The answer is not necessarily, as your Will deals with your residual estate once the equity release company has been paid from the proceeds of the sale of the home.
Therefore, your wishes can still be executed, however the amounts involved could be significantly affected if a roll-up lifetime mortgage or home reversion scheme has been taken out.
Equity release plans come in different formats and there is a variety of lenders that offer these equity release schemes. However, all equity release plans essentially allow you to turn the equity built up in your property into usable cash, and therefore do affect the final sale value of your property – your legacy.
If your Will leaves particular sums of money to individuals, and if these sums are based on the value of your home, it may become necessary to amend your Will. This is because once the debt has been repaid to the equity release lender, not enough equity may be left in the property to fulfil your monetary wishes. In this case, your will may not be effective and potentially could leave minimal amounts of inheritance for your beneficiaries.
On the other hand, if your will states percentages of money as opposed to specific sums, this can be achieved irrespective of how much equity remains in your house. In such a case, it may not be necessary to change or review your will because you have released equity on your home. The percentages would effectively scale down the size of the legacy in monetary terms due to the equity release mortgage, however all parties concerned will still receive some monetary value. Again the size of the inheritance would be determined by how much had originally been borrowed, how long the equity release scheme had run for & the interest rate the plan was fixed at.
A situation where it may be advisable to change a will due to an equity release is if you’re releasing equity to help a particular family member. Releasing equity affects the value of the house and therefore the legacy that you will leave behind. In this light, you may want to review your Will, bearing in mind the fact that you will be releasing equity on your home to help one particular individual and that this will have implications for the rest of your family.
If you are looking to equalise your final inheritance, by gifting to one child and not the others at the same time, it can leave an awkward financial decision to have to make. Given that the equity release mortgage will increase in size, this effectively is having an adverse effect on the equity within the house and with it the remaining children’s inheritance.
Well one solution is if you do need to release equity to help your children then consider an interest only lifetime mortgage. Here, by paying off the interest each month will result in a level balance throughout the life of the mortgage. In essence this therefore consolidates the equity within the property and with it the children’s inheritance. Companies such as Stonehaven and Hodge Lifetime can certainly assist with this scenario.
Another option with some of the providers now is to build into your plan an inheritance guarantee. This option will allow you to ring fence a percentage of the value of the house for when it is eventually sold. This can therefore protect some of the inheritance and you can determine how much that percentage can be. Providers here are Stonehaven, Aviva, more2life & Partnership.
A will may need to be reviewed for other reasons not directly related to equity release. These may include a death in the family, a separation or divorce, remarriage or cohabitation with someone who you would like to include in your Will and many others. A Will comes into effect only after you have died but cannot be used if you’re too frail or ill to handle your own financial affairs.
A Lasting Power of Attorney is a document that gives an appointed individual or party the authority to handle your finances in the case of accident, injury or illness whereby you may be incapacitated. Solicitors can draw up Wills and Powers of Attorney. Solicitors with expertise in equity release schemes may be in a good position to advice you on any equity release related revision or rewriting of your will or adding a codicil.
For matters relating to inheritance and the effect that equity release schemes can have on your estate, contact the Compare Equity Release team on 0800 028 3142 or email [email protected].Back