Also called an estate or probate loan, an inheritance loan is not actually a loan but the act of transferring the right to your inheritance to a lender/purchaser. The biggest drawback in taking out an inheritance loan is that the purchaser often charges a hefty sum because of the risk that the estate may not have available funds to pay the borrowed money.
Why take out an inheritance loan?
When the estate is going through the trust administrative process, you will not be able to access the assets. Nonetheless, situations could arise and create the need for cash settlement that the inheritance loan may be able to provide.
Heirs have divided interests
If there are several heirs to a property, such as a piece of land, it’s possible that despite mediation there may be differing opinions about what to do with it. For example, you may want to keep the inheritance within the family while others may prefer to sell it so they can get cash instead. Proceeds from the inheritance loan can be used to pay off the interest of the other heirs.
Obligations need to be settled
It’s common for an estate to have obligations, such as funeral costs, legal fees, and repairs for properties. An inheritance loan can help settle these debts, which generally need to be paid immediately. For other types of debts, check if the deceased took out a PPI insurance.
Beneficiaries have payments to make
In the course of finalizing your inheritance, it’s likely that you will incur expenses, such as purchasing a home, medical bills, and paying off a debt with high interest. You can pay off these obligations through an inheritance loan.
How to take out an inheritance loan
Before you begin the process of borrowing against your inheritance, speak to a lawyer for estate planning who can check state laws as well as the wording of the deceased’s will to verify whether you can assign your inheritance or not.
- To determine if taking out a probate loan is worth the income taxes and interest, check how much you stand to inherit and compare it to the amount you need. It’s also necessary to inform the estate administrator of your decision to assign your inheritance so the funds can be properly allocated to include payment to the lender.
- Contact several lenders and request for details regarding their standard terms, particularly the interest rate they charge. Then, talk to the estate administrator about the possible tax consequences and overall costs of assigning your inheritance. Because purchasers charge high rates, remember that taking out a probate loan means significantly less inheritance for you. If you have no provision regarding inheritance in your marriage agreement, the amount you are entitled to will be even lower.
- Prepare the necessary documents the lender may require. While the specific documentation you will be asked to provide will vary among lenders, you generally need the following:
- Your identification
- A copy of the will
- The official death certificate for the deceased
- Documentation of the appointment of the administrator of the estate
- The administrator’s certification of the amount of your planned inheritance
- Any probate court letters or documents
- Compete the loan application. The agreement needs to indicate a passage where you assign the rights to your inheritance to the lender. The exact amount of the advance you will receive as well as the lender’s fee should also be included in the agreement.
Before anything else, be sure to read the loan application carefully and see if the provisions correspond to what you and the lender have previously discussed. Do not be tempted to hurry this part of the process so if there are points you want to clarify, do so.