As people age, they often want to know what will happen to their equity release plan if they go into long-term care. Equity release plans are a great way for seniors to access the value of their homes to generate income and help pay living expenses. Before considering them as an option for your future, you must first understand how these types of plans work.
2 Types of Equity Release Plans
There are 2 main types of equity release plans, and each one has its way of handling what happens when someone goes into long-term care or dies. It’s important to understand how these plans work so you know all your options.
Helps you plan your equity release and lets you choose how you use the equity in your home, when you want to use it, and for how long. If you have an individual plan, then the company holding your equity release will manage it when you go into long-term care. They may be able to sell or rent out your property and use that money for your living expenses as needed.
However means that there are two equity release options available – equity release for you and your spouse or partner. In either case, it’s essential to understand what happens when you go into care.
What Happens if You Choose a Joint Plan?
What exactly happens when you choose a joint plan will vary depending on the circumstances. If both of you need help, then your partner can access their share as needed for living expenses like home maintenance or food. You are also able to use it when required for things like medical needs.
Suppose only one person in the couple goes into long-term care. In that case, they may be entitled to 100% of the funds from their equity release plans while that person still lives. When the other spouse dies, they can no longer access any of this money because they are not going into long-term care themselves. Is it worth getting?
All equity release plans are different and can differ in their rules about what happens to the property if one spouse goes into long-term care or dies. You may want to consult with an elder law attorney before signing up for any equity release plan just so that you understand all of your options.
What You Want to Have In an Equity Release Plan
As people are living longer than ever before, more and more equity release plans are being taken out to help them enjoy what good years they have left. However, equity release schemes are no good unless the equity is actually released; the money needs to be used in a way that provides some benefit.
There are many benefits to equity release plans, even if you end up going into long-term care. These include:
Having easy access to the funds in your plan is a great way for seniors who need help paying their living expenses but don’t want to sell or give away their homes.
Equity release plans are assets that can provide income for children and loved ones when someone needs it.
There’s no reason not to ensure that your equity release plan remains active even though you go into long-term care, even if just so that family members know what options they would have should any emergencies occur.
Moving Into a Long-Term Care After the Mortgage Is Paid Off
An equity release plan is designed to give you a better lifestyle in the later years of your life. This means that you can still move into a long-term care facility even if your mortgage has been paid off.
If you have paid off your mortgage, this should mean more money is available to pay for the equity release plan. And suppose one spouse needs long-term care and cannot access their funds because they do not need it themselves.
In that case, those with greater means could use up all or most of the assets from an equity release plan without ever having been eligible to take out a loan on their property.
Seniors need to know what will happen when the plan comes into effect and how these plans work before signing anything at all.
Things to Consider if You Go Into Long-Term Care
Unfortunately, if you are considering equity release but plan on going into long-term care, there might be some changes that you need to make to your equity release plan. This is to ensure that it can meet your needs and demands as you go into long-term care.
There are a few drawbacks to equity release plans if you go into long-term care.
One of the major issues people encounter is when their credit score1 suffers due to taking out these loans to finance medical or living expenses. This can make it difficult for some seniors who want to take out these types of loans but cannot because they cannot afford them with their current credit rating.
Another issue is that there may be hefty penalties and fees associated with using an equity release plan, which means less money will end up being available than originally expected once all deductions have been made by the company holding your property.
It’s also important that you look at how much income an individual would receive each month before deciding whether or not to take out equity release loans.
The other major downside is the amount of time it takes for a plan to go into effect once you sign up. You will need at least two years before any money can be accessed, leading to many seniors in financial trouble straight back into that same situation because they have no more funds available until then.
If Your Family Gets Into Debt Due To Long Term Care Fees
Suppose you’re concerned that your family would be put into debt because of the high cost of long-term care. In that case, it’s important to speak with an elder law attorney about other options.
One option is a reverse mortgage or home equity conversion loan, which allows seniors to convert part of their real estate assets to receive some money upfront so they can pay for living expenses during this difficult time.
Securing Your Equity Release Plan
When you consider equity release, one of the most important things that you must do is ensure that your equity release plan can adapt to the changes that will happen in your life.
This is especially true when considering equity release plans where you may have to go into long-term care. This means that you need to make sure that your equity release plan can survive if you need to go into long-term care.
There are a few steps that you can take to secure your equity release plan before it’s needed:
- Taking out equity release protection. Equity release protection is a long-term care insurance policy that will help protect the equity of your estate when you go into long-term care.
- The government’s NHS2 program. This will help keep family members from having any financial obligations that might put them into debt because they are helping a loved one who can’t afford this type of living situation on their own.
- Make sure you have power of attorney set up so family members or loved ones can access and manage the funds in your name when necessary.
- Consult with an elder law lawyer who has experience working on these types of plans
- Keep copies of any paperwork related to the plan, including application forms for individual equity release plans and correspondence between either yourself or a company offering this type of agreement.
- Update beneficiary information because this will help ensure that people know what their options are should anything happen to you while you’re in long-term care.
What Happens to Equity Release Plans After You've Passed Away While In Long-Term Care?
When individuals pass away while they are in long-term care, the equity release plan is terminated because it cannot be used by anyone else. This means that all money will go to whoever has been designated as a beneficiary on the agreement. That person can then use this money for whatever purpose they see fit.
What Happens After I Go Into Long-Term Care In My Equity Release Plan ?
Once someone goes into long-term care, they will no longer benefit from their equity release plans because they cannot use them while living there. Instead, the company holding onto these agreements is responsible for how those extra funds are used and how they’re managed.
They may use the funds for that person’s living expenses like home maintenance or food. Still, it will depend on their specific plan agreement and what is allowed by law when going into long-term care.
Will I Leave My Family in Debt When I Go Into Long-Term Care In My Equity Release Plan?
While the income from your equity release plan may be very minimal, it’s a lot better than having to deplete all of your other assets.
You can also structure an individual or joint plan only to receive payments as needed for living expenses rather than up-front funds when you go into long-term care. This way, none of your family members are left in debt and won’t have any additional stressors on their lives.
When you’re considering equity release plans, it can be easy to focus on how they might help when you have plenty of assets and wealth at your disposal.
But that changes when one goes into long-term care or even dies – then there are many different considerations about how these properties function about other people who need access to funds for assisted living expenses or other costs associated with aging.