Life interest in residence with equity release mortgage

(John Smart) #1

A residence is owned by spouses as tenants in common and is subject to an equity release mortgage where interest accumulates. On the first death the spouse has a normal right of occupation subject to payment of outgoings. On the second death, how is the accumulated interest dealt with as between the remaindermen of the life interest trust and the second spouses estate. Is the estate of the spouse with the life interest liable for all of the accumulated interest from the date of the first spouse’s death, or does liability for repayment of the mortgage attach to the property and therefore fall on the remaindermen and the second spouse’s estate equally?

John Smart
Richard Griffiths and Co

(Tim Gibbons) #2

I don’t think that rolled-up interest under an equity release mortgage can be equated to the normal expenses of occupation and charged to the life tenant. I would expect that most couples entering in to such an arrangement would see the interest as a charge to capital and to be born by shares equally. But in the absence of specific provisions in the will I think its difficult to be sure. Sometimes the capital raised on an ER mortgage is used to benefit one of the owners rather than another, which can lead to problems.

I think that these are points on which specific instructions need to be taken, both when dealing with wills of this kind, and also for those who advise about ER mortgages.

Tim Gibbons

(justinwallace) #3

I think this is going to become an increasing problem. We have two cases now where after having made the original Wills with the Life Interest Trust, the couple have subsequently (elsewhere) taken out an Equity Release mortgage without thought as to the effect on their Wills.

I think intention at the time of the Equity Release is important but not conclusive and potentially difficult to show after the death of the first party.

My initial view was that (in the absence of evidence to the contrary) a proportionate share of the ER at the date of death of the first should attach to that person’s share of the equity with any continuing increase attaching to the share of the second party. Do forum members agree / have an alternative view?

The most recent case we have involves a 90/10 split of the equity with the 90% owner having died first. The ER is already worth considerably more than 20% so the survivor doesn’t have a sufficient equitable share.

Justin Wallace
Brewer Harding & Rowe