Equity release and "estate planning"
Discussion
I'm 69. Partner is 61.
No mortgage, no kids.
Still doing a bit of self-employment, but looking to retire soon.
State pension, plus £12k DB pensions.
Around £25k savings.
House currently worth around £425k, so total estate around £500k
My will splits my estate equally between my partner and my 4 siblings/their kids.
Looking to do some home improvements before I retire, costing around £40k.
Plan was, borrow £40k on a standard 15 year interest-only mortgage, fixed for 5 years, and reconsider after 5 years.
Having seen a couple of posts about estate planning, I'm wondering if it would be sensible to instead borrow more as a straight equity release lifetime mortgage, and gift some of the cash to the eventual beneficiaries now?
Aim being to help people now, and get the estate under the IHT threshold. A big gamble with compounding interest though.
The cash going to my partner would be invested in her name, to tide her over until probate is granted and house sold.
She is in full agreement about this, doesn't want to be in the house if I die first.
Cash to my brother will help him out, as his only income is the state pension. Divorce 6 years ago cleaned him out.
Cash to my sisters (2 are much younger, with kids still at home) will see them debt-free.
Is this a sensible plan?
No mortgage, no kids.
Still doing a bit of self-employment, but looking to retire soon.
State pension, plus £12k DB pensions.
Around £25k savings.
House currently worth around £425k, so total estate around £500k
My will splits my estate equally between my partner and my 4 siblings/their kids.
Looking to do some home improvements before I retire, costing around £40k.
Plan was, borrow £40k on a standard 15 year interest-only mortgage, fixed for 5 years, and reconsider after 5 years.
Having seen a couple of posts about estate planning, I'm wondering if it would be sensible to instead borrow more as a straight equity release lifetime mortgage, and gift some of the cash to the eventual beneficiaries now?
Aim being to help people now, and get the estate under the IHT threshold. A big gamble with compounding interest though.
The cash going to my partner would be invested in her name, to tide her over until probate is granted and house sold.
She is in full agreement about this, doesn't want to be in the house if I die first.
Cash to my brother will help him out, as his only income is the state pension. Divorce 6 years ago cleaned him out.
Cash to my sisters (2 are much younger, with kids still at home) will see them debt-free.
Is this a sensible plan?
My mother in law did equity release and it really helped her, however I think you and your partner need to ask yourself some more questions to do this with confidence such as...
...what happens if you need to move home in future?
...what if one of you needs to go into care?
...what if your partner dies?
Equity release rates are higher than normal and can compound quickly - the debt could double within 10 years and reduce your flexibility in future.
Life insurance written into trust might be a better way of helping your partner before probate is granted.
Maybe a monthly payment to your brother might be better than a lump sum.
...what happens if you need to move home in future?
...what if one of you needs to go into care?
...what if your partner dies?
Equity release rates are higher than normal and can compound quickly - the debt could double within 10 years and reduce your flexibility in future.
Life insurance written into trust might be a better way of helping your partner before probate is granted.
Maybe a monthly payment to your brother might be better than a lump sum.
There is nothing to stop you paying the interest every month, so compounding becomes a non issue. Equity release does not mean you MUST let the interest roll up.
However, the interest rates are higher than other types of mortgage and you're only likely to be able to borrow 20% - 25% of the valuation of your house.
However, the interest rates are higher than other types of mortgage and you're only likely to be able to borrow 20% - 25% of the valuation of your house.
If you look at your after tax income post retirement it doesn't leave a great deal of wiggle room for paying interest.
You and your partner have a good few years ahead of you so as admirable as it is to want to help family anything you do could well make your life more compromised going forward as well as significantly reducing any inheritance.
The best estate planning tool in your situation is to get married.
Shouldn't be any IHT then, unless she's got assets herself.
You and your partner have a good few years ahead of you so as admirable as it is to want to help family anything you do could well make your life more compromised going forward as well as significantly reducing any inheritance.
The best estate planning tool in your situation is to get married.
Shouldn't be any IHT then, unless she's got assets herself.
Gary C said:
SO if you die, your partner has to sell the house ?
Yes.Basically this is her choice. She doesn't believe in inheriting. She doesn't want the house after I'm gone, but doesn't want to be made homeless.
She would be happy with enough money to pay the deposit on and furnish a rented flat.
I've said I would be happier if she had enough to buy a park home or retirement apartment.
She has no assets, but both her boys have very good jobs in banking - eldest has just been head-hunted, off to work in New York. Youngest got his PhD in maths, works in risk analysis or something.
Both are very savvy with their money - good holidays, but ploughing a lot into pensions etc.
She knows they will make sure she's OK if it comes to it.
Since I had the house etc. before we met, she doesn't feel entitled to a big chunk of it, but will accept more the longer we are together.
Neither of us are really up for marriage, bad experiences with divorces.
We have considered it.
clockworks said:
State pension, plus £12k DB pensions.
Around £25k savings.
House currently worth around £425k, so total estate around £500k
Not that it makes a great difference but your estate is £450K, not £500K. State pension doesn’t count and DB pensions don’t normally count.Around £25k savings.
