Now, I don’t want to freak you out so early in the new year, but have you ever wondered what will happen to your rental property should you suddenly kick the bucket?
If the thought makes you squirm, turn the page to something jollier, but if you’ve got kids, I’d urge you to read on.
As a mother of two, this is something I’ve been fretting about. My concern is that all of my kids’ inheritance is tied up in property and all of that property is mortgaged, so they might struggle to get their hands on the equity after my death.
I have visions of banks swooping in and repossessing my properties, selling them for a song to recover their loans as fast as possible, and leaving my kids destitute. It’s the stuff of a Charles Dickens novel.
Of course, I intend to do my very best to stay alive for quite some time, but still, you never know. Maybe it’s this “dry January” nonsense making me morbid, but I am suddenly very conscious of the need to protect my children should the worst happen.
So I contacted financial adviser Martin Stewart at London Money, who arranged my mortgages, to find out what happens to a landlord’s rental property if they die.
Would the beneficiaries of the landlord’s will — in my case, my children — be allowed to keep the buy-to-let and continue to pay off any mortgage using the rental income? Or would the lender take immediate possession?
The first thing he pointed out was that debt doesn’t die with you (boohoo), so any mortgages have to be paid off. If those mortgages are in joint names and only one person dies, the other should be able to retain the mortgage as long as they continue to make the monthly payments.
However, if the property was inherited by a child under 18, that might be more complicated, he said, as they would be considered too young for a mortgage, so it might have to be sold.
Martin reassured me that even so, there might be no need for a fire sale as banks would more than likely give the will’s executors time to market the property. However, they might still be under pressure to sell quickly to pay any inheritance tax due on the rest of the estate.
It doesn’t seem fair to leave someone such a burden. The solution, said Martin, is to take out life insurance. This can easily be wrapped up in a trust, so it doesn’t incur inheritance tax, he said.
Life insurance premiums vary according to several factors, including medical history, occupation and lifestyle, but Martin estimates that for £500,000 of cover, a 35-year-old would pay about £26 a month, while premiums for a 45-year-old rise to almost £60 a month.
When I pointed out the premiums were not inconsiderable for someone of my age, his response was: “Cancel one Starbucks a day, buy fewer top-name brands, you HAVE to do this.”
Bless him, I don’t drink coffee and the closest I’ve got to owning a brand is Zara, but I take his point. Life insurance is something I will have to consider, at least until the kids are grown up.
- Victoria Whitlock lets four properties in south London.
- To contact Victoria with your ideas and views, tweet @vicwhitlock