Inheritance funding can be provided by either an inheritance advance company or an inheritance lender. The type of funding that is right for you depends on your needs and the type of assets in the trust or estate. In both scenarios, the process is generally simple and fast, and you receive your money quickly so you can use it immediately.
However, an inheritance advance is often the best choice for heirs who want to receive their money fast and for the lowest available price. Most people are unfamiliar with the process of securing their inheritance, let alone with the process of getting a loan or a cash advance for an inheritance. This guide explains the difference between the two and can help you decide whether applying for a loan or a cash advance company is right for you.
Inheriting money or assets can be a lengthy process, taking anywhere from 6 months to a few years depending on the complexity of the estate. This delay can create financial hardship if you were counting on those funds to cover expenses. While you wait for the courts and lawyers to complete probate you may be wondering if banks offer inheritance loans or advances that allow you early access to your inheritance payout.
What Are Inheritance Loans?
Inheritance loans, also called probate loans or estate loans, allow heirs to borrow against their expected inheritance and receive funds before the estate is settled They are a special category of loan offered by some lenders and financial institutions.
With an inheritance loan you receive cash upfront and the lender places a lien on your future inheritance assets. This means that when you do receive your inheritance payout, the lender is paid back first before you get the remainder.
These loans are often structured as secured loans since your future inheritance serves as collateral. The lender can seize your inheritance if you default on the loan.
Do Traditional Banks Offer Inheritance Loans?
Most major banks and credit unions do not offer inheritance loans. These include large national banks like Chase, Bank of America, and Wells Fargo. The reason is that inheritance loans are very high risk for lenders.
There is no guarantee that the borrower will actually receive the inheritance or receive the expected amount. The estate could end up owing more in taxes and debts than originally expected. Inheritance disputes between heirs could also reduce an individual’s payout.
Large commercial banks prefer to avoid the uncertainties of probate and estate settlement. They tend to only loan funds when assets are definitively owned.
What Types of Lenders Offer Inheritance Loans?
Given the risks, only a limited number of lenders are willing to provide inheritance loans. They include:
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Smaller Banks: Smaller regional and community banks are more likely than large national banks to consider inheritance loans. They have more flexibility than big banks to take on higher risk lending.
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Credit Unions: Credit unions are non-profit financial cooperatives owned by their members. They may offer inheritance loans as a service to members in unique financial circumstances.
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Specialty Lenders: There are a handful of specialty finance companies and private lenders focused specifically on inheritance loans. They have experience dealing with the uncertainties of estate settlement.
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Probate Litigation Lenders: These specialized lenders offer loans to heirs involved in contested estates and probate disputes. The loan is repaid from future inheritance proceeds.
What Do Lenders Look For in an Inheritance Loan Application?
Inheritance lenders will want to verify and assess the details of your specific expected inheritance. This typically involves providing:
- A copy of the will or trust documents showing you as a beneficiary
- The death certificate of the deceased
- Letters of administration from the probate court
- A statement from the estate executor listing inheritance details
- Your ID and proof of address
Lenders will also run credit checks, though your credit score is generally not a big factor for approval. They place more importance on verifying your inheritance eligibility.
Inheritance Loan Costs and Fees
The costs of inheritance loans can be quite high compared to other personal loan products. This covers the lender’s risk.
Typical inheritance loan costs include:
- Origination fees from 2% to 10% of the loan amount
- Higher interest rates of 10% to 28% APR
- Penalty fees for early repayment
Closing costs and legal fees related to placing a lien on the inheritance assets may also apply. Lenders may charge a monthly servicing fee as well.
You should be absolutely certain you need funds before taking an inheritance loan, as the total costs can rapidly accumulate.
Pros of Inheritance Loans
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Quick access to funds – Money is available in days or weeks, not the months or years probate can take.
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No minimum credit score – Your creditworthiness doesn’t matter, only the details of your expected inheritance.
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Use funds flexibly – There are no restrictions on how you use an inheritance loan.
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Avoid estate disputes – Heirs can access funds without trying to force an early distribution.
Cons of Inheritance Loans
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Very high fees and interest rates – You will pay significantly for an inheritance loan.
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Risks losing inheritance – Not repaying the loan means the lender can take your inheritance share.
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Estate uncertainties – Your actual inheritance may differ from expectations.
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Tax complications– Advance funds may impact taxes owed by estate.
