Pros and cons of inheritance financing

Inheritance financing refers to a strategy used by heirs entitled to an inheritance property that is carried out in probate court. A succession is required to liquidate the inheritances of the deceased. The process can take several months; causing the depreciation of inheritance assets. When the deceased have outstanding debts, there is a possibility that assets may need to be sold to cover expenses.

Heirs who choose to obtain inheritance funds must find a funding source that specializes in this field. The most common sources of financing include private investors and cash advance companies. In rare cases, banks or credit unions make advance loans. However, when the heirs are entitled to titled property, such as real estate or motor vehicles, banks can allow the heirs to use the property as collateral and take out a secured loan.

Heirs must exercise due diligence to ensure that they are working with a reputable funding source. The heirs must assign inheritance rights to the investor in exchange for a lump sum in cash. The heirs are not obliged to repay the advance. Instead, the investor receives the assets used to secure the advance once the estate is settled.

Private investors take substantial risk by raising cash for probate loans. In addition to having to wait for probate to complete, they also face the real possibility that the estate will be forced to sell assets to cover outstanding debts. Investors have no legal recourse to pursue the estate if they cannot collect the advance. They also cannot pursue heirs unless it is proven that misinformation was provided to obtain the advance.

The process for obtaining cash for probate loans can vary. Most funding sources require heirs to undergo a background and credit check to determine if the applicant has outstanding debts that could interfere with payment. Funding sources should determine whether the heirs have tax ties, creditor judgments, bankruptcy proceedings or pending child support or spousal alimony.

Funding sources generally require a copy of the decedent’s last will and testament and death certificate. Funding sources contact the estate administrator to verify ownership of the estate. In some cases, they will also require property appraisals to determine fair market value.

Estate financing is generally offered to heirs entitled to $ 15,000 or more. Funding sources charge an upfront fee that is deducted from the cash advance. Fees typically range from 10 to 40 percent of anticipated funds. Heirs should research multiple funding sources to get the lowest rate.

If the heirs request a cash advance of $ 10,000 and funding sources charge 40 percent, the amount of funds received would be $ 6,000. However, the heirs assign inheritance rights totaling $ 10,000.

The heirs must determine the true cost of obtaining cash advances. Not only will heirs give up a percentage of the anticipated inheritance, but inheritance tax could also be imposed on the entire amount. It is advisable to consult with a probate attorney or tax accountant to determine if inheritance financing is a smart financial option.