Do When You Die?

    After your death, it’s 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 the Plan Be Repaid?

    The plan generally needs to be repaid within 12 months2 of your death, which seems to be the industry standard, designed to give beneficiaries adequate time to decide the best course of action.

    However, some providers may allow as little as 6 months, or as long as 3 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 isn’t repaid within this timeframe, additional charges may apply.

    Does Your House Need to Be Sold to Pay Off Your Equity Release Plan?

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

    If your beneficiaries can pay off 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’s due on the equity release plan, your executor may facilitate the repayment from these funds, without the need to sell your home. 

    Joint & Individual Plans on Death

    Managing an equity release loan after the death 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’s advisable to discuss the plan and its implications with all parties involved, including beneficiaries, to ensure a smooth transition and repayment process after the borrower's demise.

    Joint Plans When the Last Applicant Has Died

    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’s 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 death 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 Get 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’ll ensure that all legal processes are followed correctly during this period.

    Should Your Beneficiaries Speak to a Financial Adviser?

    Yes, it’s 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 death, 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 12 months) to avoid additional charges.

    Common Questions

    Can My Beneficiaries Take Over the Payments?

    How Can I Be Certain That Nothing Goes Wrong After My Passing?

    How Does Equity Release Affect Inheritance Tax?

    What’s a Protected Equity Guarantee?

    Can I Pay Back My Equity Release Plan Before I Die?

    In Conclusion

    Navigating the complexities of death 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 2024.

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