Inheritance (Probate) Loans, Settlement Loans, and Private Mortgages
The passing of a loved one is one of the most stressful experiences that families go through. Other stressful experiences include significant injury from an automobile accident or other event that is caused by another person’s doing, either maliciously or accidentally. Adding to the stress is the cost associated with handling these events – planning an unexpected funeral, traveling across the country to the service, or hosting a wake for relatives. In cases of injury claims, replacing lost wages and simply paying your bills can add up if you do not have savings.
Loans and advances exist to help you get access to your funds before the probate and settlement processes release them. Let’s take a look at these two types of loans as you consider the options available to you and your family.
What is an inheritance loan or cash advance?
Just because you receive a sizable inheritance does not mean that you will receive the money anytime soon. The passing of a relative frequently causes significant stress as well as sudden costs involving travel and logistical arrangements. When estates are tied up in the probate courts, the money can take years to release. An inheritance loan allows you to get access to liquidity while you wait for the probate process to sort itself out.
Inheritance advances have several benefits that traditional loans do not. There are fees on top of the fixed interest rate, and you do not have to put up any personal collateral. You simply receive a percentage of what the estate will eventually pay you. You also do not have to submit a credit application as the approval is based on the lender’s evaluation of the estate paperwork. This can help you receive the money you need quickly and conveniently.
As with any loan, there are some potential drawbacks to consider. The process now adds an additional entity to the probate process. Adding a loan on the estate can cause stress and conflict among family members. The interest rate associated with inheritance advances tends to be expensive, taking a significant portion of what you would have received. An inheritance cash advance also costs money; you would sell a portion of your proceeds to the provider for an agreed price. That sale price would end up giving the advance provider its profit, but this is less costly than the loan process.
What paperwork do you need to secure an inheritance advance?
Different providers have different requirements, but in general, you will need some or all of the following:
- The death certificate for the person who has left you money
- The legal will (a copy will do), if available
- Documentation from the executor of the estate explaining their connection to the estate
- Documentation from the executor indicating how much you will receive
- Documentation confirming the naming of the executor
- Photo identification (passport or driver’s license)
Some providers ask for additional documentation, such as a creditor notice, an estate inventory sheet, letters of administration, and/or a probate petition. You will want to reach out to the provider to learn the paperwork that they will require. Some providers also have inheritance minimums, such as $10,000, for applicants to qualify for an advance. In most cases, the advance is capped at 40 per cent of your anticipated distribution from the estate.
What is a settlement loan?
Receiving a settlement from litigation is similar to receiving your payout from an estate because maneuvering in the legal system can delay distribution of funds significantly. People who have suffered from a personal injury and who have legal representation and an ongoing legal claim can apply for loans to get them money much more quickly than they would if they awaited distribution. Options include a lump-sum loan or a line of credit that only accrues interest on the amount that the borrower uses. A third option that some lenders provide is a staged loan, giving you smaller advances each month after an initial lump sum. Interest only accrues on what you borrow, based on when you receive the advance, making the interest expense smaller for the staged option.
Other similarities to an inheritance loan or advance include a process free of credit checks and collateral. Interest does not begin until you receive the settlement or personal injury award. Once the interest begins, it can be expensive – 20 per cent for the first year, with higher rates after that. Administration fees can run as high as 20 per cent of the amount borrowed.
Settlement loans are available for personal injury claims as well as actions regarding long-term disability, sexual assault, wrongful death, animal attack, institutional abuse, and other similar legal filings. The collateral is the settlement itself; in some cases, borrowers have been able to include the interest they paid on their settlement loans in the judgment, which means that you would only have to return the principal out of the funds you receive.
While both of these types of loans can be helpful, it is a good idea to look at loans from other sources first. Settlement loans often cost more than traditional loans and even private mortgages. Private mortgages come from individuals and entities who are willing to take on more risk than traditional banks – and the loans come with rates that are slightly higher as a result. You can also use probate or inheritance advances as collateral to gain a private loan – an option that traditional banks do not offer.
None of this article should be construed as legal advice. You’ll want to speak to your own solicitor before entering any agreement involving probate and inheritance loans or settlement funds.