The passing of a loved one can be a grief-filled, highly emotional experience for their family. The disposition of any funds that belonged to the deceased person can be a similarly emotional event. Although an inheritance can be a great financial benefit, many people are surprised and frustrated by the amount of time it takes to process and receive the inheritance. If the deceased did not have a will, their estate may have to go through the probate process which can take years. Disagreements or disputes about the distribution of the inheritance that require court intervention can take years to resolve as well. Fortunately, the service of inheritance funding is available that can allow inherited funds to be accessed while the estate is being settled.

What Is Inheritance Funding?

Simply put, inheritance funding allows access to the value of an inheritance before it is formally distributed. An inheritance funding company will assess your situation and offer you options for inheritance funding for a fee. The fee can be based upon several factors such as the size of the inheritance and whether there are any disputes over its ownership.

The two basic types of inheritance funding are inheritance or probate advances and estate loans. With an inheritance advance, the right to the inheritance is sold to the funding company in exchange for a payment. An estate loan, on the other hand, is a loan that uses the estate as collateral. The decision whether to use an advance or loan to access inheritance funds depends on the needs of the putative inheritor.

Benefits of Inheritance Funding

The primary benefit of inheritance funding is that it enables expedited access to funds, which can be used to resolve outstanding expenses such as funeral costs or paying the deceased person's debts and taxes. The funds could also be used to cover the living expenses of the inheritors if they are having financial challenges.

Many estates include real estate that was bequeathed to several parties, not all of which are interested in owning it. For example, the deceased may leave equal shares of their home to their children, but only one child is interested in staying in the property. In such a situation, inheritance funding can be used to "buy out" shares so there is only a single owner.

Disadvantages of Inheritance Funding

Because the provider of inheritance funding is assuming risk, their fees can be substantial - up to 40% in some cases. These fees can seriously impact the value of the estate and the amount of funding available. Another disadvantage of inheritance funding is that many lenders have minimum requirements on the size of an inheritance so many small inheritances will not be eligible for funding.

Another potential disadvantage of inheritance funding is tax implications. If the estate is subject to inheritance tax, it may be liable for the tax on the full amount of the inheritance, including any fees charged by the inheritance funding company. For example, if a 25% fee is charged on a $100,000 inheritance advance, the borrower may receive only $75,000 but be liable for taxes on the full $100,000. A tax or probate expert should be consulted before exploring inheritance funding options.