Equity release products have become increasingly popular with UK homeowners in recent years, allowing people in their retirement years to free up some of the equity tied up in their properties. The benefits of these types of services are extensive; they provide tax-free cash, allow homeowners to stay in their homes, and provide lump sums of capital that can be used to make retirement dreams come true.
You’ll feel the impact of your equity release plan when you’re alive. But how does equity release work when you die? We’ll answer everything you need to know about what your beneficiaries will experience after you’ve passed away. If you’re the beneficiary of someone with an equity release product, we’ll guide you through equity release and what happens when someone dies. Let’s dive in.
We’ve covered how to release equity from your home step by step, but what happens when you die? The money owed on your equity release plan is due following your death. The executioner of your estate will be responsible for talking to the equity release lender and arranging payment. In most cases, the balance will be paid via the sale of the property, but that’s not necessarily the case. Other assets can also be used.
Money will be assigned to beneficiaries of your will if there is still money to be distributed after the lender has received their share.
When your equity release plan needs to be paid back will depend on the specific details of your plan and the terms of the lender. However, in most cases, lenders will expect to receive their money within twelve months of your death. This work will be handled by the executors of your estate, who will communicate with the lender to outline when and how the money will be repaid.
While, as outlined above, it’s possible to avoid the sale of a property when repaying an equity release plan, there are some types of plans where the property must be sold. That’s the case with home reversion schemes, whereby lenders buy somewhere between 25% and 100% of their home’s equity in exchange for cash. Since the lender is already a part (or full) owner of the home, the property is sold once the final occupant has passed away.
Home reversion equity release home sales tend to take place quickly, often just a matter of weeks after the occupant has deceased.
The short is yes, they can, but you’ll want to check before taking out the policy. Most applications ask you to select whether it’s an individual plan or a joint plan — if your partner lives in the home with you, then you should select a joint plan. In doing so, you’ll guarantee that your partner can continue living in the property until they die (or until they sell up and move into a care home).
Note that it may be possible for your partner to downsize (should they wish) to a smaller property without having to repay the equity release plan, provided the property they move to is appropriate for the plan you’ve taken out.
As we mentioned above, there are two options when taking out an equity release plan. You can take out a joint plan, in which a couple living in the same property are both included in the plan or you can opt for an individual plan.
These processes work slightly differently. Let’s take a look at a couple of different scenarios.
If one equity release plan holder dies, then the remaining plan holder will usually get in touch with the provider to inform them of the death. However, it doesn’t necessarily need to be them — a family member or friend can also do it.
The original copy of the death certificate will need to be sent to the lender, who will then send it back. The remaining plan holder can continue living in the property until they die or until they sell the home.
After the last plan holder has died, the executors of the estate will get in touch with the equity release lender, who will ask for the probate document and death certificate to be sent to them. From there, the executor of the estate will usually have one year to repay the balance, either by selling the home or using other assets.
The process for managing individual plans after death is the same as what happens after the last plan holder of a joint plan has died. The executor of the estate will liaise with the lender to validate the death certificate and organise the repayment of the plan.
Equity release plans are repaid when all plan holders have left the property. While that normally happens upon death, it’s not always the case. If you move into long-term care, then the property will be sold in order for the lender to get their money.
Note that plans remain intact if it’s a joint plan and only one of the plan holders moves out. The important thing to remember is that the plan will be repaid when none of the plan holders remain in the property.
Equity release plans can be a great way to release money from the value of your home and enjoy your retirement years. However, it does also mean that the amount of inheritance that your family receives may be impacted. For example, if you release 95% of your home’s equity, then there’ll be little money — or perhaps none, if interest accrues — to pass on to your children.
One way to get around this is by using a protected equity guarantee, whereby a predetermined percentage of your home’s equity is set aside for your beneficiaries. Note that this will impact how much money you’re able to receive. For instance, if you set aside 40% of your home’s equity, you’ll receive an equity release offer that’s 40% lower.
The impact of equity release on inheritance tax
Equity release can help to reduce the amount of inheritance tax paid on your estate. Tax owed is calculated on the size of the estate. If you’ve turned your home’s equity into cash and spent it, then your estate size upon death will be smaller. After all, the government can't tax money that has already been spent.
However, it’s worth noting that equity-released cash may result in higher inheritance tax liability if it has not been spent.
The steps your beneficiaries need to take will depend on the type of equity release plan you’ve taken out. If you’ve taken out a standard plan, then they won’t need to do anything, since the executor of the estate will handle the process of ensuring that the lender gets paid.
However, if you’ve taken out a home reversion equity plan, then your next of kin will need to be prepared to clear out your home shortly after your death. Most homes under that plan are sold — or at least ready to be sold — a few weeks after death, which means all belongings must be removed.
In most cases, the terms and conditions of the lender will stipulate that the plan must be repaid within twelve months. However, how long it actually takes depends on how quickly the home can be sold at market value. In some instances, it could be a matter of months, in others, it could take close to a year or beyond.
Most lenders are happy to work with the executor of the estate to come up with a solution. If you have a home reversion equity plan, the home will be sold much sooner, often around four weeks after death.
If you’re the first person of a joint policy plan to die, then there’ll be no need — or should be no need — for a solicitor. From the lender's perspective, the equity release plan is still in effect until the last plan holder has died or left the property. Solicitors typically get involved once the plan has come to an end and the balance must be repaid.
It’s generally recommended to work with a financial advisor when dealing with financially impactful processes. A good advisor can offer guidance on the correct course of action, and can even offer advice on how to reduce tax liabilities or, in the case of surviving partners also on the plan, provide insights about switching to a better deal.
Probate and equity release
The executor of your estate can’t begin dealing with your financial affairs until they’ve received a grant of probate. Once they have, they can begin working with the equity release lender. It’s usually recommended to provide details on how to find information relevant to your equity release plan, such as the policy number.
A no-negative-equity is a protective measure that ensures that the cost of the repayment will never exceed the value of your home. This makes sure that your beneficiaries are not responsible for additional costs after you’ve died. However, it’s important to keep in mind that no-negative-equity guarantees aren’t bulletproof; the value of your estate — and how much you pass onto your children — may be impacted if the lender can claim the full value of your home.
It depends on what type of equity release plan you’ve taken out, but in general, it’s usually possible to do so. You may make repayments to pay off some interest, which can help to save more money down the line since interest on the plan will compound — and good add up to a small fortune as a result. Some lenders charge early repayment fees, so it’s best to make sure that it’s worth making payments before doing so.
Yes, you can usually move home with an equity release plan. These plans are portable and provided the home you’re moving to is approved by the lender as being suitable, then it’s fine. This allows plan holders to downsize should they wish.
Equity release lenders are well-regulated, and it’s highly improbable that they will go bust. If it did happen, then the loan would be transferred to a new lender, who would be bound by the terms of the original plan.
How long it takes for the lender to be repaid depends on the type of equity release product you have. In most cases, repayment is made within twelve months, though it could be much faster — as little as four weeks — with some types, such as home reversion equity release plans.
Equity release plans are popular for a reason. While you’ll mostly get to enjoy the benefits of your plan, it’s worth thinking about what happens to the plan after you die, especially if you’re still weighing up different plan types. If you need help deciding, then consider speaking a member of our conveyancing solicitors department.
