Equity Release and Long Term Care

When taking out Equity Release, it is important to bear in mind any possible long-term care implications.

If a property is “abandoned” because you need residential long-term care, it usually becomes saleable by the lender and the loan must be redeemed at that point. If the cash released from the home has already been gifted, this could cause the client financial difficulties. The residual value of the property could be swallowed up in compounded interest payments and, even if the client has less than £21,500 of remaining assets, the Local Authority could also class the gift as “deliberate deprivation of assets” and refuse to help.

In practice, as long as the client was in good health and unlikely to need long-term care at the time of the release and it was 5 years or more since the gifts were made, it would be unreasonable for the Local Authority to decline help. However, due to shortage of funds, Local Authorities can be more inclined to look for ways to avoid funding care costs.

It is therefore essential that this is considered carefully when recommending Equity Release for estate planning.
Care should be taken for relevant clients concerned about long term care in case an Equity Release scheme makes available income or capital that would otherwise have been tied up in the property. It is possible that assistance with long term care funding would be denied on the basis of the availability of that income/capital.

Special Care Process/Family involvement

Whatever age the client is when arranging Equity Release, We recommend that you invite your children or next of kin to the meeting, so they understand the impact on the client’s estate and to avoid any future problems regarding the advice given. A copy of the Suitability Letter may also be sent to the your children or next of kin unless the you object.
Your discussions on the above will be recorded on the CFR for Equity Release Advice and the Suitability Letter, in particular if the you decline your recommendation as to the involvement of family members this will be clearly recorded.

Drawdown or Lump Sum Options

It is important to establish whether you need the equity release for regular monthly income to meet day to day living expenses, an annual boost to your income (to pay for holidays for example) or a single lump sum available immediately (for example to pay for home improvements).

A wide variety of schemes are now available to cater for all of these needs. As a general principle, larger sums drawn sooner will involve far higher interest costs during the life of the scheme than smaller sums drawn over extended periods. It is therefore important to ensure that the scheme selected is matched as closely as possible to the needs of the client so that the profile of the funds being drawn down matches those needs and interest costs are minimised accordingly.