How Professional Fiduciaries Can Leverage Real Estate-Based Probate and Trust Loans

Professional fiduciaries can leverage real estate-based probate and trust loans to better serve their clients and efficiently manage the estate administration. An estate/trust that owns real estate with sufficient equity gives the fiduciary a fast and straightforward option for quickly raising funds.

Traditional lenders are not able to lend against real estate owned by an irrevocable trust or going through probate, but specialized private money lenders provide these types of loans. The loan is made directly to the trust or estate and recorded against the real estate.

Here are 3 common uses for probate and trust loans:

1. Beneficiary Buyouts or Distributions

Beneficiary buyouts allow one beneficiary to keep an estate-owned property and raise cash to pay out other beneficiaries for their interest in the property. Processing this type of loan directly through the trust or estate can also have beneficial property tax benefits for beneficiaries who wish to make the property their primary residence with California’s Proposition 19.

The real estate can later be transferred out of the estate and into the name of the individual beneficiary keeping the home. The loan will stay attached to the home until it is refinanced into a long-term traditional loan.

In some situations, an early distribution may be required by beneficiaries while the estate goes through the probate or trust administration process. This is particularly valuable when beneficiaries face financial hardships or time-sensitive needs.

2. Estate Tax and Administrative Expense Management

Large estates often face significant tax obligations and administrative costs (attorney fees, court costs, appraisal fees, fiduciary compensation) that must be paid promptly to avoid penalties and interest. A probate loan ensures these critical expenses are covered without being forced to sell assets at potentially unfavorable market conditions.

3. Real Estate Maintenance and Carrying Costs

Properties in probate require ongoing maintenance, insurance, property taxes, and utilities to preserve their value. For estates where rental income isn’t sufficient or where properties are vacant, probate loans cover these carrying costs, preventing deterioration that could significantly reduce the estate’s value.

Timing

Probate and trust loans can be processed and funded within 7 days once the lender receives the necessary information and documentation from the fiduciary. This fast-funding timeframe allows the fiduciary to quickly raise funds and solve any pressing issues of the estate.

Loan Process

• The process begins by the fiduciary contacting the lender to discuss the estate’s loan request.
• The lender will determine the feasibility of the estate’s request, provide a quote and terms and request application and trust/probate documentation.
• The lender reviews the application and documents, provides loan approval and begins the loan disclosures.
• Loan disclosures are sent to the fiduciary for review and approval.
• Final loan documents are created by the lender and signed by the fiduciary with a notary.
• Funds are wired from the loan escrow to the bank account of the estate or trust.

Loan Terms

Probate and trust loans are only for short-term use (12-24 months typically) so the fiduciary must have a reasonable exit strategy in mind for the estate (selling real estate, transferring real estate to beneficiary and then refinancing, etc.). Interest rates are commonly in the range of 9.95-11.95% depending on the loan scenario. Loan amounts of up to 60-75% of the current value of the real estate are available.

The information provided herein is for educational purposes only. North Coast Financial is not providing any legal, tax or financial advice.