Probate loan solutions assist heirs, beneficiaries and probate administrators who need to borrow against an estate before the probate can be closed and the assets are distributed. Probate funding (or estate funding) is commonly used to pay off debts/expenses of the estate or divide an interest in an inherited property. In some cases, probate funding is used if the heir isn’t able to wait until probate can be closed and the assets are distributed.
The two most common types of probate loan solutions in California are:
- Probate real estate loan: Recording a short-loan against real estate owned by the estate
- Inheritance cash advance: assigning a portion of the heir’s inheritance to a company in exchange for cash upfront
Probate Real Estate Loans
Probate real estate loans are typically a much lower-cost probate loan solution. The real estate owned by the estate serves as a collateral for the loan. The probate loan is recorded against the real estate with a note and deed of trust just like a normal mortgage. Using real estate as security for the loan reduces the risk to the probate loan lender. Buying out other beneficiaries is one of the most common uses of a probate real estate loan.
READ MORE: How to Buy Out a Sibling on Shared Property
Probate Loan Rates in California
Probate loan rates in California are commonly between 8-10% interest. The interest rate is higher than long-term conventional loans but the probate loan is only intended to be a short-term solution. Many probate loan borrowers only keep the loan for a few months until they are able to sell the property or refinance into a low-interest conventional loan once the property is transferred from the estate into the name of the beneficiary who is inheriting it.
Probate Loan Application Process
Since the estate owns the property during probate, the estate is the actual borrower of the loan. There will need to be a probate administrator who has full authority to apply for the loan and sign the loan documents. The probate administrator will need to fill out a probate loan application on behalf of the estate. Whoever will be inheriting the estate property will be responsible for paying off the probate loan and this individual will need to complete a probate loan application as well. The individual will include information on their financial situation as the probate loan lender will need to verify that the probate loan borrower has the financial strength to refinance the probate loan into a long-term conventional loan in the future.
For estates with multiple beneficiaries, all of the beneficiaries will need to sign a notice of proposed action. The notice of proposed action shows that all beneficiaries approve of the probate funding and the loan being placed against the estate-owned property.
Probate loan approval typically takes no more than 1-2 days once the applications have been submitted. In many cases same day approval is available.
Once the probate loan lender has the necessary applications and documents from the borrower and has approved the loan the probate funding process will begin. Probate funding typically takes no more than 1.5-2 weeks as long as there aren’t any title issues that need to cleared up. In some cases, probate funding is completed in as few as 5-7 days. The loan proceeds are sent directly to the bank account of the estate. If the property is owned by an irrevocable trust instead of an estate, the process for a trust loan is very similar.
Inheritance Cash Advance Probate Funding
An inheritance cash advance is a probate loan solution for an estate that doesn’t contain real estate. Estate beneficiaries can consider an inheritance cash advance in order to borrow against their specific portion of the inheritance. This type of probate funding involves the beneficiary signing over a portion of their future inheritance to the cash advance company.
In many cases they are not considered loans and monthly payments are not required. A common pricing structure would be a cash advance of $30,000 which requires the beneficiary to pay $50,000 once the probate closes and the assets are distributed.
Inheritance Cash Advance Benefits
A main benefit of an inheritance cash advance is that all of heirs do not have to agree in order to obtain the cash advance. The beneficiary is only signing away a portion of their interest, not the other beneficiaries. Another benefit is speed. Many inheritance cash advance companies advertise that they are able to fund these cash advances within a few days.