How inheritance funding works

Dealing with the loss of a loved one is hard enough, even if you don’t depend on them financially. However, if you do, it can be absolutely devastating. Getting your inheritance often involves a long and complicated process that can drag on for months – if not years.

You might be tempted to turn to inheritance financing to keep yourself afloat. While inheritance funding can help you get access to your inheritance quicker, it can cost you a pretty penny.

What is inheritance funding and how does it work?

Inheritance funding is a short-term and quick form of financing that grants you access to the value of the funds or assets you’ve inherited. Inheritance loans, inheritance advances, estate loans and probate advances are the most common ways that companies refer to inheritance funding – and the terms are often used interchangeably.

There are really two types of inheritance funding: an advance on your inheritance and a loan using your inheritance as collateral. Neither of these consider your credit score or history when you apply, and you usually can’t find these options with a traditional lender like a bank or a credit union.

Why might I consider an inheritance loan?

There are several legitimate reasons for wanting to get an advance on your inheritance.

• Cover the cost of settling the estate. Settling the estate of a loved one – known as the probate process – can be costly. Heirs might be responsible for paying legal fees, paying off the estate’s debts, maintaining the estate or overseeing repairs and funeral costs. An inheritance loan can help you cover these expenses without cashing out your own savings.
• Negotiate real estate inheritance. Some people prefer to inherit real estate while others just want the cash. You can take out an inheritance loan to buy the other heir’s share of the property if you wish.
• Pay off personal debts. Some people prefer to inherit real estate while others just want the cash. You can take out an inheritance loan to buy the other heir’s share of the property if you wish.
• Cover day-to-day expenses. The probate process can take years and you might just need the funds to help you get through a difficult financial time. In this case, taking out an inheritance loan can keep you afloat without turning to other forms of lending.

What should I watch out for?

• Incredibly high fees. For inheritance advances, lenders claim there’s a risk the inheritance might never come through. As a result, this type of inheritance financing can come with steep fees, since it’s seen as risky due to its lack of guarantee.
• Pricey loan compared to other loan options overall. Estate loans can also be more expensive than a loan backed by other assets. Costs will vary depending on the province or territory you reside in. As an example, some of the cheapest probate fees are offered in Alberta, where you likely won’t incur costs higher than $400.
• Eligibility requirements. To be eligible for this type of financing, you typically need to inherit assets worth $15,000 or more. You’ll also need to provide extensive documentation, and you might want to seek out legal and financial advice to make sure you fully understand what you’re getting yourself into.
• Emotionally draining experience. Chances are, you’re going through an emotionally tough time. Consult with experts, friends and family to make sure you’re making the right decision for your situation.

What types of providers offer inheritance funding?

You won’t find inheritance financing at a traditional lender like a bank or credit union. The most common way to get inheritance financing is through an inheritance advance company. These companies buy your inheritance directly from you in exchange for a fee. The best way to find such a company is likely online.

• These companies don’t consider your credit history when you apply, and you can get your funds within a few days. However, these companies can be expensive, charging fees equivalent to those you’ll find with a high-interest loan.
• You can get other forms of inheritance financing through non-traditional money lenders. These short-term lenders provide loans backed by property. Like inheritance advance companies, these lenders don’t consider your credit score. However, this option can also be expensive, with APRs often higher than other subprime loans. If you’re unable to repay your loan, your lender has the right to seize your estate assets and sell them to recoup its losses.

What are some alternatives?

Depending on your needs, you might find alternatives that are a lot less expensive than inheritance financing.

• Family allowance. Sometimes the estate administrator is required to cover living expenses of people who depended on the deceased financially. If this is you, make sure you aren’t entitled to an allowance before applying for an inheritance advance or loan.
• Advance from the estate. You might be able to get your advance directly from the source – just ask the estate’s administrator first. Be aware that you might need to return your advance if the estate faces unexpected expenses.
• Make a claim. Did the deceased owe you money or other assets? Consult an inheritance lawyer to see if you can file a claim on the estate.
• Personal loans. If you qualify for a personal loan, you might end up with more money in the end than with an inheritance advance. Personal loans won’t eat up your inheritance’s value and also tend to have lower interest rates than estate loans. If you receive your inheritance before your loan term ends, you might save even more on interest by paying it off early.

