When someone inherits money from a deceased loved one, the distribution of those funds often requires completing probate — a legal process that can take months or even years. Inheritance funding offers a way for heirs to access cash from their expected inheritance early, rather than waiting for probate to conclude. This financial service works like an advance on future inheritance proceeds, providing immediate funds in exchange for a fee deducted from the eventual inheritance.
How Inheritance Funding Works
Inheritance funding companies evaluate your claim to an inheritance that is pending probate, which includes verifying the estate’s status and your entitlement (such as through a will or probate documents). Upon approval, they advance a lump sum—typically between 30% and 80% of the anticipated inheritance value—to you. Once probate finishes and the estate distributes assets, the company collects their payment, including a fee that varies but often ranges from 3% to 12% of the inheritance amount.
This is not a traditional loan: there are no monthly payments or interest accrued over time. Instead, the funding company recoups their money only after the estate is settled. However, because this early access carries a premium, you effectively receive less than your full inheritance.
Who Can Benefit from Inheritance Funding?
Inheritance funding is especially useful for heirs needing cash immediately — perhaps to pay medical bills, address urgent debts, cover home repairs, or invest in opportunities that require quick capital. It’s also beneficial for heirs involved in complicated estates or probate delays, helping bypass long waiting periods.
Small business owners inheriting funds may also find this helpful for maintaining business operations without using personal savings or credit.
Important Factors to Consider
- Costs and Fees: Inheritance funding fees are often a percentage of your inheritance, which can be costly. Understand the total charges before proceeding.
- Not a Loan with Interest: Unlike loans, repayment occurs after inheritance, but fees reduce the net amount you receive.
- Legal and State Variations: Probate laws differ by state, and some may restrict inheritance advances. Familiarize yourself with local regulations.
- Scams and Reputation: Always deal with reputable, licensed companies to avoid fraud.
- Alternatives: Compare options such as personal loans or credit cards, which might offer cheaper short-term cash access.
Common Misconceptions
| Misconception | Reality |
|---|---|
| It’s a monthly repayment loan | No repayment until after probate completes |
| You receive your entire inheritance upfront | Only a portion is advanced upfront, minus fees |
| Costs are always low | Fees can be high; shop around carefully |
| Anyone can get funding | Proof of inheritance and estate details is required |
Frequently Asked Questions (FAQs)
Q: Is inheritance funding the same as a loan?
A: No, it is an advance against your future inheritance, repaid only after the estate settles, without monthly payments.
Q: Will inheritance funding affect my taxes?
A: Typically, no. Advances are not considered taxable income, but you should consult a tax professional for personalized advice.
Q: How quickly can I get funds?
A: Usually within days or weeks after application and approval.
Q: What if the estate owes debts?
A: The funding company accounts for debts when calculating your net inheritance, and repayment is limited to your share after debts are settled.
Q: Can I decline inheritance funding?
A: Yes. You are not obligated to accept it and can wait for probate to end to receive your full inheritance.
Summary Table: Inheritance Funding Overview
| Feature | Description |
|---|---|
| Purpose | Advance payment on expected inheritance |
| Eligibility | Heirs with probate estates underway |
| Fees | Percentage of inheritance (often 3%-12%) |
| Repayment | After probate; no monthly payments |
| Risks | High fees, potential scams, reduced inheritance amount |
| Benefits | Quick cash flow during probate delays |
Inheritance funding can be a useful resource for those needing liquidity during the probate process. However, it is essential to weigh the costs, understand the terms, and explore alternatives before deciding. For more on the probate process, see our article on Probate.
References
- IRS Tax Topic 701: https://www.irs.gov/taxtopics/tc701
- Consumer Financial Protection Bureau: https://www.consumerfinance.gov/consumer-tools/inheritance-advances/
- Investopedia: https://www.investopedia.com/terms/i/inheritance.asp
For personalized advice, consult a financial advisor or estate attorney to determine if inheritance funding fits your specific situation.