What you need to know before your parents take Equity Release

What you need to know before your parents take Equity Release. Almost everything written about Equity Release is written from the perspective of the person thinking of taking out the plan. However, if the potential Equity Release holder has a family, then there will be repercussions for them as well. Especially with regard to any inheritance they might be expecting.

Just what kind of things should you be aware of, or should ask, if your parents or grandparents say they are thinking of getting an Equity Release plan?

It might be stating the obvious, but parents and grandparents are adults and as such they have the right to do as they wish with their own money and property. That said, it is standard practice for advisers to discuss family circumstances with an applicant and, if it has been made clear that they do not want the rest of the family involved, it is something that will be noted and signed by the applicants as being their express wish.

At the other end of the scale, family members can be very actively involved. Advisers should be happy to make themselves available to family members in order to answer any questions they have. Data protection rules apply to everyone and in order for anyone to discuss or request information about an Equity Release application, then the applicants need to give their permission to speak with other members of the family.

If a company or person fails to comply with this, then they are breaking the law.

The first question that is nearly always asked by the family is why?

And the answer can be all manner of reasons. They might wish to improve their lifestyle, go on holiday, upgrade the house or make a gift to their family or friends while they are still alive to see their family and friends enjoy it. They might have financial difficulties which they wish to keep to themselves. So the simplest way to deal with the situation is to just ask and then try to see things from their point of view.

Every family is different, with different dynamics and relationships. From a financial planning perspective, advisers like to have the involvement of a potential client’s family. Talking things through might bring to light matters that may affect the prospective borrower’s plans. If a parent or grandparent wants to give children or grandchildren a gift, then find out how much and what it might be used for.

If there is a IHT element to the potential plans, then find out exactly what the consequences of a lifetime mortgage would be. As well as the Equity Release adviser, it might be a good idea to speak with an IFA, Accountant or Solicitor.

The one definite consequence for a family of an Equity Release plan-holder is that the size of any inheritance will be diminished. Unless property prices rise in such a way that they always cancel out the increasing debt being built up within the plan. Mathematically possible, but extremely unlikely.

Although the idea of diminished inheritance may not be very well received initially; many forget that parents and grandparents bought a house for perhaps £30k and now it is worth £300k. They will still end up with far more than the original purchase price. The benefits of using money today when set against an inheritance at some unknown point in the future is also a powerful argument for many people.

One of the most difficult situations arises when the proposed Equity Release money is used for the benefit of one member of the family while disproportionately disadvantaging others.

It may well be that an Equity Release plan with interest paying options can be useful. The debt stays the same so the sibling has just had an advance on their inheritance. When it is time to divide any inheritance the amount they have taken is just deducted from what otherwise would have been their share.