Equity release plans are becoming more and more popular as people over the age of 55 are looking for ways to fund their retirement. As life expectancy increases, so does the chance of needing long-term care. But what will happen if you need to go into long-term care? What happens with your equity release plan?
This article will explore how equity release plans work if someone needs to enter long-term care.
What Type of Equity Release Plan Do You Have?
Individual (or Single) Plans
Individual plans are usually set up by a person who is on their own or has no partner. They’re designed to provide for the individual throughout retirement.
If you select to have in-home care, you can remain in your house and your plan will continue. You can even use your equity released to fund this care.
However, if you do move into a care facility, your plan will then come to an end. The loan is then repaid through the sale of your house. If your family wishes to, they can settle the plan and use alternative cash to pay back the loan, plus interest.
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Joint plans are usually set up by two people – a couple of friends or partners who live together.
The plan will remain in place until both parties have died or have moved into long-term care.
Interesting Read: What Happens to Your Equity Release When You Die?
What’s the Process?
Your adviser will then notify you about what paperwork is required and the process of settling your outstanding loan, plus the interest.
Will I Leave My Family in Debt?
One of the biggest concerns for many people considering an equity release plan is whether or not they’ll leave their family in debt.
If you go into long-term care and need to be provided with assistance, there’s no requirement that your children provide this – it will come from public funds – so you won’t risk leaving them with any financial problems should anything happen.
In addition, the great news about equity release is that the Equity Release Council2 ensures a ‘no negative equity guarantee3‘. This means that your family will never owe more than the sale value of your home, even if the amount owed is greater, or property prices have plummeted.
Does My Family Have to Sell My Home to Cover the Debt?
In general, yes!
Equity release is usually paid back through the sale of your home when you die or move into permanent care.
As previously mentioned, in some cases, equity release can be paid off using alternative funds, should they wish to retain ownership of your home. You can speak to your financial adviser about this.
Equity Release Plans Can Help With Long-Term Care Costs
Whether you’ve got an individual plan or a joint agreement, if someone goes into long-term care, then releasing equity can help them cover some of the costs involved to go to a more upmarket facility.
In addition, you can even use the funds you have released to access at-home care. Meaning that you won’t be required to go to a care facility.
What Happens to Your Equity Release Plan if You Go Into Long-Term Care?
If you select to have long-term care from the comfort of your home, like a nurse or a family member moving in, then the plan will continue. Be sure to ask your financial adviser about the terms of your plan, regarding whether you can have others live with you.
However, if you move to a care facility or residence, then your plan will come to an end.
Equity Release and Paying for Care Costs
If you own your home, you won’t need to sell it for care costs, if certain qualifying dependents still living there.
These family members can be:
- A spouse
- A civil partner
- An unmarried partner
- A close relative that’s over 60 (or incapacitated)
- A close relative under 16 for whom you are legally responsible
- Your ex-spouse / partner if they are a single parent
The house won’t count towards your assets if a qualifying dependent still lives there, and the same applies to in-home care costs.
What’s more, with equity release, you can use the money you unlock to pay for personalised care, from the comfort of your home. While some might enjoy the social atmosphere of a care home, others might prefer staying put.
What Are the Thresholds for Financial Help With Care Costs?
If you can’t afford the cost of old-age care, the government will provide you with financial aid. The threshold differs from one region to the next.
In England, it ranges between £14,250 and £23,250, and it’s £24,000 (for care at home) and £50,000 (for residential Care) in Wales. The Scottish threshold ranges between £18,000 and £28,500, and it’s £14,250 to £23,250 in Northern Island.
If your total assets are less than this threshold, you’ll be entitled to receive maximum support with your care fees from local authorities. However, if your assets are more, you won’t be supported. There is a sliding scale, for those whose net-worth falls in between the sliding scale.
While you may own your home, it doesn’t mean that you are cash-rich. That’s where equity release comes into play. It gives you access to money, while still retaining ownership of your asset.
Why You Can’t Give Away Your Assets to Avoid Care Costs?
Whatever you do, don’t give away your assets to friends or family, in an attempt to gain access to state financial support. The authorities will see this as a ‘deliberate deprivation of assets’, and they won’t be counted towards their means-testing.
In a nutshell, you’ll need to pay for your own care, even though you’ll no longer possess those assets.
Will Your Partner’s Assets Be Taken Into Account?
Any shared assets will be taken into consideration during the means-testing process. However, any assets owned entirely by your spouse won’t be considered.
The Impact of Equity Release on Your Entitlement to Help With Care Fees
If you’re a homeowner receiving in-home care, but if your financial position allows it, you’ll still benefit from mean’s tested state support.
It’s essential to note that by unlocking equity from your home, you could stand to forfeit your state benefits.
Equity release cash will be considered as an asset, and will therefore be calculated. But, if you released equity a long time ago, and you or your partner need care, your equity release is less likely to attract attention from your local authorities, during their means-test.
However, in more recent times, the full value of your house will be considered. Therefore, it’s vital to weigh up these pros and cons, before making your final decision. Be sure to discuss this with your financial adviser before signing up for an equity release plan.
What’s an Immediate Needs Annuity and How Can This Be Used to Fund Your Care?
An Immediate Needs Annuity will provide you with a regular income to fund long-term care, either at home or in a facility. Unlike a regular annuity, it’s tax-free if paid directly to the provider.
It can be paid for in 3 ways:
- Pension cash
- Releasing equity from your home.
What’s great about this option is that it pays out for life, so you can have a stress-free retirement, without worrying about running out of money to fund your professional support.
How Will It Affect My Equity Release Plan If I Go Into a Nursing Home or an Assisted Living Facility for Any Reason?
The equity release plan is not affected by your stay in a nursing home or assisted living facility unless you no longer have the mental capacity to make decisions about your plan.
If You Go Into Long-Term Care, Will Your Equity Release Plan Be Canceled?
No. Equity release plans are not related to health or other medical conditions. You own the property that is being released and can still live in it if you wish. However, there may be consequences for any mortgages attached to the property (an interest rate increase).
Do Equity Release Plans Work For People Who Go Into Long-Term Care?
Yes, equity release plans work for people who go into long-term care. If you need help in the future and your children or partner can’t provide it, then public funds will cover that cost, so there’s no requirement for them to sell your home if they don’t wish to do so.
How Much Does Long-Term Care Cost?
The cost varies depending on the type of care you need, for example, whether it’s nursing or assisted living, and then there are other factors like who will be picking up the bill and how much equity release has been used so far.
Equity release is fantastic in that it allows you to live a stress-free retirement before moving into permanent care. In addition, you might want to use the funds that you have released to hire private care, so you can stay with your partner or in your beloved.
As long as you’re aware of how equity release can impact your means-tested benefits, you can unlock cash with confidence.
Finally, make sure that you get all the right equity release advice before considering taking out a plan. It’s important to fully understand what’s equity release, to see if it’s right for you!