Probate Process Facts
Learn All About Probate Funding and The Probate Process
Probate funding (also known as inheritance funding) is a cash flow stream which has taken on greater importance in the last few years. This is due to the increasing numbers of baby boomers who die annually: the greater the number of deaths, the greater the number of estates which will go through probate, and the greater the need for probate funding.
Oftentimes, the probate process can be lengthy, drawn out.
When this occurs, some heirs, especially ones who are not financially well-off, will require an amount of cash to cover their living expenses while the estate goes through the often-times lenghty probate process. This is where probate funding (or inheritance funding) comes in.
Typically, a probate funding company will advance the heir a certain amount of money against his or her expected portion of the estate. This is called an inheritance advance. With this monetary outlay, the heir then becomes a client of the inheritance funding company. When the estate is settled, the funding company will recoup the inheritance advance, in addition to a small fee from the proceeds of their client’s portion of the estate.
An Overview of Probate Probate court has existed in the United States since 1784. The first one was established in Massachusetts. Depending on the state and jurisdiction of the court, it may also be referred to as Orphans Court, Court of Ordinary, Court of Equity or Surrogate Court. The main function of the probate court is to ensure assets of a deceased individual are properly disbursed per the provisions of the decedent’s will, if there is one. If there is no will, the probate judge will assign a probate executor to administer the estate.
In addition to estate administration, probate courts also oversee a variety of cases which require the enforcement of equity law. These include matters pertaining to adoption, birth certificates, guardianship, marriage licenses and name changes.
What Is Probate?In the United States, each state government adopts its own probate laws. Therefore, the probate process varies slightly from state to state, and even jurisdiction to jurisdiction. However, in all states, the primary function of the probate court is to administer the division or disbursement of estates of deceased individuals. This probate process begins when a person dies. When it comes to distributing inheritance property to heirs and beneficiaries, each state requires the estate to be administered by an appointed executor (male)/executrix (female) or Estate Administrator. Exactly how this is done depends upon whether the decedent left a will or not.
In short: Probate is the designated process that enables the proper transfer of the decedent’s estate to the rightful beneficiaries. The process is designed to allow a means for any objections to the will (if there is a will!), collect any taxes due on the transfer of estate property, settle outstanding estate debts, and distribute any remaining estate assets to heirs. Types of items dealt with through the probate process include real estate, art, furniture, land, vehicles, money, and business interests.
Important Note: Probate may not necessary when: a) titled assets are in joint names and have contractual beneficiaries; and b) if there are no significant assets or titled possessions in the decedent’s will.
The Probate System: How Does It Work?If the decedent did execute a will and, in it, designated an executor, appointing the executor becomes a pretty straightforward process. The probate judge will simply appoint the designated probate executor specified in the will - given that the specified person is willing and able to perform the executor's tasks. At this point, you may be wondering why probate is needed if a will exists. Consider this: There may be people that wish to contest the will for various reasons, and the court has a responsibility to give these people a fair chance to contest it.
This is especially true if the decedent left a substantial estate. There is a great chance that long lost relatives may come crawling out of the woodwork. This point is especially important to those heirs who are not financially well off and need money immediately. This is where probate funding can be the answer to their prayers.
However, should the decedent die intestate (without a will or revocable living trust), the probate court will appoint a responsible individual to administer the estate. Typically, it will appoint a family member to this position - again, given that some relative is willing and able to carry out the Executor's duties.
If the decedent has no living relatives or no living relative willing to accept this responsibility, the probate judge will appoint an outsider, or public administrator to administer the estate.
Once the probate process is initiated, the designated estate executor is required to appear before the probate judge. During this meeting, the judge will formally appoint the named personal representative. The probate judge will review the will to ensure it is valid. Once the will is validated, it is admitted into probate.
When the estate enters probate, it becomes public record. In most states, public notice of probate must be placed in the newspaper where the decedent resided. The purpose of public notice is to inform potential beneficiaries and creditors of the decedent's death.
All interested parties with a claim against the estate are provided a certain amount of time (in some places, 60 days) to make their claim. Normally, this would also be the time when here-to-fore unknown relatives suddenly appear out of the woodwork making their claim.
Everything the decedent owned is placed into probate. The estate administrator is required to collect, inventory and appraise all assets subject to probate. Again, this includes real estate (or real property), personal property, financial holdings, checking accounts, life insurance policies, retirement accounts, mutual funds, savings accounts, monies owed to the decedent, etc.
In addition to collecting and inventorying the estate’s assets, a major part of the executor’s duties is to settle all creditor debts accrued to the estate.
In most cases, the executor must establish an estate bank account to pay outstanding bills, estate expenses, funeral expenses, mortgage payments, taxes and probate administration fees.
In cases where the decedent does not have the funds to pay outstanding debts associated with their estate, the administrator or probate attorney will negotiate with creditors to reduce or eliminate outstanding balances.
Once completed, the executor must report to the probate judge and provide evidence that everything within the estate has been accounted for and properly distributed. This includes paying creditor debts, documenting inventory of assets and personal belongings, and filing accounting and tax forms.
The judge then reviews the estate to ensure the decedent's wishes have been properly adhered to and that all creditors and taxes have been paid in full. Once the probate judge approves the estate settlement, any remaining assets can be distributed to heirs.
Important Note: Though the probate process in most jurisdictions does not mandate the use of a probate attorney, having the services of a probate lawyer may expedite the process, especially for complicated estates. The probate process is an exacting one. Unfortunate mistakes in the process may delay successful resolution. Having the assistance of an experienced probate lawyer may help.
Important Note: For those seeking probate funding, most inheritance funding companies will only fund clients in cases where a probate lawyer is assisting.
