Probate Loans: Should You Get an Advance on Your Inheritance?

If you’re waiting for an inheritance from an estate in probate, you might be able to get some of it faster with a probate advance. In exchange for a smaller immediate payment, the lender gets your full inheritance when probate is over. This can be appealing because probate can take a long time, and your money is stuck. However, there are drawbacks to probate advances, like giving away a portion of your inheritance.

How Do Probate Advances Work?

The probate lender assesses the estate and the potential inheritance you may receive. If the lender determines that a mutually beneficial arrangement can be made, they will provide you with an upfront payment that is less than your full inheritance. In return, the lender will have the right to receive the full amount once probate concludes. This means you will receive less than initially anticipated, but you will receive the funds sooner, regardless of the duration or uncertainty of the probate process.

Is a Probate Advance a “Loan”?

A probate advance is known by several names, such as inheritance advance, immediate inheritance funding, inheritance lending, and probate lending. Some may also use the term “probate loan” to describe this concept. “Probate loan” can refer to a different type of inheritance lending where your inheritance serves as collateral for a loan. However, in this article, we use “probate loan” interchangeably with the discussed probate advance.

Probate lending firms may dispute the use of the term “loan” as they contend that probate advances are not technically loans and, consequently, not subject to the same consumer protection laws. The question of whether a probate advance qualifies as a loan contributes to an ongoing discussion regarding the necessity for improved regulation in this relatively new industry.

The Downsides of Probate Advances

While it may be tempting to consider receiving your inheritance early, it is important to approach probate advances with skepticism and caution. Before moving forward with a probate advance, it is crucial to fully educate yourself on the substantial drawbacks involved.

1. Probate Advances Cost You Greatly, Compared to Typical Loan Rates

Probate advances or probate loans can be expensive compared to the benefits they provide. If the probate process is quick, you may end up losing a significant portion of your inheritance just to receive the money a few weeks or months earlier. The effective interest rate can vary depending on the length of the probate, ranging from reasonable rates to over 100%. (In comparison, most states cap annual interest rates in the loan industry at around 10%.) The calculation depends on the lender’s offer, the actual inheritance amount, and the time between receiving the advance and the lender receiving payment after probate is completed. Predicting this can be difficult, but seeking advice from an estate attorney may be helpful.

This concept can be understood through the following examples.

Example 1: You receive a $10,000 probate advance on a $15,000 inheritance so you chose to forego $5,000 for the benefit of getting the money early. The probate is unusually long; it takes two years. Paying $5,000 over two years for a loan of $10,000 is equivalent to an interest rate of 25%. This is already much higher than the terms on most (legal) loans.

Example 2: The facts are the same, except that the probate is of average length (6 months). Paying $5,000 over 6 months for a loan of $10,000 is equivalent to an interest rate of 60% a truly, truly terrible rate.

2. The Lender Becomes Involved in the Probate Process

Probate advances can introduce an unfamiliar party into the probate case, potentially causing disruptions in what would otherwise be a relatively peaceful process involving family and friends. Research indicates that probate lending is more likely to result in conflict within an estate compared to other common sources of conflict, such as intestacy, holographic wills, or disinheriting family members (David Horton & Andrea Cann Chandrasekher, Probate Lending, 126 Yale L.J. 102, 157-60 (2016)).

3. Predatory Probate Lenders

The probate lending industry is new and unregulated. Lenders can take advantage of consumers, which is concerning due to the fact they have more knowledge and resources. Consumers, on the other hand, have a limited understanding of probate and estate-related matters. This makes it easy for lenders to exploit consumers.

Make an Informed Decision About Probate Loans

If you are considering a probate loan, it is important to carefully evaluate whether it is a suitable option for your needs.

• It is recommended to seek assistance from an estate attorney and a financial advisor to gain a better understanding of the probate advance, as well as the legal and financial implications of your decision.
• A qualified estate attorney can assist you in comprehending the complete worth of your inheritance, as well as provide guidance on your eligibility to receive assets from the estate and the potential timeline for distribution.
• Please inform the executor or administrator of the estate and inform them of your plans. This will allow them to provide any necessary documentation and be prepared for the involvement of the probate lender in the probate process.
• Compare offers from multiple lenders to find the best terms for your advance. It’s also a good idea to seek advice from your financial advisor or estate attorney before making a decision on which offer to accept.
• Think about other options. If you need money, can you borrow from a family member? Can you get a personal loan? Keep reading to understand why these alternatives are worth thinking about.

Is a Probate Advance Still Right For You?

Probate loans may be a suitable option for certain individuals, despite the potential drawbacks. For instance,

• If waiting is not an option due to financial need, probate lending may be a viable solution. Although you will receive a reduced amount, it provides the funds when needed.
• Probate can be time-consuming. It can take four to eight months for a typical, uncomplicated probate to finish. However, conflicts or unusual assets could prolong the process for a year or longer. If you don’t want to wait, probate lending offers the option to receive a smaller amount of your inheritance sooner.
• Using a probate lender can be beneficial if the outcome of the probate is uncertain or complicated. Probate lenders are knowledgeable about probate and have a vested interest in ensuring it is done properly and efficiently. When a probate lender assumes the right to receive your inheritance, they will take necessary actions to safeguard their investment. Therefore, if the estate is complex or if the executor is negligent or incompetent, a probate lender has the resources and expertise to protect their rights and obtain what is owed to it.

There are other options available. You can ask a family member for a loan or try to get a personal loan. Some lenders offer loans using inheritance as collateral, similar to a mortgage. These lenders will require monthly payments on the loan. On the other hand, probate lenders take your place in probate and assume some risk of not being repaid.

How to Find a Probate Lender

To find lenders for a probate loan, you can easily search online for “probate lending” or “probate advances” in your state. It is recommended to contact multiple lenders, compare their offers, and seek advice from a probate lending attorney.

Probate lenders have the ability to contact individuals involved in probate cases. As probate cases are public records, lending companies are able to monitor the details of estates in probate, including inventories, values, and beneficiaries. In certain states, particularly California, probate lenders may monitor active probate court records and reach out to eligible beneficiaries to inquire about their interest in probate lending.

If you have any concerns about going forward with probate lending, it is recommended to seek assistance from an attorney.