Heir advance is a type of lending practice used by beneficiaries entitled to inheritance property held in probate. Inheritance cash advances are not loans. Instead, the estate reimburses the funding source when probate settles.
Another form of heir advance is distribution of annuity payments established through an irrevocable life insurance trust. When decedents implement this estate planning strategy, heirs receive structured settlement payments for a set period of time. Heirs can sell annuities in exchange for a cash advance. Selling structured settlement payments usually requires court authorization.
The probate process is necessary to validate decedents’ Will, pay debts, and distribute inheritance property to named beneficiaries. If decedents hold real estate secured by a mortgage loan the estate is responsible for paying monthly installments, property taxes and insurance, and maintenance expenses.
Probate real estate expenses can place a heavy financial burden on estates. On average, probate takes six to nine months to settle. If the estate is financially incapable of paying home loan payments, the property could be at risk of foreclosure. Estate executors can petition the court seeking approval to sell real estate to reduce estate expenses.
Private investors are the most common source of probate cash advance funding. Probate advances are usually reserved for heirs entitled to $15,000 or more. Funding sources absorb considerable risk when providing inheritance cash advances and will require time to verify information regarding the estate and heir advance applicant.
Heirs do not receive full face value for inheritance property. Instead, investors charge an upfront fee which can range from 10- to 40-percent, or higher. The fee covers use of the lender’s money for duration of probate and lessens financial damage if the estate is incapable of repaying the heir loan advance.
Although most investors conduct due diligence to monitor the estate’s financial status, many things can go wrong during probate. When heirs contest a Will, probate can be prolonged for years. Unless the decedent was a multi-millionaire, contesting the will rarely accomplishes anything more than bankrupting an estate.
Probate is further complicated when decedents die without executing a last will. Intestate probate requires a court hearing to appoint a personal probate representative. Probate laws vary by state, but intestate inheritance property is typically distributed to the surviving spouse, children or direct lineage relatives – sisters, brothers, mother or father. Heirs involved in intestate probate usually have difficulty locating an heir advance funding source.
Probate heir advance companies require applicants to provide a current credit report. Some require background checks as well. Funding sources investigate heirs financial records to determine if any outstanding judgments, liens, alimony, child support, or bankruptcy filing exist which could interfere with repayment of the probate advance.
Funding sources will verify estate information through the probate court or estate administrator. Applicants must provide decedents’ last will and death certificate. Additional required documents might include realty listing or sales contract, inventory and appraisement statement, or petition for probate.
Heirs are required to assign inheritance rights to the funding source in exchange for the probate advance. Upon approval, heir loan funds are distributed within 5 to 15 days. Payout time depends on the probate loan amount and funding source policies.
