How an Inheritance Advance Works
Waiting on probate makes it hard to cover everyday expenses. If you need money now, an advance on your inheritance is a way to get the cash early.
If you expect to inherit money, property, and other assets after the death of a loved one, the money can be a comfort, an unexpected windfall, or something you've expected for a long time as a legitimate beneficiary. Unfortunately, the promise of a big inheritance often puts beneficiaries into a kind of legal limbo. The money will eventually come, but the probate process can take from eight months for simple cases up to many years for large estates to be settled.
Inheritance advance loans can provide crucial financial support during a prolonged probate process. Heirs often have many financial obligations to meet that include paying funeral expenses and meeting household expenses that the deceased usually paid. There might be an income-generating investment property that needs an infusion of cash to make repairs.
Inheritance Loan Advances Help You Survive During Probate
There are many reasons why heirs want or need access to ready cash, and an inheritance advance can help you survive until the case is probated. Unfortunately, probate locks away assets such as cash, precious metals, automobiles, real estate, jewelry, antiques, and valuable art. You can't get any money or sell any assets until probate is finished.
What happens when the deceased doesn't have a will? In cases where people die without a valid will, the state determines how the estate is divided among the survivors. Most states award one-third to one-half an estate to a surviving spouse, and the rest is split among any surviving children. [1] The rules grow more complex if there are no immediate family members.
Once the probate petition is filed in court based on the state's allocation of the deceased's assets, the heirs of people who died without wills can qualify for an advance loan.
Seniors face several crucial issues when they expect to inherit. The AARP conducted a study that found 90 percent of all probate cases involve property owned by people over the age of 60. [2] Retired people often let some of the bills slide, or they have medical bills that are charged against the estate. Seniors who expect to inherit are often shocked by how long it takes to receive their bequests. The AARP found that the average time for probate is 17 months. Aging seniors face the prospect of never receiving their inheritances simply because they don't survive the probate process. The expenses that are related to the probate process can't always be charged to the estate, and seniors face expenses that they can't afford without their windfall.
Surviving the time it takes for probate is a very big concern of many beneficiaries, and inheritance advances can provide a cushion. You can usually get between 50 percent and 60 percent of your expected inheritance as a loan, but it's wise to settle for the minimum that you need. You can go back and get a second loan if needed. An executor who is also a beneficiary of the same estate can qualify for an advance loan.
Reasons to Consider Applying for an Inheritance Cash Advance
Many beneficiaries have personal reasons why they need immediate cash. You might have to start paying the bills associated with daily living with loans while waiting for inheritance funds. Maybe you have an incredible business opportunity that's time-sensitive. You might need to cover your children's educational expenses while waiting to inherit funds. You can get an advance on your inheritance and use it for any reason. You don't have to make a case for the loan; you just have to prove that you're going to receive money.
Beware of Inheritance Scams
The United States Postal Inspection Service warns against inheritance scams. If you receive a letter saying that you are to receive a large inheritance, there is a chance that it was sent by a scammer. Under no circumstances should you borrow against an inheritance that you are not confident you will receive.
Inheritance scams usually require the would-be heir to pay money to receive their inheritance. Here are some ways to avoid falling victim to this type of scam:
- Know that executors will not ask you to pay a fee to learn more about your inheritance
- If you are required to pay money to a law firm or loan executor, you should find out where your money is going
- Check with other people associated with the inheritance
Above all, if it seems too good to be true, then do the research to make sure no one is trying to take advantage of you.
Understanding Probate
Probate is a drawn-out process that can cause heirs and beneficiaries to suffer while waiting for access to funds. During probate, it takes time to gather information about any debts against the estate, value the assets, and sell any property that is to be divided among the heirs.
Each state has its own rules, and even some counties set their own regulations of the probate process. Some states have adopted the Uniform Probate Code, but 33 states haven't adopted all of its provisions.
Probate takes so long because there are many issues to resolve. Courts are also inundated with cases, and busy judges often schedule probate cases far into the future when matters are more likely to be settled. Taxes can complicate the process because they must be filed for the deceased, and back taxes and inheritance and estate taxes must be paid on the estate. Other factors that can delay probate include:
- How long it takes to sell real estate and other assets
- Disputes among the heirs about how the assets should be distributed or challenges to the validity of the will
- Disputes over claims against the estate
- The time it takes to get appraisals
- The efficiency of the executor
The probate process begins when probate is filed with the court. The court appoints an administrator to create a probate plan and oversee the process. An executor is named by the probate judge or designated in the deceased's will to liquidate and divide the estate according to the deceased's instructions.
