How Does an Inheritance Advance Work?

Taking an inheritance advance is something you might consider if you expect to receive money from an estate, but don’t want to wait for probate to conclude. An inheritance advance, also called a probate advance or probate cash advance, allows you to receive a lump sum of money upfront. In exchange, you agree to allow the advance company to purchase part of the inheritance. An inheritance advance can put money in your hands quickly, but there are some drawbacks to keep in mind. We will go over the details.

Talking to your financial advisor can help you create a plan for managing an inheritance.

Understanding Inheritance Advances

An inheritance advance is an advance against assets you stand to inherit. It’s similar to a payday advance loan in that you’re getting access to money now that you would otherwise have to wait until later to receive.

An inheritance advance is not a loan since you don’t pay anything back to the lender directly. Instead, you’re allowing the advance company to make a claim against part of the inherited assets you expect to receive. Once probate ends, the estate can pay out the agreed-upon amount to the advance company and forward any remaining assets to you.

Here’s an example of how an inheritance advance might work. Let’s say that your parents leave you $100,000 in their will when they pass away. After probate fees and expenses are paid, you expect to inherit $90,000. But you need $25,000 right now to pay for your child’s college tuition expenses.

You decide to work with an inheritance advance company that requests to purchase 30% of the inheritance or $27,000. In the meantime, the company agrees to pay the $25,000 you need to you in a lump sum. Once probate ends, the advance company collects the $27,000 it purchased and the $25,000 that was advanced to you from the estate, along with its fee. The remaining inheritance money would then be paid out to you.

Benefits of Inheritance Advances

SmartAsset: How does an inheritance advance work?

There are several advantages associated with inheritance advances, starting with fast and convenient access to cash. While a probate loan may take several days or weeks to get approved and funded, it may be possible to get an inheritance advance in as little as 24 hours after approval.

Inheritance advances typically don’t require any credit checks, which could make them a good option for borrowers with poor credit. You won’t pay interest on an advance, though again, the lender can charge a flat fee.

An inheritance advance is a flexible way to borrow since you can use the money to cover just about any type of expense. You don’t have to offer any collateral for the advance.

And you don’t have to worry about making payments either since the advance company collects the amount owed to it directly from the estate.

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Drawbacks of Inheritance Advances

An inheritance advance can provide quick access to money, but that convenience often comes at a cost. Companies that offer advances typically charge fees or purchase a portion of the expected inheritance at a discount, which means the heir may ultimately receive less than they would by waiting for probate to finish.

The amount available may also be limited by the size and certainty of the inheritance. Providers generally review the estate, the expected distribution and any potential claims before approving an advance, so heirs may not be able to access the full amount they expect to inherit.

There is also a risk that the estate takes longer to settle than anticipated or that the final inheritance is smaller than expected. Debts, taxes, legal disputes and administrative expenses can all reduce the amount available to beneficiaries, which can complicate the arrangement depending on how the advance is structured.

Inheritance advances can also encourage beneficiaries to trade long-term value for short-term liquidity. Before accepting one, it can be useful to compare the total cost with alternatives such as personal savings, a loan or simply waiting for the estate to settle.

Going back to the previous example, you’d have to consider carefully whether handing over $27,000 plus fees to the advance company is worth getting the $25,000 you need now to pay for education expenses. You might find that another funding option may be preferable.

For instance, taking out a Parent PLUS loan or even a private student loan might be a better alternative. Or you might decide to get a home equity loan instead if you’re comfortable using your home as collateral.

When to Consider an Inheritance Advance

The best time to consider an inheritance advance is when you need money and you’re certain that an inheritance is coming your way. Inheritance advance companies may not advance money to you if there are any doubts about how much you’ll receive or whether you’ll inherit from someone at all.

You might get an advance against your inheritance if you need money urgently and you’ve considered all other borrowing options. Other possibilities for borrowing can include home equity loans, a home equity line of credit or a personal loan. For smaller expenses, you might consider a credit card instead.

If you’re considering an inheritance advance, it can be helpful to estimate how much money you’ll need. You can then shop around to compare inheritance advance companies to see what you might be able to get upfront. Talking to a financial advisor can help you weigh the pros and cons if you’re on the fence about whether an advance is the right move.

How to Get an Inheritance Advance

To get an inheritance advance, you’ll first need to find a company that offers them. You can search online for inheritance advance companies, as this type of funding usually isn’t available at banks or credit unions.

Next, you can look at the advance company’s requirements to see if you’re eligible for an advance. If you’re not sure whether you qualify, you can contact the company for a consultation. If you are eligible, you’ll need to share some details about the inheritance and provide certain documents, including:

Copy of the death certificate
Copy of the will if one is available to you
Probate petition and letters of administration
Valid ID

You’ll also need to give the advance company the name of the executor or trustee who’s handling the estate settlement. You won’t need to provide information about your income or credit scores.

Once the inheritance advance company has everything it needs, it will review your case and make an advance offer. If you accept the offer, the inheritance advance company will pay the money to you, sometimes as quickly as 24 hours later.

Choosing the Right Inheritance Advance Company

Choosing an inheritance advance company starts with comparing how much each provider is willing to advance and what the transaction will cost. Because inheritance advances are typically structured as purchases of a portion of an expected inheritance rather than traditional loans, companies may charge different fees or discount the value of the inheritance by different amounts.

It is also important to look closely at the company’s eligibility requirements and approval process. Some providers may only work with estates above a certain value or may require documentation showing that the applicant is a named beneficiary. A reputable company should clearly explain what documents are needed, how long the process typically takes and what could affect the final amount offered.

Before signing an agreement, review the contract carefully for fees, repayment terms and provisions that apply if the estate settles for less than expected. Some inheritance advances are non-recourse, meaning the beneficiary generally does not have to repay more than the amount ultimately received from the estate, but terms can vary by provider.

Finally, consider the company’s reputation, transparency and customer service. Checking complaints, reviews and licensing or registration requirements in your state can help identify potential warning signs. Beneficiaries may also want to have an attorney or financial professional review the agreement before accepting an advance.

Bottom Line

An inheritance advance can give beneficiaries access to part of their expected inheritance before probate is complete, which may be useful when cash is needed quickly. However, the convenience usually comes with fees or a discounted payout, so heirs should weigh the immediate benefit against the amount they may give up. Comparing providers, reviewing contract terms carefully and considering alternatives can help determine whether an inheritance advance makes sense for a particular situation.

Estate Planning Tips

Planning out your entire estate can seem overwhelming and difficult, but a financial advisor who specializes in estate planning can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you have a sizable estate, estate taxes on either the state or federal level could be hefty. However, you can easily plan ahead for taxes to maximize your loved ones’ inheritances. For example, you can gift portions of your estate in advance to heirs, or even set up a trust.