No one ever plans to die, but it’s something that happens to all of us. Probate may be unnecessary if you have a will and your estate is relatively simple. However, if your estate is more complicated or you don’t have a will, the probate process can take many months – or even years. Your family may need money to pay bills and cover other costs. That’s where probate loans and advances come in.
Learn more about the differences between these two types of funding below.
What is probate?
The main goal of probate is to guarantee that the deceased person’s debts are paid and that their belongings are distributed per their instructions as stated in their will. If the person did not have a will, their assets would be distributed according to intestacy laws.
To complete probate, the executor of the estate (the person responsible for administering the estate) will need to obtain a grant of probate from the court. This grant gives them the legal authority to deal with the deceased person’s assets.
The executor may begin to wind up the estate immediately after probate has been granted. This process includes paying debts, taxes, and expenses, distributing any remaining assets to beneficiaries, and closing accounts or contracts in the deceased person’s name.
The entire process can be lengthy and significant expenses may be incurred. For this reason, many executors choose to take out a loan or advance on the estate to cover these costs. With an understanding of probate and why a loan or advance may be necessary, you can be better prepared if you are ever named as an executor.
The importance of having cash available during probate
During probate, the estate executor (responsible for managing the deceased’s affairs) will have to pay any outstanding debts and taxes. They will also need to settle any disputes that may arise. To do this, they will need access to cash. If the deceased did not leave enough capital in their estate to cover these expenses, the executor might have to sell some of the assets to raise the necessary funds.
Therefore, executors must understand the probate process well and ensure enough cash to cover all expenses. Otherwise, they may have to sell off assets the deceased intended to use for their heirs.
What is a probate loan?
A probate loan is typically used to pay for probate expenses, such as attorney’s fees, executor’s fees, and estate taxes. Probate loans are usually short-term loans that are due upon the completion of probate. Because probate can be lengthy and expensive, probate loans can provide much-needed financial assistance to families going through the probate process.
While probate loans can be beneficial, they also come with some risks. A significant risk is that the loan may have to be repaid from the estate’s assets, leaving the beneficiaries with less money than they would have received otherwise.
It would help if you kept the risks and benefits of taking out a probate loan in mind before making a decision.
What is a probate advance?
A probate advance is a loan that one can use to settle the estate of a deceased person. The loan is paid out of the estate’s assets, and the court sets the repayment schedule. Probate advances are typically used to pay funeral expenses, debts, and taxes. They can also fund repairs or renovations to the property or provide financial assistance to the heirs.
Probate advances are typically interest-free, and they are typically due within one year of the date of death. If the estate cannot repay the loan, the lender may file a claim against the estate. Probate advances are typically not available to people who are not related to the deceased person.
What is the difference between a probate loan and a probate advance?
Probate loans may seem similar at first glance, there are some critical differences between them. Probate loans are typically given to those appointed as the executor of an estate.
The loan is used to cover the costs of settling the estate, typically repaid from the proceeds of the sale of the property.
In contrast, an advance is given to a buyer before closing a sale. The buyer then uses the advance to pay for closing costs, repairs, or other expenses associated with the purchase. Advances are typically repaid from the proceeds of the sale, but they can be repaid from other sources, such as a line of credit or a personal loan.
As you can see, there is some crucial difference between probate loans and advances. When you are considering financing for your next property purchase, be sure to keep these distinctions in mind.
All in all
Probate loans are a better option than probate advances. Probate loans offer a more flexible payment plan and do not require selling estate assets. Probate advances can be expensive and risky, often resulting in lost estate money. Contact us to learn more about our probate loan options if you want financial assistance during the probate process.
