Yes, it is likely that equity release will impact the total amount of inheritance you leave to your children. However, this is not to say that all equity release products inhibit you from being able to leave any more to your beneficiaries. There is a variety of options available to you, which we will explain more about in this guide.
Equity release will usually still leave you with an inheritance amount, and this is how. Equity release provides homeowners over 55 with a large cash sum for their property which is tax-free. These homeowners will be able to remain in their home till death or going into long-term care and pay interest each month on the equity release amount taken out.
Equity release companies recover their funds when your home is eventually sold. Proceeds from the sale are given partly to this firm and in most cases, there is still money left over afterward.
In addition, if you so wish, there is no reason whatsoever why it isn’t possible to leave as an inheritance the original lump sum you took out as equity release.
In terms of how lifetime mortgages work, the clue is in the name – they are intended to last for the rest of your life. With equity release, you can remain in your home until death or you go into long-term care. At this point, your home is sold, with proceeds going to both the equity release lender and your beneficiaires.
If you are concerned about inheritance being affected, think about choosing an add-on for your equity release product. It is possible with a wide range of equity release lenders (there are at least 100 equity release products available across the UK) to add an ‘inheritance protection guarantee’ add-on. This means you can specifically safeguard a percentage of your property’s value to protect and save for your children or grandchildren.
For example, you can decide that 35% of your home’s value will be assigned as an inheritance.
Typically, this will be for free or for a minimal cost. However, it is worth bearing in mind it may impact the initial equity release amount you can take out.
Home reversion plans are different from lifetime mortgages as you are ‘selling off’ a percentage of your home. That means you can borrow considerably more with this equity release product (which you might use to give to beneficiaries whilst you are alive). At the same time, it does mean it will not be possible for you or your loved ones to benefit from an increase in the value of your home if this occurs after equity has been released from the home.
It is possible to state you want a specific amount set aside for inheritance to the lender, or implement a protection plan instead.
There are some ways you can increase your children’s inheritance through an equity release product. The main ways are through voluntary payments or getting a drawdown lifetime mortgage.
If it is possible for you to make voluntary payments, it is well worth you doing so. This is because it will reduce the level of interest incurred on your loan, meaning you have more to give to your beneficiaries.
Another option to increase how much you give to your children after you have passed away is by picking a drawdown lifetime mortgage instead. This is because you will only be required to pay interest on money that drawdown.
For example, instead of releasing £30,000 upfront, you might decide to draw down smaller increments (such as £3,000 every two months). It may be more cost-effective to do this.
If you can reduce the interest you pay, then this will increase how much you can give as an inheritance.
No, they will not, thanks to the no negative equity guarantee scheme that each equity release lender is required to include in its products. The guarantee, imposed by the Equity Release Council, means no borrower or their beneficiaries will ever have to pay more than the property’s value.