Alternatives to Inheritance Loans
Other options to cover financial needs prior to receiving your full inheritance include:
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Estate advances – The estate executor can choose to distribute partial inheritance funds early if cash is available.
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Personal loans – Banks and online lenders offer personal loans with lower rates, if you can qualify based on your credit score.
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Home equity loans – Use your home equity as loan collateral if you have substantial equity.
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Family loans – Borrowing from family or using a home as collateral for family.
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Credit cards – Balance transfer or low-rate credit cards can provide short-term financing at lower cost.
Making the Right Choice for You
Inheritance loans allow unique access to funds but aren’t the right choice for every situation. Consider both your options and the estate details closely when deciding if pursuing an inheritance loan makes sense.
Not all heirs need funding before the end of probate. And alternatives like estate advances or personal loans may provide funds at lower cost.
But for those with urgent needs or facing a long and complex probate process, inheritance loans from specialized lenders could be a viable solution. Just be sure to account for the high fees and interest rates in your decision.
Frequency of Entities:
Inheritance loans – 19
Probate loans – 5
Estate loans – 3
Lenders – 12
Banks – 7
Credit unions – 3
Specialty lenders – 1
Probate litigation lenders – 1
Smaller banks – 1
Inheritance assets – 2
Collateral – 2
Probate – 6
Estate settlement – 2
Death certificate – 1
Letters of administration – 1
Estate executor – 2
Credit checks – 1
Origination fees – 1
Interest rates – 1
Closing costs – 1
Legal fees – 1
Inheritance share – 1
Heirs – 2
Estate uncertainties – 1
Estate advances – 2
Personal loans – 2
Home equity loans – 1
Family loans – 1
Credit cards – 1
Who Needs to Pay Inheritance Tax?
Just a few states charge inheritance tax when you receive an inheritance after a loved one has died. If the estate exists in any of the following states, you may have to pay inheritance tax:
It does not matter whether you live in one of these states or not. Instead, it only matters where your deceased loved one lived. If your loved one’s estate is in one of these states, you may be subject to an inheritance tax. For example, if you live in New York and inherit money from a relative who lived in Pennsylvania, you may have to pay inheritance taxes to Pennsylvania.
What Are the Disadvantages of an Inheritance Loan?
Though you might want to get your inheritance as soon as possible, you should consider the disadvantages of inheritance loans.
- The lender is involved in the estate’s probate: An inheritance loan introduces a stranger into the probate process, which could extend the process, disrupt the case and add conflict between you and your family. Probate lending frequently causes more conflict than other sources of conflict in an estate, including handwritten wills and disinheriting family members.
- The risk and cost of an interest rate: Inheritance loans tend to be costly, especially in comparison to what you receive. If you get a loan and the probate goes quickly, you could lose a large portion of your inheritance in exchange for getting a portion of your money a few weeks earlier than you otherwise would have. Depending on how long the probate process takes, you could face a high interest rate, even for small inheritance loans.
- The risk of predatory lenders: Since probate lending is largely unregulated, lenders can prey on customers. Many people don’t know much about the probate process, which can make it easy for lenders to use predatory practices. If you still want an inheritance loan, carefully review the information the lender provides to ensure you understand what you stand to gain and what you could lose.
Inheritance loans are often more expensive than other loans, and you will receive less money from your lender than you would have received if you waited until the end of the probate process.
Probate Loans Vs Advance On Inheritance, Everything You Need To Know!
FAQ
Can I get a loan based on an inheritance?
Are inheritance loans a good idea?
What is the interest rate on an inheritance loan?
What is the inheritance loan?
What is inheritance funding?
Inheritance funding is a type of short-term financing that gives you access to the value of the funds or assets you’ve inherited before the deceased’s probate case is closed. There are many terms used to describe inheritance funding: inheritance loans, inheritance advances, estate loans, probate loans or probate advances.
How does an inheritance loan work?
You receive your funds and repay it plus interest and fees, with your estate considered collateral for the loan. An inheritance loan or estate loan may come with an interest rate around 8% to 10% or more, and lenders typically lend up to 65% to 70% of the property’s value.
What happens if you get an inheritance loan?
The lender is involved in the estate’s probate: An inheritance loan introduces a stranger into the probate process, which could extend the process, disrupt the case and add conflict between you and your family.
Should you get an inheritance loan before probate?
Inheritance loans before probate can be a great solution for anyone strapped for cash who might need their inheritance immediately. There’s also no need to pay back an inheritance advance – it’s not the same thing as an inheritance loan.