In some cases, the administrator will approve living expenses for family members who depended on the deceased for support. The estimated inheritance amount must be higher than the allowances that heirs receive.
Can You Get an Advance Against Inheritance on Assets Placed in a Trust?
Trusts are complex, and they are governed by the laws of each state. Irrevocable trust assets become the property of the trust, and even the grantor, the person funding the trust, can't touch them. The trust also can't be sued for debts and taxes. Some states might allow the trust's administrator to approve a loan based on regular trust payments to an heir, but this is rare.
However, a revocable trust is more flexible. Assets held in revocable trusts can be used for collateral in certain cases depending on the state's laws and the terms of the trust. There are many special types of trusts that include generation-skipping trusts, marital trusts, and charitable trusts. [3]
Trusts aren't subject to probate, so they're a great tool for providing regular payments to heirs and family members. You might not need a loan during probate if your trust provides enough funds to live comfortably and meet your debt obligations. You should consult a lawyer specializing in trusts and inheritances to see if you can assign your inheritance as collateral for a loan.
Is an Inheritance Taxable?
It is important to determine how much of your inheritance is considered taxable income. If you have a taxable gain, then you should be sure to borrow based on the amount you will keep after probate. If you borrow more than you will receive after taxes, then you may have difficulty paying the loan back.
Inheritance Advance Companies
Traditional lenders – like banks, credit unions, and savings and loan companies – don't usually make inheritance-based advances. These loans are considered riskier than traditional loans, which are backed by a good credit history, adequate income, and steady employment. The companies that specialize inheritance-based advance loans make it easy to apply and get money within a few business days.
The benefits of an inheritance-based advance loan include no hidden fees, no monthly payments, or no risks of affecting the share that other co-beneficiaries receive. You can sometimes get an advance regardless of your credit score, income, or employment history as long as there is enough liquidity in your inheritance to cover the amount.
Unlike an inheritance-based loan, you may not be held personally responsible for the debt. In this case, if your inheritance fails to come through for any reason, there is no recourse for non-payment. This means you won't have to repay the loan from your personal resources.
There is a price for the speed and convenience of getting an advance against your inheritance. The interest rates are high – usually between 10 percent and 40 percent – and you might end up with an unscrupulous lender that structures the advance loan in a way that drains your resources. That’s why it’s important to invest the time to research lending companies and study the terms of the contract.
Special Considerations
Just because you qualify for a probate loan doesn't mean that it's the best option. You could get a better deal by borrowing from a relative or friend who knows the circumstances or your impending inheritance. It's critical to structure this kind of personal loan legally so that there are no questions when your windfall is distributed after probate. Paying a reasonable rate of interest demonstrates your gratitude and keeps the loan and repayment terms professional where neither side feels taken advantage of in the arrangement.
The probate process is established and regulated by each state, so your state could have special requirements. Many states are addressing complaints about different types of fringe lending and reports of lending abuses that have put some investment properties at risk of being used unethically and possibly illegally. [4]
Some states - like California - are more active in regulating loans from non-traditional lenders. California is considering changing its lending laws to require judges to review inheritance-based advances to spot risks that go beyond high-interest rates. If such reforms are passed, they would probably delay probate even longer. Your best strategy might be to contact your own attorney to review the terms of a cash advance.
If you expect to inherit investment property, there are risks involved in getting an estate-based loan because of the interrelationships among the heirs and complex tax and inheritance issues. It's important to hire an accountant who has experience in real estate and inheritance issues, an expert who can understand and manage the tax situation. Key details of estates include whether there are back taxes owed on the property and how the property was originally titled. Depending on the market value, you could inherit valuable investment property without paying any taxes.
Getting a professional appraisal of all the property in an estate is also critical. Getting a Broker's Price Opinion, which is knowns as a BPO, is like an appraisal, but brokers often provide them free of charge. The BPO includes more information than a standard appraisal; it appraises the property's value, estimates how much rental income it could generate, and covers what type of repairs are needed for maximum income or just to bring an aging property up to code.
