Probate Loans Against an Estate
The assets from an estate cannot be distributed to heirs until after the probate process is completed. Probate can last anywhere from 6 months to 3 years. During this lengthy process, heirs may find themselves in a situation in which they need to borrow against the estate property and receive an inheritance advance. Probate loans allow an heir to borrow against real estate within their inheritance until the probate can be settled.
Probate Loans to Satisfy Estate Obligations
During the probate process, the heirs may need funds to take care of numerous financial obligations related to the estate such as paying for funeral costs, legal expenses, making mortgage payments, paying property taxes, settling debts or claims on the estate, making repairs to properties or buying out or paying off other heirs. An estate loan allows the heir to quickly borrow against real estate within the estate and receive funds to satisfy various immediate obligations of the estate.
Estate Loans – A Common Example
One common estate loan example is when heirs are left with real estate as an inheritance. Often times, one or more of the beneficiaries are the successor trustees of the trust created by the parents and the parents are now deceased.
An heir may wish to maintain ownership of the real estate in the estate while another heir(s) may want cash in exchange for their interest in the property. The heir may not have enough cash on hand to simply pay off the other heir(s) and getting a conventional loan from a bank is often not possible as the title of the property is currently in the name of the estate, not the heir.
The heir who wants to maintain ownership of the real estate can take out an estate loan to raise the necessary funds to pay off the other heir(s) for their interest in the property. The estate loan is made directly to the estate and the heir who is keeping the real estate is allowed to assume the loan. Once the estate loan escrow has been completed, the title will have been transferred into the name of the heir, who will then be able to obtain a conventional loan.
Trust Loans – Preserving the Assessed Tax Value of the Property
Trust loans allow for taking out a short-term loan against a property with the loan proceeds going towards satisfying one of the heir’s interest. Then the property can subsequently be deeded to the other heir who wishes to maintain ownership of the real estate. There may be favorable tax and property tax benefits when property passes from a parent to a child so a tax professional or attorney should be consulted.
The goal of this type of favorable tax transaction is to have the property pass from the parent’s trust to a child (while paying off one or more beneficiary’s interest) in such a way that does not cause a reassessment of the property value. Maintaining the existing tax assessment value may save the child thousands of dollars each year in the form of lower property taxes. This yearly savings makes the trust loan an excellent investment.
*Note: Current California regulations may allow a reassessment exemption when property is transferred from a parent to a child or grandchild. Regulations in other states may vary.
Trust Loans to Beneficiaries – An Example
If a trust distributes to two children (trust beneficiaries) and then one of the children acquires the other 50% ownership from the sibling, the property can be reassessed (at least to the 50% interest being acquired) since the transfer from one sibling to another is not exempt. However, if a trust loan is made to the trust and one sibling receives cash while the other sibling receives the property (100%) from the parent’s trust, then the transfer should be seen as exempt (transfer from parent to child).
Experienced trust loan lenders such as North Coast Financial are able to make the loan to the trust and then make an exception to allow one of trust beneficiaries to assume the loan. Once the title is transferred to the heir receiving the property, the owner can then refinance to a less expensive conventional loan.
Probate, Estate and Trust Loans Not Available from Conventional Lenders
Conventional lenders such as banks and credit unions are generally not able to provide probate, estate, inheritance or trust loans. These types of loans require additional documentation and legal knowledge which most banks and credit unions do not possess. Conventional lenders also cannot make a loan to an estate or trust and then have another party immediately assume the loan.
Experienced estate and probate loan lenders such as North Coast Financial have the expertise and flexibility to the make the loan to the estate or trust and then allow the heir to assume the loan and take title to the property.
Reverse Mortgage Refinancing for Heirs
North Coast Financial is also also to provide reverse mortgage refinancing to heirs who wish to maintain ownership of a inherited property that has an existing reverse mortgage. Conventional lenders will not refinance reverse mortgages for heirs but hard money lenders can provide this type of funding. A loan can be made to the estate which can then be assumed by the heirs. This allows for the heirs to maintain ownership of the property, have the title of the property transfer into the heir’s name and prevent a reassessment of the property value which can save thousands of dollars in property taxes each year (consult a tax professional or attorney).
Contact North Coast Financial now and get your estate loan funded quickly.