Can my family be involved in the equity release process?

Equity release is a major financial decision that impacts not only the homeowner but also their wider family, particularly future beneficiaries. While the decision ultimately rests with the legal property owner(s), family involvement is highly encouraged and often essential to ensure everyone understands the implications, especially regarding the reduction of the remaining estate.

How Can My Family Be Involved in the Equity Release Process?

Equity release allows homeowners, typically aged 55 or over, to unlock tax-free cash from the value of their property without having to move home. Because this financial product is repaid when the last borrower dies or moves into long-term care, it naturally affects the value of the estate left to beneficiaries. Therefore, the involvement of close family members is crucial for comprehensive financial planning and emotional support.

The Equity Release Council (ERC) standards strongly recommend that customers discuss their plans with their family. An experienced, regulated equity release adviser will often encourage adult children or other interested parties to attend advisory meetings.

The Crucial Role of Adult Children and Beneficiaries

For many people considering equity release, the biggest concern is how it will affect the inheritance they planned to leave. Having an open discussion with adult children early on can alleviate potential stress and future disputes.

1. Attending Initial Advice Meetings

If you are comfortable, inviting your adult children or primary beneficiaries to attend the meeting with the equity release adviser is highly beneficial. The adviser will clearly explain the mechanics of the plan, including how compounding interest works and the long-term impact on the property’s value. This transparency ensures that the family understands:

• How much cash is being released.
• The interest rate and the implications of interest rolling up over time.
• The importance of the No Negative Equity Guarantee, which ensures that beneficiaries will never owe more than the property is worth when it is sold.
• The costs involved, such as arrangement fees and legal fees.

Having a third party hear this advice helps confirm that the homeowner has fully grasped the potential risks and benefits.

2. Emotional and Practical Support

The process of equity release involves gathering documentation, attending legal appointments, and making a significant financial commitment. Family members can provide practical assistance, such as:

• Helping organise necessary paperwork related to the property deeds and valuations.
• Providing transport to appointments.
• Offering an independent perspective during the decision-making phase, especially if the homeowner is feeling pressured or confused.

Legal and Financial Safeguards for the Family

The equity release process involves several mandated steps designed to protect both the homeowner and their family from exploitation or misunderstandings.

Independent Legal Advice is Mandatory

Regardless of family involvement, every applicant must receive independent legal advice (ILA). This is a compulsory part of the equity release process. The solicitor’s role is to ensure the homeowner understands the legal commitment and all contractual terms before signing. Family members are often allowed to sit in on these legal appointments, but the solicitor’s primary duty is to the borrower.

Considering Power of Attorney (PoA)

If the homeowner is considering equity release but has concerns about their future capacity to manage their finances, discussing a Lasting Power of Attorney (LPA) with the family is essential. If an LPA is already in place:

• The LPA may need to be registered with the lender before the process can begin.
• If the homeowner lacks the mental capacity to make the decision themselves, the appointed attorney(s) may apply for equity release on their behalf, provided the LPA documentation allows for it and it is in the homeowner’s best interests. This is a complex legal area and requires expert advice.

Addressing Inheritance Concerns with the Family

The most common anxiety surrounding equity release is the reduction in the value of the estate. While equity release inherently reduces the inheritance, there are several ways a family can mitigate this impact, often with their involvement:

Ring-Fencing Equity

Many Lifetime Mortgage products allow the homeowner to reserve a portion of the property’s value for their inheritance. This is called ‘ring-fencing’. While this reduces the initial amount of cash that can be released, it provides certainty that a minimum percentage of the property value will remain for beneficiaries.

Voluntary Interest Payments

Some modern plans allow the homeowner to make voluntary partial repayments towards the loan or the interest. If the homeowner decides to service the interest, they can significantly reduce or even halt the compounding effect, preserving more equity for their family over time. Discussing this affordability with the family can ensure it is a sustainable strategy.

Gifting Monies to Family

Sometimes, homeowners release equity specifically to give financial gifts to family members (e.g., to help with a house deposit). If this is the plan, it is crucial to discuss the Inheritance Tax (IHT) implications of such gifts with a financial adviser, as gifts must meet specific criteria (like surviving seven years) to fall outside of the estate for IHT purposes.

What If My Family Disagrees with My Decision?

While discussing the plan with your family is strongly recommended, it is important to remember that the final decision rests solely with the legal property owners. Adult children or other beneficiaries do not have the legal authority to veto the equity release application, provided the homeowner has the mental capacity to understand and agree to the terms.

However, significant family disagreement can be a red flag for an adviser, who may probe further to ensure the homeowner is not being unduly influenced or coerced. An open, honest conversation remains the best path forward, focusing on the homeowner’s needs for their retirement.

People also asked about family involvement in equity release

Can my children object to me getting equity release?

Legally, adult children cannot stop a parent who owns the property and has full mental capacity from taking out an equity release plan. However, they can raise concerns with the independent financial adviser or solicitor, who must verify that the borrower is making the decision freely and with a complete understanding of the financial commitment.

Should my spouse or partner be involved in the equity release decision?

Yes, if you are married or in a civil partnership, your spouse or partner must be involved. If they are co-owners, they must apply jointly. If they are not an owner but live in the property, the lender will usually require them to obtain independent legal advice and agree to the terms, as the equity release plan will affect their right to reside in the property following the death or move into care of the borrower.

Does equity release affect Inheritance Tax (IHT)?

The primary effect is that the value of your estate is reduced by the amount of the loan and the accrued interest, which may reduce your overall IHT liability. However, if you release equity and gift the cash to your family, those gifts may be subject to IHT rules if you do not survive the gift by seven years. Always seek professional advice regarding IHT.

What happens if I need to move into long-term care?

If the homeowner (or the surviving homeowner in a joint application) needs to move into long-term care permanently, the property must typically be sold to repay the equity release plan. If family members wish to keep the property, they usually have the option to repay the loan themselves, subject to the lender’s terms, before the property is put on the market.

Is it possible to use equity release funds to pay off family debts?

Yes, once the tax-free cash is released, you can generally use it for any purpose you wish, including consolidating existing family debts or helping family members financially. However, it is crucial to consider whether incurring an interest-charging debt secured against your home to pay off other debts is the most suitable financial strategy.

Summary of Why Transparency Matters

Equity release is a highly regulated and safeguarded product, but its implications are long-lasting. While the decision is yours, inviting your family into the process—especially during the consultation phase—fosters trust and transparency. It ensures that everyone understands how the financial stability of your retirement years is balanced against the value of the inheritance that will eventually be passed down.

Always ensure you consult with a specialist equity release adviser who is authorised and regulated by the Financial Conduct Authority (FCA) and adheres to the standards set by the Equity Release Council.