A probate loan is a cash advance made to the heirs entitled to the property of the probate estate. Actually speaking, there is no such thing as a probate loan. However, this term is often used when heirs assign inheritance rights to a funding source in exchange for a lump sum of cash. Cash advances are paid by the estate after all other settlement fees and expenses.
Probate loan funding sources may include private investors, investment groups, and cash advance service providers. Funding sources charge an upfront fee that is deducted from the down payment. Fees can range from 10 to 50 percent of the value of the estate.
Inheritance cash providers assume substantial risk when they provide funds using probate property as collateral. Probate is known to be a lengthy process that can take several months or years to resolve. Inherited property can depreciate over time, and financing sources rarely offer full face value. When the estates are unable to pay the debts of the estate, a probate judge may order the sale of the inherited property; leaving cash for inheritance providers vulnerable for non-payment.
Probate loans are usually the last debt paid during the estate settlement. If the estate is financially unable to service the debt, funding sources have few legal recourse. Even if the estate is able to repay the advance, funding sources must wait until the estate is liquidated before receiving compensation.
Probate funding sources require heirs to provide information and documents about the anticipated estate. Investors generally require an original copy of the decedent’s last will and death certificate, along with contact information for the estate manager. Inheritance and estate information must be validated through the court overseeing the case.
Most probate loan financing sources perform credit and background checks to determine if the heirs have any outstanding liens or judgments that could interfere with repayment. Heirs with tax or creditor liens, outstanding child support or alimony payments, or bankruptcy petitions will not be eligible to receive inheritance funds.
Beneficiaries must provide the values of the date of death of financial accounts or life insurance proceeds owned by the decedent. If real property is used as collateral, the heirs must provide a current appraisal of the property.
Once the financial records and ownership of the estate are verified, the funding source provides the heirs with a cash advance offer. Upon acceptance, estate loans are dispersed within 10-15 business days.
Heirs applying for probate loans should obtain legal advice before signing contracts. Doing so ensures that the cash advance loan documents are legally binding and protect all parties involved in the transaction. It is also important to perform due diligence before assigning inheritance rights to a funding source.
Start by conducting research online and check with the Better Business Bureau to determine if any complaints have been filed. Contact your state business registration department to make sure the funding source is licensed to do business in your state.
When properties are valued at under $100,000 and the probate can be resolved quickly, it is usually best to wait until the probate process is complete. However, if you contest the last will, getting a probate loan can be a smart financial move. Contesting a will can suspend the liquidation of assets for months and often bankrupts small estates due to legal defense fees.
Those unfamiliar with probate cash advances should consult with an estate planning attorney to determine if this is the best financial decision.