When a family member passes away, a variety of legal issues may arise. This can add stress to an already emotionally taxing scenario. In a situation where an individual is set to receive an inheritance, the time it takes to receive these distributions is entirely dependent on the legal processes occurring behind the scenes, particularly when assets are held in probate. For named beneficiaries, it is possible to receive a loan against a future inheritance. In order for this to occur, the inheritance must first pass a variety of legal checks.
Borrowing against a future inheritance is a very real possibility for beneficiaries. That being said, you must be able to conclusively prove that the inheritance is free of competing liens and is rightfully your property.
The Basics of Inheritances
How and when an inheritance is passed to a beneficiary will depend largely on how the inheritance has been structured. Generally speaking, the most efficient means for an estate owner to pass on assets to a beneficiary is via a trust. A revocable trust is a common form of asset placement which allows an estate owner to transfer specific items they would like to pass on as an inheritance while simultaneously avoiding various legal "red tape," including probate.
The term "revocable" implies that the items placed in the trust can be removed by the original owner at any time. This is due to the fact that these assets remain the property of the estate owner until they die, at which point the trust transforms into an irrevocable trust. Following the death of the estate owner, the trustee – or caretaker of the trust – will be responsible for distributing assets to the named beneficiaries.
Inheritances Outside of Trusts
If items have not been placed inside of a trust, they must be explicitly bequeathed to the beneficiary inside of the will for the decedent. In this situation, the first step to receiving a loan on pending inheritances is to obtain a copy of the will from the estate executor and ensure that assets will be distributed to you.
Once it has been fully established that an inheritance will be transferred to you, the next step is to ensure that this inheritance is free of any potential liens or competing claims. Only after this has been successfully demonstrated will a lender be willing to offer funds against a future asset.
As part of the application process, the lender offering funds against your inheritance will typically require a copy of the will detailing the inheritance. They will also typically run a background check in an effort to fully ensure that the inheritance is the rightful, exclusive property of the named beneficiary. Although the amount of funds available for loan may vary, individuals can typically expect to borrow up to $100,000.
Exploring Promissory Notes Against Inheritances
Much like any other form of loan, you will be required to complete a promissory note against the inheritance. This document essentially claims that you will repay the funds loaned to you in accordance with the specific repayment terms dictated by the lender. Only after this note has been completed will you, the borrower, be able to secure the requested funds. It is important to keep in mind that even a small inheritance advance may be accompanied by costly fees. With that in mind, potential borrowers should research all of their options before committing to an inheritance loan.
Ryan Cockerham is a nationally recognized author specializing in all things innovation, business and creativity. His work has served the business, nonprofit and political community. Ryan's work has been featured at Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.