How Does an Inheritance Loan Work?
You’ve recently lost a family member and are dealing with all the challenges that come afterward. Along with the grieving process, you may be waiting for an inheritance. Someone must manage the estate and move it through the probate process to disperse the assets. During that time, you may need money to help with unexpected expenses or to help you pay regular bills until you receive the funds from the estate.
If you are in need of more money than what you have available, you may want to consider an inheritance loan from an inheritance funding company. You may have never heard of this type of loan and wonder how an inheritance loan works. This guide will help answer that question, providing information enabling you to decide if you want to get an inheritance loan while going through the probate process.
Understanding the Inheritance Process
Receiving your inheritance isn’t a quick process. It can take months or even years before you see the portion of the estate your deceased family member left for you. If you are considering an inheritance loan to help you out, you should understand the process of getting an inheritance to know when it’s best to apply for a loan from an inheritance funding company.
The Probate Process
Probate is a legal process that allows the probate court to oversee the handling of a deceased person’s estate. The court will validate the decedent’s will and ensure that the estate is dispersed as instructed in the will.
The first step in probate
The first step is to get probate opened. This usually occurs when someone files a petition with the probate court in the county where the decedent lived before their death. The will is filed with the court, which will be reviewed.
The court will appoint someone to act as executor or personal representative for the estate. If the will names someone to that position and they accept, the court will still need to approve them. The court will provide letters testamentary to the executor, which gives them authority to act on behalf of the estate. This includes paying bills out of the decedent’s money, selling assets, and other tasks.
The executor’s duties
The executor will take inventory of the assets of the estate. They may need to secure some of the assets and get an appraisal, especially for real estate or valuable collectibles, such as artwork or jewelry. At the same time, they must notify all the heirs and any known creditors. Some states require the executor to publish notice in a local newspaper for unknown creditors.
The creditors are given a deadline to file any claims against the estate. The exact time varies by state, but it is usually a few months. During that time, the executor or personal representative will pay any valid claims that come in out of the estate’s assets.
The executor must also file taxes for the estate and pay any taxes owed. In states where a federal estate tax is applicable, the executor will be responsible for determining if the estate qualifies and paying the estate tax.
Once all these duties are completed, the executor or personal representative will distribute the remaining assets to the beneficiaries. They may need to transfer the title for any non-liquid assets, such as real estate or titled personal property. This can include cars, boats, and other vehicles. After distribution, probate is closed.
How Long Does Probate Take?
The question you may be asking if you are considering an inheritance loan, is how long probate will take. The answer is complicated because several factors enter in for the timeline. The first obstacle to face is in getting the will validated. An heir may challenge the will. They must have a legitimate reason to challenge the will, such as saying that a newer will exists or that the decedent was forced into signing the will.
If someone challenges the will, the probate court will set a hearing to listen to both sides present their cases. The probate court will rule either that the will is valid and continues with the process, or that it’s invalid and treat the estate as intestate. Intestate means that there is no will, so probate follows the state laws on estates.
This issue can delay the probate process by a couple of months or longer right at the start. Other problems may arise throughout the process. For instance, a creditor may make a claim against the estate that the executor doesn’t recognize.
If they refuse to pay the claim, the creditor may take their case to court and have the judge rule. This is another situation that can add a few months to the probate timeline.
The executor may need to liquidate certain assets to either pay creditors or to distribute to the beneficiaries. Selling real estate or a business can take time, in some cases it may be months before the asset is sold and probate can move forward.
Can You Get Access to the Inheritance Before It is Distributed?
With such a lengthy process for probate, you may wonder if you can get access to part of your inheritance early. Most of the time, the answer will be “no.” The executor may use the funds in bank accounts to maintain other assets, such as paying employees in a business the decedent owned or paying utilities for the family home.
Heirs must wait to receive their inheritance after all bills have been paid and taxes have been filed. It can be a year or much longer before they will receive the distribution of the estate.
Can You Get a Loan on Your Inheritance?
It’s quite difficult to get a traditional loan from a bank or credit union based on an inheritance you may get in the future. You can’t use your inheritance or estate assets as collateral in the normal sense of the word because you don’t own it.
Most financial institutions won’t lend money in this situation because they carry too much risk. If something happens and the assets are dissolved while paying the creditors or another issue arises, the lender isn’t assured that you will pay back the loan.
You do have an option for financing with an inheritance besides a traditional lender. An inheritance loan, also referred to as a probate loan, heir loan, or estate loan, can give you the funds you need until the estate has been distributed.
What is an Inheritance Loan?
An inheritance loan generally comes from inheritance lenders that specialize in hard money loans. An inheritance loan company will provide probate loans based on your expected inheritance. This type of loan does have some similarities to other loans. For example, you will need to fill out an application for any probate loans. The lender will look at your credit history, employment history, and how much money you are requesting.
Immediate Inheritance Funding
If they approve you for the loan, you will receive the funds in your bank account in a few days. Before you receive the money, you will need to sign the documentation that spells out the terms of the loan. You will need to make regular monthly payments of at least the interest until the estate has been distributed, when you will pay off the balance.
An inheritance loan is usually set for the length of time it is expected to take to receive the distribution of the estate. Many inheritance funding companies will allow extensions if probate is delayed for some reason.
