The average debt management plan (DMP) takes an average of five years...
Equity release: Can the family play a part in the process?
The number of clients using equity release to repay debt, or to repay debt on behalf of someone else, is increasing. Over 40% of all equity release transactions now include some aspect of debt consolidation. Given this upswing, should children or beneficiaries be involved in the process?
Debt can build up for many reasons; loss of a partner, redundancy, health issues or through having to support other family members financially.
And alongside this, unfortunately pension income does not stretch as far as it once did. People still want to keep up appearances though, and not let anyone know what a struggle life is financially.
Avoiding unnecessary worry
With families often separated by huge distances nowadays, children are often unaware that mum or dad may be struggling on a daily basis. The children are even more surprised to learn that their parents have fallen into debt.
Many children tell us, “If we had known earlier we could have helped but we cannot afford to now”. Others say they didn’t realise that, “Mum couldn’t manage on her pension”. One son didn’t realise how hard life was for his mum because she simply never told him – she only put the heating on when he visited.
Ask the family
It’s essential that clients involve family or a trusted friend before proceeding with any equity release solution. Family can be a big support to mum and dad as they go through the assessment and application process. They can help ensure that their parents are receiving the right advice and for the right reasons.
We encourage all our clients to discuss their plans with their family from the start. It’s not always easy to get them to do that, as the “British stiff upper lip” often comes in to play. Plus as parents, we do not like to involve our children (or anyone else for that matter) in our financial affairs.
Letting family know about financial problems at an early stage could allow them to play a meaningful part in any solution. Sometimes family may be able to provide the funds needed to repay any debt or contribute towards your income on a monthly basis.
If an alternative solution can be identified, mum and dad may not need to release any equity or the amount needed could be reduced.
If the children can’t help financially then moral support goes a long way to removing some of the unnecessary worry that many parents feel when having to tell their children they need financial help. (Even clients using equity release for lifestyle purchases often do not want the family to know that they are utilising the equity in the home.)
Reducing the child’s inheritance?
In certain circumstances equity release can be a real solution for some clients but often it’s ignored as parents worry about reducing the children’s inheritance. Perhaps as children we can ensure that parents understand that their welfare and quality of life should come before any financial gain.
In other words give mum and dad the green light to explore all their options, or better still, jump in and play a part.
We understand why leaving an inheritance is important to most parents; I have children of my own. But, in these hard times, if using some of the equity now will make retirement easier, warmer and more enjoyable, should anyone really begrudge that?