I’m thinking about releasing equity from my home, but I’m not sure what happens to an Equity Release plan when I pass away. I live with my husband and we have two grownup children.
- Tom Conner
Equity Release and Death
Firstly, what happens to your husband when you pass away will depend on whether you take out an Equity Release plan in your name only or whether you take it out jointly as partners.
Joint Equity Release
If you take the plan out jointly, which is possible if you’re both of eligible age, then the plans work essentially on a ‘second death’ basis. This means effectively nothing happens until the last partner passes away.
You and your husband retain the right to live in the property until the last remaining partner dies or moves into long-term care.
At that point, the home is sold and the Equity Release provider collects their share of the proceeds from the sale.
Individual Equity Release
If you take out the Equity Release plan in your name only, then when you pass away or move into care, unless your husband can raise the capital to repay the provider in full, the home will have to be sold. This means he’ll have to find somewhere else to live.
For this reason, most Equity Release providers normally stipulate that where there’s a partner or spouse, the plan is written into joint names to prevent this happening.
If, in the future, your children would like to move in with you, they will be required to sign an Occupancy Waiver by the lender. This ensures that they agree to move out once you and your spouse have passed away.
Who Inherits My Property with Equity Release?
If you’ve released equity from your home, your loved ones don’t automatically inherit the property. This is because the provider becomes the ‘first charge’, which means the lender gets to recover as much of what they lent to you as possible in the event of your death or you moving into long-term care.
No Negative Equity Guarantee
If your property is worth less than it was when you released equity and now won’t cover the outstanding balance, then the No Negative Equity Guarantee means your estate won’t owe more than the house is worth.
However, in this case, after the house has sold, everything will be transferred to your provider to repay as much of the outstanding balance as possible. There won’t be anything left for your children to inherit.
If leaving behind an inheritance to your children is a priority, there are Equity Release providers which will ‘ring fence’ a proportion of your property to leave to beneficiaries. This is best discussed with an adviser.
Note that Equity Release will reduce the value of your estate and may impact your entitlement to certain means-tested benefits.