Financial crisis points come in a variety of forms – job loss, divorce, extended illness, bankruptcy – the list goes on and on. When you add in the emotional and psychological stress associated with the passing of a loved one, then the crisis gets even deeper. When you find yourself fall further behind financially with each passing month, the situation can feel more and more threatening. If you have the chance to take out a sizable advance against an estate distribution that will come in the next few months, then that opportunity can feel like a real lifeline. When that opportunity is a non-recourse advance, the chance to recover financially can be almost impossible to turn down.
What is a non-recourse advance?
Most of the time, when you ask for money from an institutional lender and promise to pay it back, some sort of collateral is involved. When you take out a mortgage, the collateral is the property you are using the loan to pay for. If you end up defaulting on that mortgage, the bank will come after the house as its recourse. If you borrow money to buy a car, and you default on that loan, you can expect that tow trucks will eventually prowl your neighborhood late at night to take that car back.
A mortgage and a car note are both recourse loans – the lender has recourse to come after attached assets if you default. In the case of an inheritance advance, the only way the lender can get their money back is by taking a chunk of the money you receive as your inheritance at the final distribution of the estate. If something happens and the distributions change, leaving that lender high and dry, that lender cannot come after your other assets to satisfy the note.
What are the benefits of a non-recourse advance?
An inheritance advance is a payment that a lender makes to you within 24 to 48 hours of approval. It is one of the fastest ways to get approval and payment of funding of this size. In addition to swift payment, other benefits include:
- Easy application process. Once you send in a copy of the will, attesting statements from the court, and proof of identification, you are well on your way to collecting your advance.
- Approval without a personal credit report. The funding decision is based on the terms of the estate. As soon as the lender understands that you are due the amount you say you are from the will and can verify that the estate should have the funds in place, after satisfying obligations, to distribute that much money to you, then your credit score and income history do not matter – those factors are not part of the decision.
- One-time payments instead of periodic payments. You most likely already have other monthly payments in your budget – a mortgage or a rent payment, a car note, utility payments, and other expenses. If you take out a probate loan against the inheritance, you will start making monthly payments right away – another potential financial headache. With an inheritance advance, you pay one time – and it comes out of your estate distribution before you even see that final check, so you do not have to make that payment yourself.
What are the drawbacks of this type of advance?
The most obvious disadvantage to the inheritance advance process is the size of the fee. You can end up giving up 40 or 50 per cent of your total bequest for the benefit of receiving your advance so much earlier than the distribution date of the total estate. If you stand to receive $100,000 as part of the will, an advance provider could charge you a $40,000 fee for an early $30,000 advance. You’ll get $30,000 more when the estate is distributed, but you are still only set to receive $60,000 of that original $100,000. That is a sizable fee. Once again, if it fulfills a need that no less expensive solution can resolve, then it might make sense for you and your family.
Why is a non-recourse advance better than a probate loan?
A probate loan also allows you to take out money against a future distribution from an estate. Unlike the inheritance advance, you start making monthly payments before you get that eventual distribution. You will have to make those payments until you’ve satisfied the terms of the loan. So you now have an additional monthly obligation to add to your budget. It is also true that you have the principal of the probate loan to help cushion the blow, but that could still be another financial headache.
With an inheritance advance, if something happens in the probate process and your distribution is lower than expected, the advance provider does not have any recourse to come after your other assets to be made whole in the process. That’s a very real advantage – with the probate loan, if you default for any reason, the lender can come after your other assets.
If you’ve recently lost a loved one and are wondering how to move out of a recent financial crisis, don’t feel like you have to navigate your next financial steps all by yourself. Amansad Financial has built a sterling reputation for helping customers deal with a wide variety of financial issues, ranging from an inability to secure a mortgage through traditional lending institutions to finding ways to bridge the finances of a move from one home in Western Canada to another in Ontario, to solving real financial hardship in the wake of the loss of a valued family member. We will take the time to listen to your entire situation and give you the tools you need to move forward and thrive. Don’t miss this chance to talk to one of our financial service professionals today!