Personal loans vs inheritance funding

While inheritance loans are a sure-fire way to get you the financing you need, personal loans are another viable option. Personal loans offer borrowers a fixed amount of money transferred over in a single lump sum payment once you’ve signed on your loan contract. If you need access to cash and you’re on the fence between an inheritance loan and a personal loan, here’s a comparison between your two options:

What’s the process like for inheritance funding?

Applying for inheritance financing is more involved than other types of loans. There’s a lot you need to do before you can even start looking at lenders. Typically, you’ll follow these steps:

• Step 1: Check with a lawyer

  Inheritances and trusts are complicated, often requiring a law degree to fully understand. Talk to a lawyer specializing in these cases to make sure that you’re legally allowed to transfer your inheritance or take out funding against it.

• Step 2: Consult a financial specialist

  You’ll want to speak to a financial specialist who can guide you through the process and ensure you understand all costs involved.

• Step 3: Understand the value of your inheritance

  Many lenders require that you stand to inherit at least $15,000 in order to qualify for an advance or estate loan. Make sure your inheritance meets any eligibility requirements.

• Step 4: Notify the estate’s administrator or executor

  In charge of overseeing the execution of a will, an executor is assigned their position in the will, while an administrator is assigned by court. Inform this person before you apply so that they can take steps to prepare for your advance or loan.

• Step 5: Gather your documents

  Inheritance financing tends to require more documentation than usual, some of which you might need to get from your loan’s administrator or executor. It is necessary to gather this information beforehand.

• Step 6: Compare lenders

  Look at factors like fees, interest rates, loan terms and online reputation. Try scheduling a free consultation or getting pre-approved to get a better idea of what lenders can offer. Make sure you apply for a loan that fits your needs – do you want an advance on your inheritance or do you simply want to borrow against it? Be aware of the risks and rewards of each.

• Step 7: Complete the application

  If you’re applying online, these applications won’t take more than a few minutes. Each lender will have a different set of questions and document requirements.

• Step 8: Read the terms of your advance loan

  Look for any hidden fees or other unfavourable terms before signing your advance or loan documents. Don’t be afraid to ask questions if you’re unsure of anything.

• Step 9: Sign your documents and receive your funds

  You’ll typically receive your funds within a few days of submitting your advance or loan documents; however, sometimes it can take longer. Most lenders will directly deposit the money into your bank account.

I got inheritance funding. Now what?

What happens next depends on the type of financing you received.

• If you got an inheritance advance, there’s little else you need to do if the rights to the inheritance have already been transferred over.
• With an estate loan, you make monthly repayments until your loan’s principal and interest are paid off. Keep an eye on your loan’s balance and try not to miss any repayments – these loans tend to come with high interest rates that can add up quickly.

Bottom line

Inheritance financing is an expensive option worth treating as a last resort. Before you apply for an inheritance loan, make sure you understand your legal obligations and what your assets are really worth.

You might want to look into other financing options like personal loans, which may come with lower interest rates and more favourable repayment terms. See top personal loans of the year.

Frequently asked questions

• Can you inherit a house with a mortgage?

  The simple answer is no, however this is not always the case. The debts of the deceased must be paid before any beneficiaries receive their inheritance, which would ultimately avoid taking on a mortgage. However, this would also mean you likely wouldn’t inherit that house unless the mortgage is paid. The mortgage will need to be paid out of the “residue”, which refers to the general resources of the estate that are not specifically left to one person.

• Do you pay tax on an inheritance?

  Usually, no. Unlike the United States, Canada does not charge inheritance tax. Instead, the Canada Revenue Agency (CRA) treats the sale of an estate as just that — a sale.

• How long does it take to get my inheritance?

  This can vary depending on the province or territory you reside in. Some provinces take a few months, while others can take a year or longer. In addition, any road bumps along the way can add to the time it takes for you to receive your inheritance.

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