The decision to release equity from your property shouldn’t be taken lightly. It will have a significant impact on the lives of you and your family, so it’s essential to understand what the effects may be.
This article will reveal some of these impacts. In addition, we have compiled 2 different scenarios and how equity release can positively affect your family relationships!
Continue reading to find out more!
The Positive Effect of Equity Release on Your Family
Are you over the age of 55, own your property, and have elderly parents who need support? If so, equity release can positively affect your life! It can give you the means to help your parents live comfortably until the end. If your parent has care needs, you can release equity to give them top of the range assistance.
Equity release might seem like the perfect way to help your parents live independently and free from debt. Still, it’s essential not to overlook the impact equity release can have on your children.
How Will Equity Release Impact My Family?
Equity release will affect you and your family in many ways. For example, suppose someone is using equity release to pay off their mortgage or other debt obligations.
In that case, they may be neglecting other family’s needs, such as saving for retirement or providing an inheritance.
One of the main pitfalls of equity release is that you will drastically reduce your family’s inheritance. You are essentially using some of the money that you would have left to them. When you pass away or move into permanent care, your home is sold, and the cash is used to pay off the loan plus interest. Your family will then get whatever balance is remaining.
If you’re considering equity release, make sure that these measures are taken to help protect your family from any adverse consequences!
How Much Inheritance Will My Family Receive?
If the sale value of your home is lower or equal to the amount owed on your equity release loan, then your family will receive nothing unless you have additional assets.
The great news is that the Equity Release Council1 has ensured a ‘no negative equity guarantee2‘, which means that your family will never owe anything more than the amount your house sells for, even if property prices plummet.
Equity release products allow you to set aside a percentage of your house that will be protected and given to your family when you pass away or move into permanent care.
Will My Family Inherit Debt?
Many people wonder if they will inherit the debt of their family member who has taken out an equity release plan. Suppose a parent takes out a lifetime income withdrawal plan.
The answer is no!
Your equity release loan is paid off from the sale of your home.
What Happens to My Partner if I Die?
If a spouse is the only named beneficiary2 in an equity release plan, their inheriting the funds will depend on how much of it has already been spent. Suppose there’s money left over after paying for funeral expenses and other debts, then yes.
In that case, your partner may inherit funds – but if it’s all gone, then no, they won’t be able to claim anything from this scheme.
Some annuity3 providers offer family protection policies to help protect spouses who should’ve received payments out of such plans. This protection policy includes covering some funeral costs and, in some instances providing a lump sum.
These products offer peace of mind about what might happen when one dies.
In addition, you can take out a joint equity release plan, ensuring that your spouse can stay in your house until they, too, pass away or move into permanent care.
What Happens to My Children if I Die?
The answer to this question will depend on the age of your children. If they’re under 18-years-old, then their parent’s estate will be distributed following intestacy law4– that is, according to who the deceased was married to and what share they had in the property.
However, suppose they’re over 18 (or have reached a certain level of maturity). In that case, it could affect things more significantly as they can inherit even if you haven’t left them anything else directly in your will.
There may also be other legal considerations that family lawyers would recommend you consider before taking out an equity release plan, such as whether someone has applied for child maintenance from one of the parents, so please make sure you seek advice where appropriate.
Can My Family Inherit Equity Release Funds?
Yes, even if a parent has an equity release plan and dies, their estate will be distributed under the intestacy law. However, suppose someone is over 18 (or mature enough). In that case, they could inherit even if you haven’t left them anything else directly in your will.
Note that your plan comes to an end when you pass away or move into permanent care. In addition, you can use the equity released to give your family an early inheritance.
What Are the Common Problems for Families When Releasing Equity?
There are a lot of different scenarios where releasing equity could cause problems for your family. For example, if you have children and want to release equity before they reach 18, it may affect their inheritance rights.
Another problem that can arise is if someone receiving maintenance payments from one parent dies. At the same time, the other has released some or all of their home’s value as part-time income through an equity release plan.
What Equity Release Plan Has the Least Effect on My Family?
An equity release plan with the least effect on your family will depend on several factors, including how much you want to access and what type of mortgage you have.
How Do I Make Sure That There Are No Adverse Effects to the Rest of My Family When Taking Out an Equity Release Plan?
The best way to make sure there are no negative effects on the rest of your family is by asking your financial adviser to help assist in securing a percentage of your home that will be left to them in your will.
How Do I Limit the Effect of Equity Release on My Family's Inheritance?
There are ways to limit the effect of equity release on your family. These include:
- Taking out a joint equity release plan with another person, such as a spouse or parent who is still alive and living in the property
- Making sure that anything left for children (or any other beneficiaries) is not affected by equity release
The equity release process can be an important and beneficial financial decision for some people. However, it’s not suitable for everyone.
The most important thing to remember is it will negatively affect the amount of inheritance you leave to your beneficiaries.
It’s essential to have a conversation with your loved ones and consult an independent financial adviser to determine the best step for you and your family.