Are my children liable for my equity release repayments?

In short: No, your children are not directly liable for your equity release repayments. However, the equity release plan will affect the inheritance they receive. It’s crucial to understand the implications for your family’s future.

Equity release allows homeowners aged 55 or over to access the cash tied up in their property without selling it. This money can be used for various purposes, from home improvements to supporting family members. A common concern, however, revolves around the potential liability of children for the repayments.

Understanding Equity Release Repayments

Equity release is a loan secured against your property. The loan, plus accumulated interest, is typically repaid upon the sale of the property, usually when you die or move into long-term care. There are several types of equity release plans, each with its own repayment terms and implications. You should always seek independent financial advice to determine the most appropriate plan for your circumstances.

It is important to understand that interest on most equity release products rolls up and is added to the loan’s capital, meaning your debt grows over time. You’ll typically make no monthly payments until the property is sold. However, there might be specific situations where you can make voluntary payments towards the loan if you choose to. You should carefully consider the long-term implications of any decisions regarding the structure and management of your plan, especially in regards to the interest accrual.

Who is Responsible for Repayments?

The responsibility for repaying an equity release loan rests solely with the homeowner(s) who took out the plan. Your children are not legally obligated to cover the debt. This means they cannot be pursued for the outstanding balance if you are unable to repay the loan before the property is sold.

Impact on Inheritance

While your children are not liable for repayments, the loan will reduce the value of your estate. The outstanding balance will be deducted from the property’s value before your estate is distributed. This means your children will inherit less than they would have if the property had been left unencumbered.

• Reduced inheritance: The amount your children inherit will be directly affected by the size of the outstanding loan, plus accumulated interest.
• Potential for lower inheritance tax liability: In some cases, equity release might reduce the value of your estate, therefore potentially reducing your overall inheritance tax liability. The exact impact varies on individual circumstances, so professional advice is recommended.
• Careful planning: If you’re concerned about the impact of equity release on your children’s inheritance, open and honest conversations are vital. Discussing your financial planning openly and seeking professional financial guidance can help mitigate potential future conflicts.

What Happens if Repayments Aren’t Made?

If you are unable to repay the equity release loan at the end of the loan term, the lender will typically sell your property to recover their funds. The proceeds from the sale will be used to cover the outstanding loan balance, and any remaining amount will be distributed to your beneficiaries.

It’s vital to understand the potential consequences of defaulting on an equity release loan. These can include:

• Legal action: The lender may take legal action to recover the debt.
• Repossession of your property: In the worst-case scenario, your property could be repossessed.
• Increased interest rates and additional charges: Some equity release plans may involve increased interest rates and additional charges in case of default.

Your property may be at risk if repayments are not made.

Choosing the Right Equity Release Plan

It is essential to carefully consider the different types of equity release plans available and choose one that aligns with your circumstances and financial goals. Seeking independent financial advice before committing to an equity release plan is highly recommended.

A financial advisor can help you understand the complexities of equity release, assess the potential impact on your inheritance, and choose a plan that best protects your interests and those of your family.

People also asked

Can I make overpayments on my equity release plan?

Some equity release plans allow for voluntary overpayments, but this isn’t always the case. Check the terms and conditions of your specific plan.

What happens to my equity release plan if I move into care?

Most equity release plans allow for the sale of your property to cover the loan upon entry into long-term care, even if you haven’t passed away yet. This will then free up the funds remaining for your family and inheritance.

Does equity release affect my state pension?

Equity release itself does not directly affect your state pension entitlement. However, the income you gain through equity release may affect other benefits, so it is worth checking the implications.

Is there a way to protect my children’s inheritance from equity release?

You can explore strategies like gifting some assets to family members prior to equity release. Seek financial advice to find the best option for your situation.

Where can I find more information about equity release?

You can find helpful and impartial information on equity release from MoneyHelper.

Remember, seeking professional financial advice is crucial before taking out any equity release plan. This ensures you fully understand the implications and make informed decisions.