What You Need to Know Before You Advance

Recently, a co-worker’s father passed away. Like many families, her father’s estate was filed in probate court to ensure that all his debts are paid, and assets are allocated to the correct beneficiaries. Within weeks of filing the application for probate, she received a letter from a company offering immediate cash by reassigning a portion of her future inheritance in exchange for payment within five business days of application. She would need to sign a short contract, and the company would be paid by the estate, rather than waiting to be paid as a beneficiary of the estate. This was intriguing, so it made me want to dive deeper into the rules and requirements for this type of offer. 

Eligibility is simple: (1) You must be an heir or beneficiary of a will or trust; (2) the estate must be in probate; and (3) the heir or beneficiary must be eligible to inherit $20,000 or more. The company offers services for a fee including probate advance, administrator advance, and lawyer partnership. These advances are secured by the estate’s assets and are not reliant on credit scores or income. The financing is intended for short-term situations (two years or less) and the company claims this loan or advance enables the estate to be settled sooner, rather than later. The quick settlement claim made me pause for a moment. Like financial planning, the probate process and timeline are dependent on so many factors. The process varies by state and by individual case so this type of loan or advancement cannot accelerate the actual process which typically can take six months or up to several years due to the complexity of the estate. 

In researching how this type of offer works, I found that the lender evaluates the estate and determines how much the applicant stands to inherit. The lender may offer the applicant an immediate payment of less than the full inheritance amount (with a flat fee or at a fixed interest rate) in exchange for the lender’s right to receive the full inheritance amount due to the beneficiary when probate is concluded. This means you are transferring your right to the lender to receive your inheritance. Flat rates can range from 10% to 50% of the inheritance value depending on the company you choose for this service. 

While these types of offers may seem tempting, taking an advance on something that isn’t yet settled is likely not your best option, especially given the fees this type of company charges for their services. Instead, if you need money for a large, unexpected expense for which you don’t have the cash, you may get a better deal by taking out a loan from your local bank or by using a low-interest credit card and paying it off over time. Although it takes time, many advisors are likely to tell you to just be patient and wait for the probate process to be completed to ensure you’re not paying any undue fees or interest on a short-term loan. Always be sure to ask your advisor what the best option is for your situation.

- Margaret Gooley, CFP®, CDFA®, Worley Erhart-Graves Financial Advisors