How is Interest Calculated on Inheritance Loans?
With an inheritance loan, the lender will determine the interest rate based partially on your credit score and on how long the loan terms are set for. Interest rates are usually higher than with mortgages, car loans, and even many personal loans because of the higher risk. They are often comparable to some credit cards with rates over 20 percent.
If probate is delayed, the lender may grant an extension, but interest continues to accrue. You will be paying more for your inheritance loan until you can get it paid off.
Risks with an Inheritance Loan
An inheritance loan carries risk for the lender because there’s no guarantee that you will receive the expected inheritance funds. However, you also carry a great deal of risk. If something happens with the estate and you don’t receive any inheritance money, you are still responsible for paying the loan just like with bank loans.
If you were already in a tight situation, which is why you got the loan in the first place, it could make things even more difficult for you. You would be required to continue making the payments until the balance is paid even though you aren’t getting your inheritance money.
There’s another way you could lose out with an inheritance loan. If probate is delayed and interest continues to build, the cost of repaying your loan could be as much as your total inheritance. While the lender would be repaid, you would lose out on any other money you would have received from your inheritance.
With all that being said, an inheritance loan can help you out until you can get your inheritance money. Just make sure you understand the terms and conditions before you agree to any loan.
Why You Might Consider Inheritance Loans
Even with the risks, you may want to consider one of the available inheritance loans. If the family member who died was providing for most of your living expenses, you may need one of these loans to help you survive until you can get your inheritance or find another source of income. This situation often happens when the surviving person was the caregiver.
If there aren’t enough liquid assets to maintain other property of the estate, you may need a loan to take care of expenses until those assets can be sold. Perhaps you are a beneficiary to a piece of real property along with your siblings and you want to buy them out. An inheritance loan could give you the funds you need to pay the family members for their portion of the inheritance. Once the title has been transferred into your name, you could get a traditional loan and pay off the estate loan.
In other situations, you may need to borrow money with an inheritance loan to pay bills, funeral costs for the deceased person, or legal fees, make a mortgage payment, pay inheritance taxes, to take care of outstanding debts and medical bills, or for living expenses.
The Inheritance Funding Process
Now that you understand the basics of what inheritance loans are and why you might use them, you should know the process of getting inheritance funding. The first step is the same as with any loan. You need to fill out an application.
You will provide information about yourself and the inheritance. Once you submit the application, the inheritance lending company will review the information. They may discuss your inheritance money with an estate lawyer or the executor.
The lender will provide you with an offer, which is usually a percentage of the expected inheritance. Some lenders will only allow you to borrow money up to 40 or 50 percent while others may go higher. The hard money lender may turn down an application for a modest inheritance, but you may find a probate lending company that will provide small inheritance loans or a small inheritance advance.
If you agree to the offer and the terms, you will sign the loan documents. The money will then be funded into your bank account within a few days, allowing you to get your inheritance sooner. You will want to notice when the first payment is due on the loan.
You will continue to make monthly payments until the loan is paid off or you receive your inheritance, which you will use to pay the balance. If you don’t receive your inheritance or it’s not enough to pay the loan, you will continue to pay the inheritance funding company until it’s been paid off.
Before you apply for a loan, you should compare inheritance loans and find one with terms you can afford. You also want to make sure it’s a reputable lender that is fair and transparent. Talk to your estate attorney or the executor to let them know you will be applying for one of these inheritance loans.
It’s also important to know that you have another option: an inheritance cash advance. Inheritance advances and inheritance loans aren’t the same thing even though the terms are often used interchangeably.
What is an Inheritance Advance?
An inheritance advance is also referred to as a probate advance, an inheritance cash advance, or an estate advance. The terms refer to the same product offered by inheritance funding companies.
An inheritance advance is money you receive now on an inheritance you expect to get in the future. It’s similar to inheritance loans, which is why the two terms are often viewed the same. However, there is an important basic difference in the two forms of inheritance funding.
Differences with an Inheritance Cash Advance
With a probate advance, the lender purchases a portion of your inheritance. Basically, they are putting in a claim for that amount of money, which will be paid to them before you can get any of the inheritance. Instead of interest, they charge a fee for lending you the money. That fee is added into the amount paid to them when the estate is dispersed.
Another important difference exists between inheritance loans and inheritance advances. With a probate advance, you aren’t responsible for paying back the money. The lender carries all the risk with inheritance cash advances. If something happens to the estate and you don’t get an inheritance, the lender loses the money. They can’t make you pay back the cash advance.
Because of this important difference, an inheritance advance is often safer than a loan. You can also get a cash advance even if you have poor credit because the inheritance advance company is looking at the inheritance rather than your creditworthiness.
What to Consider When Looking at Inheritance Loans and Inheritance Advances
Regardless of which option you decide to pursue, you should do your research and look for a reputable lender. Talk to the probate attorney or the executor because they will need to approve any funding from any inheritance advance companies and have the legal authority to discuss details of the inheritance with the lender while the estate is still in the probate process.
If you need money now, consider how ProbateAdvance.com can help you. We focus on being transparent and honest with all our terms. We want to help you get the funding you need now to relieve some of the stress in your life. Fill out the application form or give us a call for a no-obligation offer.