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How inheritance funding works

You don’t have to wait for probate or your trust to get your inheritance funding – but it’ll cost you.

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.

  • Inheritance advance

Also called probate advances, these are the most common type of inheritance financing. You transfer your right to your inheritance in exchange for a fee, rather than interest – but in some cases, interest factors in as well.

Since you’re not actually taking out a loan, you don’t need to worry about repayments or needing to meet any credit or income requirements in order to qualify.

  • Estate loans

Sometimes called inheritance loans or probate loans, estate loans allow you to borrow against real estate assets that you don’t yet have access to. You receive your funds and repay them plus interest and fees, with your estate considered collateral for the loan.

However, not all “estate loans” work this way – sometimes lenders use this term to refer to an advance. Make sure you understand the type of inheritance funding your lender is offering before you apply.

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:

Inheritance fundingPersonal loan
AvailabilityMore niche. The most common way to get inheritance financing is through an inheritance advance company.Available routinely. Traditional lenders, online lenders and credit unions all provide various personal loan products.
EligibilityMore rigorous. Borrowers 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. Credit score and personal financial history aren’t taken into account.More flexibility. Lenders’ eligibility requirements will vary, but most insist that you are a Canadian resident, of the age of majority in your province and have a steady income for at least the past three months. Credit score is taken into consideration, however some lenders offer “bad credit loans”.
Loan typesInheritance advances and estate loans typically use your inheritance or real estate assets you’re inheriting as collateral, making these a type of “secured” loan.Personal loans can be secured or unsecured, depending on your personal preference. You may decide to opt for a secured loan, using your home or vehicle as collateral to lower your interest rates.
FeesVaries. For inheritance advances, lenders claim there’s a risk the inheritance might never come through. To offset this risk, this type of inheritance financing can come with steep fees. Costs will vary depending on the province or territory you reside in.Varies. You may encounter origination fees and other administrative fees. 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.
Application processLengthy. Borrowers should seek out advice from a lawyer, financial specialist and estates administrator or executor.Varies. If you’re applying for a personal loan with a bank or credit union, you may need to book an appointment at a local branch. Online lenders provide online-only application forms that can be filled out within 5 to 10 minutes.
Funding processing timeIt can take a few days from submitting your loan documents to receive funds.Some lenders issue funding within the hour after signing off on your loan documents.

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:

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.

How to make the most of your inheritance

Getting an unexpected sum of money or asset might make you feel as if you’ve won the lottery. If you act wisely, you might be able to turn your inheritance into income and savings that can benefit you for years to come.

  • Pay off debts. Use your inheritance to pay off any outstanding debts – especially high-interest debt. You’ll save on interest and won’t have to make monthly repayments.
  • Invest your money. Creating a diverse investment portfolio can help ensure that you have at least some income that doesn’t depend on your employment.
  • Create an emergency fund. Having funds to cover three to six months of personal expenses helps you avoid a financial catastrophe if large expenses come up that you’re not prepared for.
  • Save for retirement. Unsure about investing? Consider putting the money away in a high-interest savings account for retirement. The returns likely won’t be as high as investing, but these accounts come with less risk.
  • Start a university fund. If you don’t necessarily need the funds, you could save your children from a lot of debt — and yourself from having to rescue them throughout their early 20’s — by starting a fund to pay for their college or university tuition.

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.

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