House currently worth around £425k, so total estate around £500k
What would you do if partner dies first - can you afford to run the house and service the loan with your own income?
FIL did different sort of equity release and his kids (so in his daughter’s case that meant me) ended up having to bale him out.
LeoSayer said:
My mother in law did equity release and it really helped her, however I think you and your partner need to ask yourself some more questions to do this with confidence such as...
...what happens if you need to move home in future?
...what if one of you needs to go into care?
...what if your partner dies?
Equity release rates are higher than normal and can compound quickly - the debt could double within 10 years and reduce your flexibility in future.
Life insurance written into trust might be a better way of helping your partner before probate is granted.
Maybe a monthly payment to your brother might be better than a lump sum.
This. ...what happens if you need to move home in future?
...what if one of you needs to go into care?
...what if your partner dies?
Equity release rates are higher than normal and can compound quickly - the debt could double within 10 years and reduce your flexibility in future.
Life insurance written into trust might be a better way of helping your partner before probate is granted.
Maybe a monthly payment to your brother might be better than a lump sum.
My grandparents took out 60k to replace perfectly adequate bathrooms and kitchen in a 4 bed, lovely home. (for reasons beyond me, his pension was more than most people's salaries).
He went into a care home a couple of years later, my grandmother had the sense to sell up and protect the inheritance for her children - She had to sell a 400k house with lovely bathrooms for 370k (messed around last minute and the clock was ticking) to buy a 220k house and clear the debt. It got down to a point where if the sale was held up by a couple more months she couldn't repay the debt.
Ironically, that cheaper, lower spec home has needed a ton of work on it - damp etc, since she has been in there. The other one was lovely.
Was a terrible mistake for them.
He went into a care home a
Sheepshanks said:
Not that it makes a great difference but your estate is £450K, not £500K. State pension doesn t count and DB pensions don t normally count.
What would you do if partner dies first - can you afford to run the house and service the loan with your own income?
FIL did different sort of equity release and his kids (so in his daughter s case that meant me) ended up having to bale him out.
I've got about £50k of collectible possessions - clocks, watches, hobby stuff - plus the car.What would you do if partner dies first - can you afford to run the house and service the loan with your own income?
FIL did different sort of equity release and his kids (so in his daughter s case that meant me) ended up having to bale him out.
If she dies first, I may struggle to service a loan long term, but no problem running the house. I can cover everything including food etc. for about £1100 a month. Pension income is £1750.
I plan to maintain at least £20k in savings to cover emergencies.
While I'm still working a bit, I'm saving at least £1100 a month, then using those extra savings to pay "cash" for home improvements etc. Biscuit tin full of cash went into an ISA.
I am a bit wary of going for full-on equity release.
My parents borrowed £65k. When mum sold the house after dad died, the debt had nearly tripled. Just enough left to buy a 1 bed retirement apartment and some new furniture.
That's why we were initially considering going for a standard interest only mortgage fixed for 5 years, then remortgaging in 5 years or so. The interest on that is around £180 a month, easily affordable, half each.
Maybe I could do the "biscuit tin" thing that dad did. He got mum to withdraw their state pensions in full, and tuck away what they didn't spend on shopping. His company pensions stayed in the bank to cover household bills.
He was worried about having visible savings, incase they ever needed or qualified for state help.
I don't think I'd be happy with that much cash in the house - was a real shock when mum told me.
Looking into the effect of compound interest, borrowing £100k would mean owing £350k after 20 years - possibly a lot more since interest rates can be as high as 8%?
It really relies on house prices rising a lot. I can't see house prices rising like they did for a few periods in the past.
I think it's best to stick with our original plan of a standard interest-only fixed rate mortgage, and let mum's estate take care of my siblings (and pay off our mortgage) when she passes.
Maybe take an equity release in the future if we really need the cash.
It really relies on house prices rising a lot. I can't see house prices rising like they did for a few periods in the past.
I think it's best to stick with our original plan of a standard interest-only fixed rate mortgage, and let mum's estate take care of my siblings (and pay off our mortgage) when she passes.
Maybe take an equity release in the future if we really need the cash.
I think your last post is a much better plan than your first.
Sadly a net worth of half a million is barely enough to rely on looking after yourself under all circumstances for a lifetime, especially when you don’t have kids to rely on to take some of the future load. It definitely doesn’t leave enough spare to confidently gift to help others without putting your future care at risk.
Equity release, in my view, is for getting cash now on the understanding that it means there will be nothing left later.
Sadly a net worth of half a million is barely enough to rely on looking after yourself under all circumstances for a lifetime, especially when you don’t have kids to rely on to take some of the future load. It definitely doesn’t leave enough spare to confidently gift to help others without putting your future care at risk.
Equity release, in my view, is for getting cash now on the understanding that it means there will be nothing left later.
Steve H said:
I think your last post is a much better plan than your first.
Sadly a net worth of half a million is barely enough to rely on looking after yourself under all circumstances for a lifetime, especially when you don t have kids to rely on to take some of the future load. It definitely doesn t leave enough spare to confidently gift to help others without putting your future care at risk.
