Managing an Estate: Equity Release Explained for Beneficiaries
Once a homeowner with an equity release loan dies, their beneficiaries (or trustees) need to work through a few steps to finalise the sale.
Repayments in Equity Release Explained
When the loan holder (or the second surviving partner) dies or goes into care, the equity release lender needs to be repaid within a finite time frame.
Those deadlines are included in the equity release agreement and will be around 12 months.
That period allows beneficiaries a little leeway to see if there are other ways to repay the debt without selling the property.
For example, they might opt to sell other inherited assets, collect investment returns or cash in pension benefits to pay back the equity release loan.
How Does Equity Release Work if the Beneficiaries Don't Want to Sell?
Most equity release loans are settled through a property sale, but alternatives depend on the available finances.
One option is for the heirs to repay the debt themselves or perhaps cash in funds from elsewhere in the estate if they wish to keep the property.
Home reversion plans are the exception to the rule and an older, less flexible and less popular type of equity release loan.
If a homeowner takes out a home reversion plan, they sell some or all of their property equity to the provider in exchange for a lump-sum cash payment.
In these scenarios, the lender automatically owns the property and will sell it onward.
Guidance From Equity Release Advisers for Surviving Partners
Several rules and regulations apply to equity release loans, as specified by the Equity Release Council - including what happens if one borrower dies and a surviving partner still lives in the property.
Provided you have taken out an equity release loan from a respected lender who participates in the scheme, a second partner has a lifelong entitlement to live in their property.
Equity Release Interest Rates and Inheritance Tax
Equity release has a bearing on inheritance tax. In effect, cash borrowed is a loan, not a form of income or earnings, so it isn't subject to income tax.
Beneficiaries normally pay a reduced inheritance tax bill because the property's value will be less (if partially inherited) or zero (if no sales proceeds remain).
The pitfall is that your heirs normally won't be able to inherit your property, as they would if you had a regular mortgage outstanding on the residence.
Independent Advice From the Leading Equity Release Advisers
If you're managing an equity release mortgage repayment, want to refinance debt, or need to understand the repercussions for your future beneficiaries, please contact the Revolution Finance Brokers team.
We can answer all your queries about the nuts and bolts of an equity release repayment, so you are in a position to make informed decisions.
