All Probate/Inheritance Loans are not the same

It’s not uncommon that when a person unfortunately dies there’s often little to no cash in the Estate bank account and the only major Estate asset is the Decedent’s house that their Beneficiaries will inherit.

If the property was not held in Trust or owned in Joint Tenancy, then the Beneficiaries of the Descendant will need to go to court and most likely will need an Attorney.

Often the Beneficiaries are not able to “Finance” the Probating of the court matter, and since funds will be needed for court costs, legal fees and related Estate Expenses, then a “Probate/Inheritance Loan” just might be the solution.

The “2” main types of Probate/Inheritance Loans are:

Secured

  • This is a loan made to the Executor or Administrator of an Estate that owns real estate that has sufficient equity to obtain a secured real estate loan.
  • Secured Probate Real Estate Loans are only funded by Private Investors, since all the Big Banks and every other Institutional Lenders don’t lend to Probate Estates.
  • The only source available are Private Equity Loans, often referred to as Hard Money Loans.  While the interest rates and costs are higher than the Big Banks, they are the very best option for when Probate funds are needed.

 The “2” Main types of “Authority” contained in the Letters of Testamentary issued by the Probate Court to either Executors or Administrators are:

            Full Authority

 Allows the Executor or the Administrator to borrow on behalf of the Estate without prior court approval.

            Limited Authority

Executors and Administrators who have Limited Authority MUST schedule a court hearing and further present to the Probate Court the requested loan, the reason for the loan and the use of the funds.  In addition, any “Other” Beneficiary has the opportunity to contest the “Proposed Action” from the Executor or the Administrator.

Unsecured

  • This is a loan made to the Executor, Administrator or Beneficiary of an Estate where no real estate is owned, or if owned, where there’s not enough equity to obtain a secured real estate loan.
  • An Unsecured Probate Loan often referred to an “Inheritance Loan” is made against the future anticipated inheritance to a Beneficiary.  In some cases, this type of loan is easier to obtain, since no real estate is needed, but the drawbacks are  typically smaller loan amounts, and sky-high Interest Rates.  Many Inheritance lending companies charge over 100% annual interest.

It’s our opinion that an Unsecured Inheritance Loan should never be considered, since the costs almost always exceeds the benefits. 

A secured Real Estate loan is structured very much like all other types of real estate loans, but is simply made to a Probate Estate, and is signed by the Executor or the Administrator.  The loans all have normal scheduled monthly payments and a fixed interest that typically range from 8% to 10%.

We’ve kept things short, since we’re all busy, but if more detailed information is desired, then please feel free to contact our office, and we’ll be happy to send out additional information.

If anyone would like to make a comment on this Blog Post, then please do so, and if there’s a need for funds from a current Probate matter, then please give our office a call at (888) 797-7970 and we’ll do our very best to arrange the needed funds.

Probating an Estate in California

, ,

Probating an Estate in California

Death and Taxes are the only sure things in life that we all know are inevitable.

The Federal Government and the State of California have not lost sight of at least the tax part.

There are laws that the government, through our elected representatives, has passed providing for taxes to be assessed on certain Estates of deceased people. The government will want to confirm what is “Owed in Taxes” and then collect the taxes due prior to heirs receiving their inheritance. There are a number of exceptions such as the size of the estate and legal form of ownership prior to the death of the decedent.

When someone dies in California there is a process known as Probate. Simply put, Probate is the process of distributing the assets and paying the debts of the deceased person according to their request, such as is instructed by the Decedent in their Last Will and Testament. Or if someone died and did not have a will (also known as a “Dying Intestate”) the court will then make a determination as to who gets what under the theory of law known as the “Process of Intestate Succession”.

So often the Executor or Administrator of an Estate will need to petition the court to inform the court as to who receives what. At the same time, a dance with the tax man occurs as to what the value of the Estate is or what the value of certain assets are and if there is what’s known as a “Taxable Event” – on other words, the tax man will calculate the taxes due the government.

The process of settling and distributing the assets and money of the Estate to the appropriate parties can be very challenging and can often lead to a delay of a year or more.

As part of an overall Estate planning process, everyone who has an Estate valued at a minimum of $100,000.00 needs to obtain legal advice as to what the correct Estate structure should be. The right choices and decisions made prior to death can lead to a substantial savings in aggravation and taxes at a very difficult and trying time for all involved.

Getting a Probate Loan

,

First a little information and explanations might be helpful.

A probate loan is a loan made and secured by the assets of an estate in some stage of probate. Probate is a court procedure where the court determines or complies with the last wishes from a person who died, known as the decedent. If the decedent owned assets and/or liabilities then the totals of all assets and liabilities are known as a probate estate. When a person dies and has an estate valued at over $100,000.00 in California the estate must go through court and be probated. This is the process of overseeing all aspects of the distribution of assets and payment of claims of the estate.

Many people unfortunately die every day and some of these people owned real estate that has been be directed in their last will and testament to be inherited by another party. Since the time necessary to finalize a probate in California can take many months or even years the need often arises where the estate or a beneficiary of the estate might require money prior to the final distribution of the estate.

Some of the uses of the money from a probate loan can be:

  • Paying immediate expenses of administrating the estate
  • Paying ongoing monthly contractual estate obligations
  • Paying court costs and expenses
  • Paying attorney fees
  • Paying off creditors of the estate
  • Getting money for a beneficiary

The normal lending sources such as banks, credit unions or mortgage banking companies just don’t fund loans to probate estates. The procedure of making a loan to a probate estate is simply using the assets of the estate to secure a loan. The loan is not qualified as to credit and income as the decedent of the estate is dead. The beneficiaries do not YET own the assets of the estate since a probate requires a Writ of Final Distribution prior to ownership being transferred to the ultimate beneficiaries. When the estate is in the probate process, ownership to the assets remains vested in the estate.

Any probate loan that is funded is not the obligation of any of the beneficiaries, but may become a liability of them if at such time they inherit a property that is secured by a probate loan. However many probate loans are often structured to have the loan paid off prior to the distribution of the asset to the final beneficiary.

When an application for a probate loan is made it is typically extended to the probate estate under authority of the executor or administrator as part of their appointed duties. The normal procedure is for the executor or administrator of the estate to sign on behalf of the estate. The party signing is not personally liable as they are only signing in the course of their designated responsibility.

When applying for a probate loan value is everything. So it is requirement that there be adequate equity in any real estate offered as security for a probate loan. As such equity is everything when it comes to obtaining a probate loan.

It is very common for people to die with free and clear property or properties that have very small mortgages and thus have substantial amounts of equity. Beneficiaries designated to inherit real estate can take comfort in the fact that if time and money is an issue then taking advantage of a probate loan to get the money now just might make life a little easier.