18/06/2018 by Desmond O'Hara CeMAP CeRER 0 Comments
Inheritance vs Equity Release: how do your children benefit
Releasing equity from your home can give you much more financial freedom and boost your budget during retirement.
We discuss is it denying your children their eventual inheritance?
The simple maths would seem to suggest it is. After all, equity release via a lifetime mortgage is effectively remortgaging your home to free up cash, a long-term loan covered by the eventual sale of the home. And, as they say, ‘you can’t take it with you’, meaning that the loan is paid out of what might have been a capital inheritance for your dependants. In short, equity release will reduce the value of your estate.
So, are my parents spending my inheritance?
Not necessarily. People can take equity release for a variety of reasons,many of which involve helping them enjoy their retirement years: improving their home, taking regular cruises and holidays, or simply topping up their retirement income (which no-one knows how long will last). Equally, many people release equity to provide a living inheritance for their family, providing funds for their children and grandchildren, who may need help with weddings, studies, or deposits for a first home.
Equity release to help buy property - according to the Money Charity, the average first time buyer deposit is 96% of an average salary.
So if your offspring can get help to buy now from equity release, and get on the property ladder sooner rather than later when prices are most likely much higher, their property could be worth much more by the time they would have otherwise received an inheritance. They may not inherit the property in the way they thought they might, but inheriting a home in the traditional way and having capital tied up in their home could mean that it would be subject to inheritance tax.
Telegraph research found that 15% of our equity release customers in 2017 named gift planning as one of the reasons to release equity. Customers planned to pass on a large part of their home’s value to their children, to enable them to pay off debt or student loans or fund a deposit, to help them pass mortgage affordability tests for a home of their own.
So would I still inherit the property?
With a lifetime mortgage, there’s no reason why not, though the actual windfall may be smaller as a loan needs to be paid back. The no negative equity guarantee means that even if house prices were to fall rapidly, the amount to pay back can never exceed the value of your home, and the estate will not be liable if the sale price doesn’t cover the loan. Any remaining debt is simply written off.
Is Equity Release safe? (taken from an excellent article in The Telegraph)
You can still stay in your home even if you take equity release. The Equity Release Council say that both you and your partner have the right to live in your home for as long as you want to. With a home reversion plan, you have a lifetime lease - you live there rent-free before the house is sold when you no longer need to live in it.
Equity release may affect your entitlement to means-tested benefits, we will provide you with a full personalised illustration of the features and risks to you and any effect on means-tested benefits. Advice and marketing on all forms of equity release is regulated by the FCA (Financial Conduct Authority), who set the rules that providers and advisers have to be fair and clear in their words and deeds about equity release, so you can understand if equity release is the right option for you. Please contact Lifetime Mortgage Solutions on 0333 012 4093 for your personalised illustration.