Equity release, in my view, is for getting cash now on the understanding that it means there will be nothing left later.
It really isn't. It's just another tool in the toolbox.Sadly a net worth of half a million is barely enough to rely on looking after yourself under all circumstances for a lifetime, especially when you don t have kids to rely on to take some of the future load. It definitely doesn t leave enough spare to confidently gift to help others without putting your future care at risk.
Equity release, in my view, is for getting cash now on the understanding that it means there will be nothing left later.
They only three things that matter are:
1. The interest rate
2. Whether you pay the interest monthly, or allow it to roll up
3. Whether you make any payments in addition to the interest to reduce the outstanding balance.
Equity release with a 3% interest rate will be a much better deal than a RIO with a 5% interest rate, if the person doing the borrowing behaves sensibly.
Obviously, the above is only a theoretical illustration and is unlikely to reflect the market at any particular time - the point that I'm trying very hard to make is that it's all about the interest rate.
clockworks said:
I've got about £50k of collectible possessions - clocks, watches, hobby stuff - plus the car.
Given your username I'm loath to say this but....you've got £50k worth of collectibles and you want to take out a £40k loan for home improvements?My mental accounting brain says this means you'd effectively be taking out a loan to keep the collectibles.
I'm in no position to judge because I didn't sell a car to pay off our mortgage but I knew if push came to shove the car would have to go.
LeoSayer said:
Given your username I'm loath to say this but....you've got £50k worth of collectibles and you want to take out a £40k loan for home improvements?
My mental accounting brain says this means you'd effectively be taking out a loan to keep the collectibles.
I'm in no position to judge because I didn't sell a car to pay off our mortgage but I knew if push came to shove the car would have to go.
On a purely financial level, selling some possessions and using some savings would be sensible.My mental accounting brain says this means you'd effectively be taking out a loan to keep the collectibles.
I'm in no position to judge because I didn't sell a car to pay off our mortgage but I knew if push came to shove the car would have to go.
I'd be losing things that I've collected over the past 30 years though.
I'd also be funding the home improvements entirely from my own pocket.
Getting a £40k standard mortgage will cost around £180 a month, and we'll go halves on the payments.
I get to keep my stuff.
Loan will get paid off when mum passes.
Partner is much happier doing it this way, as she feels that she should contribute towards the improvements, and a loan puts a number on it.
clockworks said:
Basically this is her choice. She doesn't believe in inheriting. She doesn't want the house after I'm gone, but doesn't want to be made homeless.
She would be happy with enough money to pay the deposit on and furnish a rented flat.
I've said I would be happier if she had enough to buy a park home or retirement apartment.
You and your long term partner live in a (presumably) lovely house that is owned outright, but when you die (most likely before her given the age difference and fact that she's female), you're happy for her to end up paying to rent a flat she might get kicked out of at any time in her old age?She would be happy with enough money to pay the deposit on and furnish a rented flat.
I've said I would be happier if she had enough to buy a park home or retirement apartment.
It might be 'her choice' (albeit an unusual choice), but it's certainly not a position I could bring myself to leave my 'other half' in upon my demise.
Ari said:
You and your long term partner live in a (presumably) lovely house that is owned outright, but when you die (most likely before her given the age difference and fact that she's female), you're happy for her to end up paying to rent a flat she might get kicked out of at any time in her old age?
It might be 'her choice' (albeit an unusual choice), but it's certainly not a position I could bring myself to leave my 'other half' in upon my demise.
I've offered her more when I die, but she said no, but that may change over time.It might be 'her choice' (albeit an unusual choice), but it's certainly not a position I could bring myself to leave my 'other half' in upon my demise.
Current situation is that she's in my will for a decent share, which should be enough to buy a park home or small retirement apartment.
Her original idea was "just enough so that I can rent somewhere".
We've known each other for 15 years, and she's lived in my house for nearly 5.
Yes, she moved in as my lodger.
Partner is how we refer to each other now, as we share pretty much everything, while maintaining a bit of independence when we need it.
clockworks said:
I've offered her more when I die, but she said no, but that may change over time.
Current situation is that she's in my will for a decent share, which should be enough to buy a park home or small retirement apartment.
Her original idea was "just enough so that I can rent somewhere".
We've known each other for 15 years, and she's lived in my house for nearly 5.
Yes, she moved in as my lodger.
Partner is how we refer to each other now, as we share pretty much everything, while maintaining a bit of independence when we need it.
Fair enough, I got the impression that it was a long term thing from 'partner'. Current situation is that she's in my will for a decent share, which should be enough to buy a park home or small retirement apartment.
Her original idea was "just enough so that I can rent somewhere".
We've known each other for 15 years, and she's lived in my house for nearly 5.
Yes, she moved in as my lodger.
Partner is how we refer to each other now, as we share pretty much everything, while maintaining a bit of independence when we need it.
In the hope that it becomes that, I'd be looking to protect my one main asset I think, in order to be able to leave my partner secure.
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