I have young children and a mortgage
Last updated:
In short
When you die, your mortgage does not disappear — it is a debt your estate must repay and the lender can require the home to be sold if it is not cleared. With young children this is critical: you need life cover to clear the mortgage (ideally written in trust so it pays out fast and free of inheritance tax), appointed guardians and a will trust so the home and any payout are managed for your children until they are old enough.
The situation
You have young children and an outstanding mortgage on your home.
What happens legally
Two things have to be solved together: clearing the debt and protecting young children.
- A mortgage is a secured debt that survives death and must be repaid from your estate; the property cannot pass to your beneficiaries free of it unless it is cleared.
- If you own the home as joint tenants, it passes automatically to the surviving co-owner, but the mortgage liability remains and must still be serviced or repaid.
- Decreasing term (mortgage) life insurance is designed to repay the outstanding balance on death; writing the policy in trust keeps the payout outside your estate, so it is paid quickly and is free of the 40% inheritance tax.
- Children under 18 cannot legally hold property or large sums, so any inheritance is managed by trustees until they come of age.
- Without a Will you cannot appoint guardians for your children and intestacy releases their inheritance outright at 18.
The risks
- If there is no life cover, the family home may have to be sold to clear the mortgage.
- A life policy paid into the estate (not in trust) can be delayed by probate and may be taxed at 40%.
- No appointed guardians means the court decides who raises your children.
- Children receiving a mortgage-free home or a large payout outright at 18 may not be ready to manage it.
Recommended actions
- Take out enough life cover to clear the mortgage; consider decreasing term assurance matched to the balance.
- Write the policy in trust so it pays out fast and free of inheritance tax.
- Make a Will appointing guardians and an executor/trustee.
- Use a Will trust so the home and any payout are held for the children until an age you choose.
- Check how you own the home (joint tenants vs tenants in common) and your lender's requirements.
What changed in 2026
- Inheritance tax thresholds: the £325,000 nil-rate band and the £175,000 residence nil-rate band are frozen until April 2031.
- Pensions from 6 April 2027: under the Finance Act 2026, most unused pension funds count towards the estate for inheritance tax when someone dies on or after 6 April 2027.
Figures re-checked on 4 November 2026.
Sources
- Inheritance Tax Act 1984 (policies written in trust fall outside the estate) — legislation.gov.uk
- Children Act 1989 (appointment of guardians) — legislation.gov.uk
- GOV.UK — Inheritance Tax; Make a Will
- Reviewed by
- ClearLegacy editorial team
- Last reviewed
- November 2026
- Next review
- December 2026
- Jurisdiction
- England & Wales
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