Many people create estate plans with one primary thought in mind: how to avoid the probate process. Their goal is to make sure that property is not caught up in the courts and passed immediately to beneficiaries upon death. But of course if an estate plan is not in place, or if it is not updated for later acquired assets such as a second home or inheritance, such assets will likely be stuck in that process.
And while speed and simplicity is certainly the main goal in avoiding probate, sometimes the circumstances are of a more serious nature. If all of the assets in an estate, for example, are tied up in probate and illiquid property (such as a house), beneficiaries may be stuck between a rock and a hard place.
Probate Problems to Avoid
One of the most common difficulties occurs with the personal representative of an estate, who should be compensated for the time and expenses related to settling debts and maintaining the estate’s assets. That representative may already have a busy enough life between work and family without much time to give. Other problems arise when the estate’s assets are locked up in probate and an estate tax is due.
In a somewhat different situation, maybe it is just one of the beneficiaries who are in financial distress, perhaps on the verge of losing a home from foreclosure. The proceeds of an estate would be far more valuable to him early on, rather than after losing that home.
Assessing the Inheritance Loan as an Option
In these unfortunate situations, it may be wise to consider what some call a “probate loan.” This instrument is not actually a loan, but the transfer of a right to your inheritance. So the risk to the purchaser is not that you will not pay them back, but that the estate may not have the funds available to pay. Generally, the purchaser of a right to an inheritance will be the last party paid out of an estate. Accordingly, that purchaser will charge a sizable sum to hedge against the risk.
Because of this fee, obtaining a probate loan should be treated as an option of last resort and a Cape Cod probate attorney is one of the best resources to consult for weighing alternatives. Watch any late evening television and you’ll understand immediately what type of business offers this product. Any of the “structured settlement” or “inheritance” offers that advertise for you to “get cash now” should be something of a red flag that you will be paying for that privilege. Still, there is a time and place for employing this tool if other options are unavailable.
In fact these fees are probably largely justified. Because of their status being last in line for receiving estate funds, these inheritance purchasers are at risk of losing significant amounts if not at times all of the proceeds due to them under a contract. And while these companies will conduct as much due diligence as possible to ensure that the inheritors are credit worthy and actual heirs, they still face many unforeseeable risks.
What You are Actually Paying for in an Inheritance Loan
A complex probate estate might last for years later than expected due to the sophistication of the assets involved. In a simple example, selling even a small family business would probably require a great deal of analysis negotiation with potential buyers. Similarly, selling a family home may be very difficult in a market where many homes are already for sale.
Whatever the case may be, just be aware that you will be paying for the potential risk inherent to the purchasers of these contracts, sometimes more. As a first step, research which companies are reputable online with associations like the Better Business Bureau and similar consumer review sites. And involve your probate attorney as early as possible in the process to make sure you are on the right path.
