Equity Release After Death: What Your Family Needs To Know  

How does equity release affect probate?

In England and Wales, probate gives an executor the authority to deal with an estate. If there is no valid Will, an administrator may need to obtain letters of administration. Scotland and Northern Ireland have different procedures.

A property can usually be valued and marketed before the grant is issued, but the sale may not be able to complete until the required legal authority is available.

The lender’s repayment period may run from the date of death rather than the date probate is granted. Interest also normally continues throughout probate and the property sale.

Executors should contact the lender as early as possible. A lender may consider allowing more time where there is clear evidence that probate or a sale is progressing, but an extension is discretionary and should never be taken for granted.

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A lifetime mortgage reduces the value of the estate because the borrowing and interest must be repaid.

A simple way to understand the effect is:

Property sale priceminus the lifetime mortgage balance and accrued interestminus sale and estate costsequals the remaining property equity

The final amount available to beneficiaries depends on:

• how much was borrowed and withdrawn;
• the interest rate;
• any repayments made;
• how long the plan was in place; and
• the property’s eventual sale value.

Some lifetime mortgages offer inheritance protection. This may ringfence part of the property’s future value for beneficiaries, subject to the product terms.

A drawdown facility can reduce the interest charged because interest is normally added only to money that has actually been withdrawn. Voluntary repayments may also reduce the eventual balance.

Secured borrowing is considered when valuing the estate, but inheritance tax depends on the wider estate and individual circumstances. Anyone considering making gifts during their lifetime should take appropriate tax, legal and financial advice.

What if the house sells for less than the amount owed?

Plans that meet Equity Release Council product standards include a no-negative-equity guarantee.

Subject to the plan conditions, this means the borrower or estate should not have to repay more than the eligible net proceeds from the property sale after reasonable selling costs.

The property may need to be sold for the best price reasonably obtainable and through an appropriate process. The guarantee does not mean that beneficiaries are certain to receive an inheritance.

Older plans or products without this protection need to be checked individually.

Equity release and your Will - Should I change my Will when I take out equity release?

Taking out equity release is a good reason to review your Will because the value left in your home may be lower than originally expected.

Gifts involving the property or fixed cash amounts could be affected. A solicitor can explain whether any changes are appropriate based on the wider estate and your wishes.

Executors should know that the plan exists and where its documents are stored. A Will cannot override the lender’s legal charge over the property.

If there is no valid Will, the remaining estate will be distributed under the intestacy rules.

Our expert says:

'If you're considering equity release its important to understand how it works during your lifetime and what happens when you die. We know it is never easy to think about dying but having all the facts available to you will ensure you make the best decision'.

What happens to a home reversion plan after death?

Equity release also includes home reversion plans.

With a home reversion plan, part or all of the property has already been sold to the provider. There is therefore no lifetime mortgage balance or compound interest to repay.

When the property is sold, the provider receives its agreed share. The estate receives the value of the portion that was still owned by the deceased.

The home reversion agreement will explain the sale process, responsibilities and applicable timescale.

Information to leave for your family

Keep the following information together and tell an executor where it is stored:

• the lender’s name and bereavement contact details;
• the lifetime mortgage account number;
• the mortgage offer and terms;
• the latest annual statement;
• the adviser and solicitor’s details;
• the location of the Will;
• the names of the executors;
• whether the plan is sole or joint;
• details of any inheritance protection or repayment features; and
• the plan holder’s wishes for the property.

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