What Happens to my Equity Release Plan when I Die?

Of course, the type of equity release scheme you sign up for has an impact on what you actually leave in inheritance. Most common plan is a lifetime mortgage, which means you can borrow money against the value of your home, with the fees and capital being repaid when you die, or go into care.

Should you choose a plan that has a ‘drawdown’ option in it, you can release funds when you need them, but that comes with its own risks – there’ll be no guarantee that you’ll be able to leave any inheritance. If you can afford it, some schemes will let you pay off interest monthly, so you’ll only ever owe the original capital sum that you borrowed.

The timing of getting an equity release loan is key, as the earlier you take out such a release loan, the more it is likely to cost over time, because of interest.

These are the things that will be considered and discussed with your advisor before making any formal agreements.

What is the Process?

When you die, the first thing that happens is the beneficiaries or executors will contact the lender with the details and reference numbers in the pack given to you when you formally agreed to the deal. It is important to keep these records in a safe place, and let all interested parties know about their whereabouts.

The equity release scheme will need to be repaid within an agreed timescale, which is dependent on the lender. It is usually 12 months following the death of the homeowner. The beneficiaries will decide how to release the equity, and usually, that will be through the sale of the property.

Beneficiaries can also retain the property themselves if they so choose, but they will need to raise the capital themselves to clear the equity release balance.

Repossession of a home isn’t in the best interest of the lender, so they will be in constant contact with the beneficiaries and executors to avoid this happening.

When the time comes, lenders will need to see a copy of the death certificate, as well as a probate document, so they can get in touch with the executors of the estate. If the plan is to sell the house, then the lender will invariably want to be kept up to date with the sale of the property. They may want to be kept in contact with the estate agents undertaking the sale, so they can see how much the property is being sold for and the like.

Should the property not sell for whatever reason, then the lender retains the right to repossess the property, but this is usually something of a last resort, and all decisions will be reviewed alongside the executors.

If you have a joint plan, where one of the applicants has passed away, then the living plan holder will contact the lender. Of course, with it being a tough time to make such a call, there’s things in place where lenders will allow a family member to conduct any correspondence. Again, the lender will require the death certificate, which will be returned securely. The plan continues until the death of the remaining plan-holder.

There shouldn’t be any need for a solicitor to get involved at any stage. In the case of a single or joint plan, nothing has legally changed. The equity is released and the loan is repaid as initially agreed. A solicitor may get involved if there are any changes needed to the mortgage deed, but as far as your equity release agreement is concerned, they don’t really need to be involved.

Should there be any concerns, then it is advised that beneficiaries contact a financial advisor who can help with all issues, and be guided through the process. If you have a joint plan, where one of the applicants has passed away, then a financial advisor can talk through proceedings with the surviving partner, as well as the future beneficiaries. They can help with things like moving plans that offer more flexibility, or using extra money from a drawdown option to pay for funeral costs or supporting the surviving family member.

Beneficiaries are protected by plans, provided the original agreement was taken out with a company that is reputable and a member of the Equity Release Council. All plans sold with a ‘no negative equity guarantee’ means that the beneficiary won’t have to pay extra money, in the event of the loan being a greater value than the property.

You will have already weighed-up whether the releasing of equity is the right thing for you or not, and borrowing against your home can make your retirement easier, but obviously, reduce the proceeds from your estate when the time comes. Speak to an independent financial advisor first, and then, when you’re gone, you’ll can enjoy your retirement knowing that everything is in-hand when you pass away.