Losing a loved one is emotionally challenging, and the last thing you want to deal with is a legal process. Unfortunately, that is exactly what many individuals find themselves doing when it comes to securing their rightful inheritance. It can take many months for a will to be legally verified in court-a process known as “probate.” A probate loan can provide relief during this difficult time by offering an immediate financial solution to beneficiaries and heirs. Let’s take a closer look at how probate loans work and when they might be right for you.
What is a Probate Loan?
A probate loan, also known as an inheritance advance or probate advance, is a type of hard money loan designed to provide immediate cash to beneficiaries of an estate while they await the completion of probate. Again, probate is the legal process that validates a Will and ensures the proper distribution of a deceased person’s assets. Even with simple estates, this can take as long as six months to be completed.
A probate loan will allow you to secure an immediate lump sum from a lender based on your projected inheritance amount. You will then pay back the loan once you receive the actual inheritance settlement.
How Do Probate Loans Work?
Probate loans are typically offered by specialized lending institutions. They work in much the same way other hard money loans do:
- Application: The beneficiary or heir applies for a probate loan by submitting necessary documents, including the probate case information and the estimated value of the inheritance.
- Evaluation: The lending institution evaluates the estate’s value, the likelihood of a successful probate, and any potential risks associated with the loan.
- Approval and Loan Amount: If the application is approved, the lender determines the loan amount based on a percentage of the anticipated inheritance value.
- Terms and Conditions: The lender presents the beneficiary with the loan terms, including interest rates, fees, and repayment schedule. It’s crucial to carefully review these terms before accepting the loan.
- Disbursement: Once the beneficiary accepts the loan terms, the lender disburses the approved amount to the beneficiary. The time it takes to receive your loan depends on the specific lender, the amount, and other factors. However, it is typically a fraction of the time you would have to wait to receive your inheritance amount if you waited out the legal process.
- Repayment: Repayment of the probate loan typically occurs when the probate process concludes and the estate distributes the inheritance. At this point, the beneficiary repays the loan, including any accrued interest and fees.
When Would Someone Use a Probate Loan?
Probate loans can be beneficial in several situations. Generally, they are useful if a beneficiary is in need of financing sooner than the legal proceedings can be completed. A few common situations when a probate loan might be helpful include:
Immediate Personal Financial Needs: Beneficiaries who require immediate funds for living expenses, such as mortgage payments, groceries, utilities, or other financial obligations can use probate loans to catch up on outstanding bills until the probate process is complete.
Funeral Expenses: The median cost of a funeral in 2021 was around $8000. For most individuals, this is no small amount. If it is left to a certain beneficiary to arrange and pay for funeral expenses, a probate loan can help cover the cost.
Medical Bills: If the deceased has any unpaid medical bills, a probate loan can be used to help settle these. This is true of any other outstanding debts the deceased may have accrued, such as a mortgage, credit card balance, etc.
How Much Can You Get From a Probate Loan?
The amount of money you receive through a probate loan will depend largely on the lender. Some lenders offer a percentage of your projected inheritance, usually between 25 and 75 percent. Others may cap the loan at a maximum and lend “up to” a certain amount.
Pros and Cons of Probate Loans
Like any financial product, probate loans have advantages and disadvantages.
Advantages to a Probate Loan:
Quick Access to Funds: Probate loans provide beneficiaries with immediate access to much-needed cash, eliminating the wait time associated with the probate process.
No Credit Check or Collateral: Probate loans are typically based on the anticipated inheritance rather than the beneficiary’s credit history. Thus, they do not require a credit check or collateral. You also do not need to provide proof of income or have a down payment.
Flexibility: Beneficiaries can use the loan funds as needed, whether it’s for daily expenses, debt settlement, or legal fees.
Disadvantages of Probate Loans
Higher Interest Rates: Probate loans often have higher interest rates compared to traditional loans due to the risk involved for the lender. After all, there is no guarantee that you will receive the anticipated amount.
Reduced Inheritance: Taking a probate loan means reducing the overall inheritance amount, as the loan and associated fees must be repaid.
Limited Eligibility: Probate loans are only available to beneficiaries of estates going through the probate process, which may exclude those with other types of inheritances.
Probate Loans Colorado
Probate loans offer beneficiaries a viable solution to address immediate financial needs during the probate process. Pinetree Financial is a reputable hard money lender who provides funds for all sorts of projects within the state of Colorado. We lend on a case by case basis, and pride ourselves on our quick turnaround time. Whether you are awaiting an inheritance, building a new home, or looking to buy your first rental property, we are here to help. Call or go online today to get started.