Discover how to give your family an early Inheritance with Equity Release & see them enjoy your estate while you are alive! Here is how…
How to Release Equity to Provide an Early Inheritance
Gone are the days where you inherit your parents’ property, get married and live in that property for your whole life. In this article, we’ll explain how early inheritance Equity Release works so that you don’t have to miss your overseas trips with your parents. With early inheritance Equity Release you can have your cake and eat it.
Let’s quickly look at what Equity Release is again:
What’s Equity Release?
Equity Release is a scheme that lets you access your money that is tied up in your house. However, you can only gain access once you’re 55 years old or older. You can release the funds in your home as a lump sum or an income, based on the house’s value. You’ll just need to repay that money you accessed at a later stage.
There are two types of Equity Release:
The first type of Equity Release is a lifetime mortgage. This type lets you take out a mortgage on your home if it’s your primary residence. However, you will remain the owner. You’ll have the option to ringfence part of your property for your family to inherit. You can also make repayments or let the interest increase.
Better yet, if there’s any loan amount or any accrued interest, it’ll be paid back when you pass away or need long-term medical care.
The second type is a home reversion, which means you sell some, or all, of your property. You can sell it to someone like a home reversion provider, and they’ll pay you a lump sum for it, but they can also pay you in regular payments. It’s your choice
Now, how does this affect an early inheritance?
Equity Release & Inheritances
Revising the concept of inheritance is long overdue, especially now that Britons live longer, better, healthier, and more active lives. Today, you can receive an inheritance early from your parents, for example, even if they take out an Equity Release plan. Many people plan to rely on that inheritance to fund their retirement, instead of a pension. So, getting an early inheritance can be quite beneficial for your future financial planning needs.
Skipton Building Society did some research recently and found that 1 out of 4 people don’t plan to give their children an inheritance. Something new has happened: spending the kid’s inheritance (or SKI-ing for short). More and more retired folks are celebrating the end of their lives with their children’s inheritance money and find the Equity Release uses enjoyable.
Passing on a Legacy
This can sound surprising, but if you look a little deeper, SKI-ers may have passed on a legacy already, in some way or another. As life gets more and more expensive many people choose to gift their loved ones an ‘early inheritance’. This is often in the form of training courses, covering university costs, property deposits, weddings, new-born babies etc. The list goes on and on, as does your credit card bill.
For those who are helping their family in different ways than the norm, leaving a legacy isn’t enough. People want to see their inheritance being enjoyed while they’re still alive. That’s why SKI-ers are using their most significant asset, their property, to help their family with a leg-up in life.
Now, how does Equity Release work and how does it relate to an inheritance in action?
Inheritance in Action with Equity Release
What’s early inheritance? If you have a safe type of Equity Release like a lifetime mortgage, and you’re older than 55 taking money out of your property to help your family, it’s called an early inheritance. Many people use their equity from their home or property to gift their families with a financial boost.
You can release £10,000 minimum and can leave more than that in a reserve fund so that you can withdraw it as and when you need it for extra expenses or something else. You can pay off an existing loan or mortgage as well, freeing you from monthly repayments.
2 Steps to Protecting Your Inheritance When Using Equity Release
1. Inheritance Protection
A lifetime mortgage is a loan against your home. Inheritance Protection is an excellent option to protect your lifetime mortgage and secure a portion of your home’s total sale proceeds for your heirs. If you choose this option, your loan amount might be reduced.
If your property is worth £200,000 currently and you want to protect 30% of that amount, the maximum loan amount available will be based on 70% of your property’s value – meaning £140,000 instead of £200,000.
If you’re very set on leaving an inheritance, you should choose this option. You’ll need to say what percentage you’d like to protect (called the Protected Percentage) when applying for your lifetime mortgage.
Inheritance Protection can’t be added to your lifetime mortgage or the increased loan amount after your lifetime mortgage has ended. Your financial adviser should help you decide if Inheritance Protection is the right thing for you, and you should also discuss with your family how a lifetime mortgage will impact your inheritance before making a decision.
2. Early Repayments
When it comes to a lifetime mortgage, you can repay some of the interest on the loan or all of it at once. You can also repay some of the capital. This will reduce your total loan amount and potentially leave more money for your family to inherit when you die. It’s all up to you.
You are limited as to how much you can repay and how often you can repay. If you don’t like the sound of that, you don’t have to repay anything until you die or move into long-term care.
What if your family needs financial help now?
By taking out Equity Release, you can help your family out if they require some money. You can support your grandchildren, for example, to do what they want to do. Then, you’ll also be able to see them enjoy your money while you’re still alive.
7 Things to Think About BEFORE Releasing Equity
- The Financial Conduct Authority1requires that you get specialist advice from a qualified Equity Release adviser before releasing tax-free cash from your property.
- There are multiple equity release companies offering lifetime mortgages, which are loans secured against your property.
- Think carefully before taking out a loan against your home.
- Equity Release will decrease your estate value and may impact on your entitlement to means-tested benefits.
- You remain the homeowner of your property with a lifetime mortgage.
- Take out a plan with a no-negative equity guarantee2so that you’ll never owe more than your property’s value.
- With some Equity Release plans, you can guarantee an inheritance.
If you would like more help and advice on how to leave your family an early inheritance through Equity Release, please do not hesitate to get in touch on either 0800 062 2563 or firstname.lastname@example.org