If there are multiple beneficiaries of an investment property, each beneficiary could get a probate cash advance and put a lien on the property. This is the kind of situation where one unscrupulous lender could manipulate the situation to take possession of the property. Regardless of your personal feelings, you should maintain communication with the other heirs to avoid multiple property liens and other problems caused by failure to communicate.
Getting an Estate Inheritance Loan
An estate-based inheritance loan may involve these steps:
- Contacting a suitable lender to explain the process and costs of different financing options
- Providing information about the estate that includes assets, your share of the estate, and any liens against the estate
- Providing copies of all necessary identification and confirmation documents
- Getting your money wired directly into your bank account
- Paying off the loan, fees, and interest after the estate is settled
- Receiving any remaining inheritance assets after the loan is paid
Other steps may be necessary.
Some of the assets from an estate might be difficult to liquidate, and you might only qualify for a loan that's much less than you expect to inherit. Some states impose inheritance and estate taxes that further cloud the issue. It's also necessary to keep some estate funds available for delayed bills and unexpected charges against the estate. Unless you have an overwhelming need for cash in a hurry, it’s safest to borrow the minimum amount. You’ll be happy that you did when your inheritance becomes available.
Verifications for Processing an Estate Loan or Inheritance-based Advance
The details of qualifying for an estate-based advance or loan vary among different lenders, but most of them require a minimum bequest of $12,000 to $15,000 to qualify. Essential verifications include a copy of the death certificate, a copy of the latest will, and proof of your identity. You will also need to provide details about the estate's executor and administrator and proof that the probate petition is on file in the court that has jurisdiction.
The type of financing that lenders offer can vary based on whether there are multiple heirs, a big estate, or highly liquid assets. Estate loans are repaid in monthly installments until the amount of the loan and any interest charges are fully repaid. These are suitable loans for the heirs of investment property that will generate a regular income. Estates can take a long time to be fully settled, so the loan process is a little more complex than getting an advance against liquid assets that are clearly defined.
Loan Alternatives
Regardless of which type of inheritance-based loan you choose, you should be aware of the high interest rates. Many beneficiaries have become dependent on multiple loans during probate processes that drag on for years. The loan fees and interest charges can take a big bite out of your inheritance.
One way to get money out an estate faster is by providing legal proof that the deceased owed you a legal debt. Monies to settle the legitimate claims against the estate are paid faster before the estate is settled. Other sensible alternatives include using your low-interest credit cards or applying for a personal loan if your credit is good.
Probate Loans Can Provide Financial Security
Many people who need or desperately want immediate funds from their inheritances stand to gain a lot of money, so the costs of a loan pose little risk and many potential benefits. If the estate is modest and consists mostly of cash and liquid assets, you can use an inheritance-based advance for personal needs, everyday expenses, and paying funeral expenses.
You don't need good credit, and the application process is simple if you have the required verifications. You could get your money quickly, and after the death of a loved one, access to cash can be more important than the costs of a temporary loan.
Your advance will reduce the amount you get when probate is settled, so you should consider whether a loan is necessary or justified. You can borrow from friends, ask the estate administrator for an advance, get a loan from your employer, cut back on personal expenses, or find ways to reschedule your debts based on your expected windfall.
When nothing else works, inheritance-based advances and loans can provide immediate funds, freedom from stress, business opportunities, and the ability to maintain your family’s lifestyle.
References:
[1] Aarp.org: What Happens to Probate Property if You Die Without a Will?
https://www.aarp.org/money/estate-planning/info-2007/probate_property_no_will.html
[2] Attorneyoffice.com: What Every Senior Should Know About Probate
https://www.attorneyoffice.com/report/what-every-senior-should-know-about-probate/
[3] Smartasset.com: A Guide to the Different Types of Trusts
https://smartasset.com/estate-planning/types-of-trusts
[4] Scholarship.law.wm.edu: BORROWING IN THE SHADOW OF DEATH: ANOTHER LOOK AT PROBATE LENDING
https://scholarship.law.wm.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=3766&context=wmlr
You may be interested in these blogs, too:
