Probate court can take months, if not years to complete in some cases. If you stand to gain from an inheritance, this waiting period can be somewhat difficult financially. In recent years, probate loans have emerged as an opportunity to receive funds from an inheritance early. But, these loans do not come without caveats. The following information will tell you everything you need to know about probate loans and when (or if) you should consider using one:
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What is a Probate Loan?
A probate loan is a loan taken out against a future inheritance through the use of a hard money lender. Probate loans result in monthly repayments while probate continues to process, and the lender earns money through interest. Probate loans can also be called Estate loans or inheritance loans.
Probate loans are a relatively recent financial development, and therefore are not regulated very heavily. For this reason many traditional banks stay away from probate loans and will encourage other options. Because of this, probate lenders can be somewhat difficult to find.
How Long Does It Take to Get Money After Probate?
It typically takes between six to nine months to receive money from an inheritance after probate. Although, some probate proceedings can extend well beyond a year.
The length of probate depends on the complexity of the Estate, and whether or not any disputes occur regarding the Estate Plan. Read our guide on probate to learn exactly what to expect during this process.
How Long Does It Take to Get a Probate Loan?
It takes as little as a few weeks to a month to get a probate loan, depending on the lender. The biggest determining factor is how quickly the lender can verify your inheritance and assess the overall Estate.
Once the lender has the appropriate information, they will submit an agreement offer with the proposed loan terms. Lenders can act much faster than probate because they are not dealing with the same level of legal oversight and involvement.
How Much Can You Receive From a Probate Loan?
You can receive anywhere from 25 to 75 percent of your original inheritance with a probate loan. The exact range will depend on the lender’s agreement offer and the length of time probate takes.
Some lenders rely on a maximum loan amount rather than a percentage of the inheritance and will only offer up to that amount. For example, some lenders may finance up to $40,000 while others may go above $200,000. It all depends on who you are working with and the size of the inheritance.
How Do Probate Loans Work?
Probate loans work somewhat similarly to other forms of financing. The process starts when an individual reaches out to a probate lender. The lender then steps in to evaluate the Estate and determine the total inheritance amount. They will get in contact with the Executor of the Estate, so it’s a good idea to inform them before applying for a probate loan.
After the lender confirms the inheritance, they will propose an agreement amount and interest rate for the probate loan. This amount will typically be a portion of the total, and individuals can decide to move forward based on the terms.
The loan is then paid back through monthly repayments while probate continues to process. Often after receiving the final inheritance, the loan can be repaid in full. In some cases, lenders may provide a discount if probate closes sooner than expected.
What is the Interest Rate on a Probate Loan?
The interest rate on a probate loan will depend on your financial situation, inheritance, and the lender. In most cases, probate loan interest rates are between 7 and 15 percent. However, they can be significantly higher in certain circumstances.
With any loan, it is a good idea to shop around and find the lender with the most favorable loan terms. This can help save you money in the long run, and maximize the total amount of your inheritance you can receive.
Advantages of Probate Loans
The main advantage of a probate loan is receiving a portion of your inheritance early. These funds can make a big impact if you need extra financial assistance, for example if you need to pay taxes or tuition. This is the most common reason people apply for probate loans.
In cases where probate is expected to be lengthy, whether that is the result of a complex Estate or family disputes, probate loans can allow you to access an inheritance on your own terms. Probate loans can also be used for any purpose.
Disadvantages of Probate Loans
Probate loans do result in monthly repayments and interest costs, which will reduce your overall inheritance amount. In cases where probate is expected to run smoothly, these tradeoffs may not always be worth it.
Probate loans are also a relatively new financing method, leaving some individuals vulnerable to scammers or predatory loan terms. To date, California is the only state that has passed laws regulating probate loans and advances. This puts a lot of responsibility on you to research the lending company and loan terms.
Another disadvantage to address is the possibility for a family dispute to emerge. A study from the Yale Law Journal found that a lender’s involvement in probate was more strongly correlated with conflict during probate than any other factor -- including in situations when a family member had been disinherited.
Probate Loans vs. Probate Advance
Probate loans are not the only option to access your inheritance early. Probate advances are another option and allow you to access funds without monthly repayments or interest. Instated, probate advances take a portion of your future total inheritance amount.
When to Use Probate Loans
Probate court can be somewhat unpredictable, especially when a large Estate is involved. Depending on the circumstances, it can take well over a year to settle an Estate. If you need your inheritance sooner for any number of financial reasons, a probate loan is one possible option to consider.
These loans will result in monthly repayments and interest charges; however, this may be a small price to pay in order to receive an inheritance early. Remember that it is crucial to research different lenders before accepting a probate loan and avoid anything that sounds too good to be true. Here are a few circumstances when using a probate loan could be beneficial:
If you have a strong financial need. In cases where you have upcoming payments, such as a tax deadline or outstanding mortgage payment, a probate loan may be a viable solution. Always consider other financing options alongside a probate loan.
If probate will likely stall. If you expect there to be disputes during the probate process, it may be a good option to look into ways to receive your inheritance early. For example, if there is a family business or other asset to divide probate could take an extended period to settle.
If there is a chance your inheritance will change. In cases where you expect your personal inheritance to be disputed, it might make sense to get a lender involved. After all, they will have an interest in ensuring you receive your inheritance amount.
Probate loans are one of a few different options to receive your inheritance early. Depending on the situation, this may be the best option financially. Always weigh the pros and cons before making a decision, and remember to review your lender carefully. In the right circumstances, probate loans can provide much-needed financial support.