How Long Does The Probate Process Take?Short answer: That depends! By its nature (…and some would argue, by law), probate is a slow, deliberate process.
In cases where the decedent leaves a will, the probate process generally takes at least seven months to settle. Remember, this is the case in which everything is set: the executor is known, the decedent has divided the estate in the will, there are enough assets in the estate to pay all taxes and bills, all creditors and heirs are known, and the heirs are in agreement with the distribution.
This seven month timeframe represents the best case scenario. If the decedent dies without a will or the will is contested in any way (i.e., accusations of mental instability, improper influence, forgery, etc), that is a totally different story.
When the decedent dies intestate, the typical probate takes 9 to 15 months to distribute once the case is open. However, there are many cases where probate cases have taken up to three years to settle! Much depends upon whether heirs agree or disagree on disbursement of assets. If one or more heirs disagree, probate can drag on for extended periods of time.
Who May Need Probate FundingShort answer: It depends! Given an heir’s particular financial circumstances, probate funding may be his or her best option to receive some immediate cash. Many times, heirs are in desperate starits. This is especially true given the recent financial turmoil many in this country have been experiencing.
Having said this however, probate funding is relatively expensive, compared to bank loans. It is not designed for everyone. If an heir needs money and can obtain financing through traditional means (i.e., bank loan, savings, etc), he or she should normally explore those options prior to requesting probate funding...if at all possible.
Probate funding is really designed for people who are in very difficult situations without any other viable options. Because of its steep discount, inheritance funding should not be used for any frivolous reason such as shopping, buying unneeded consumer item, etc. It may best be used by heirs facing financial hardship or dire crisis.
No matter the circumstances, some heirs will require inheritance funding to meet any number of problems that may arise. Some problems which an inheritance advance may help include maintaining estate property to maximize value, paying a mortgage note, paying a tax bill, etc.
Additionally, the probate process may take a great deal of time, especially if some individual or entity contests the will. In this case, a financially-poor heir may not have an option other than to seek an inheritance advance.
How Does Probate Funding Benefit HeirsA probate estate may have substantial assets, but in so many instances, the heirs have to wait many months or even years before the assets are distributed. Oftentimes, heirs may not be financially well off. They may need a way to convert a portion of their interest into cash they can use right away. Unfortunately, most lenders will not accept probate estate interests as security for their loans. Worse yet, the heirs most in need of help are too often least able to qualify for a loan due to poor credit, lack of employment, or the inability to make loan payments. This is normally where probate funding companies enter the picture.
Instead of making a loan, these companies buy a portion of the heir’s interest in a probate estate at a discount. In other words, these companies provide the heir with an advance on their portion of the estate.
Because they look to the probate estate for repayment, these companies are not normally concerned with low credit scores, employment status or the lack of current income. The client heir makes no monthly payments because the company is paid directly and in full from the probate estate upon distribution.
Additionally, heirs normally do not incur liability should the funding company suffer losses from risks to the estate not known to the heir. Such losses can come as a result of unexpectedly large estate debts, litigation costs, loss in market value of the estate’s assets, the appearance of previously unknown heirs, etc.
Cost of Probate FundingTypically, the cost of probate funding depends upon the complexity of the estate, nature of the estate’s assets (i.e., liquid or real estate) and the estimated time to distribution. As a general rule of thumb, inheritance companies normally pay anywhere from 50 to 55¢ on the dollar on advances up to (max) 30% of the projected final cash distribution to the heirs. For example, if an heir was expected to receive $50,000 as his or her portion of the estate, an inheritance funding company might advance up to $15,000 (30% of $50,000) to that heir.
The heir would actually receive anywhere from $7500 in hand (50 to cents on the dollar of the $15,000 advance). When the estate is finally settled, and before the heir receives his or her distribution, the probate funding company would receive its $15,000.
For many, at first blush, receiving only $7500 immediate advance in hand in exchange for $15,000 to be paid back at some undetermined time in the future may seem a steep price to pay. And it is.
However, one must keep in mind that there are no guarantees in the probate arena, especially for an inheritance funding company. These probate funding companies takes all the risk. Depending upon cirumstances, they may not get any of their money back.
Remember, there is no guarantee that the estate will be settled without unexpectedly large estate debts, litigation costs, loss in market value of the estate’s assets, or the appearance of previously unknown heirs. These situations do occur. And when they do, the value of the estate can quickly be eaten away to nothing.
In the example above, should any circumstance occur which reduces the heir’s portion of the estate to less than the advance, there would be no funds left to repay the funding company for its advance. The funding company would be forced to absorb this loss.
Therefore, faced with such huge risk of loss, probate funding companies normally take a discount greater than traditional financing institutions
Probate funding (also known as inheritance funding) is a cash flow stream which has taken on greater importance in the last few years. This is due to the increasing numbers of baby boomers who die annually: the greater the number of deaths, the greater the number of estates which will go through probate, and the greater the need for probate funding.
Oftentimes, the probate process can be lengthy, drawn out.
When this occurs, some heirs, especially ones who are not financially well-off, will require an amount of cash to cover their living expenses while the estate goes through the often-times lenghty probate process. This is where probate funding (or inheritance funding) comes in.
Typically, a probate funding company will advance the heir a certain amount of money against his or her expected portion of the estate. This is called an inheritance advance. With this monetary outlay, the heir then becomes a client of the inheritance funding company. When the estate is settled, the funding company will recoup the inheritance advance, in addition to a small fee from the proceeds of their client’s portion of the estate.
An Overview of Probate Probate court has existed in the United States since 1784. The first one was established in Massachusetts. Depending on the state and jurisdiction of the court, it may also be referred to as Orphans Court, Court of Ordinary, Court of Equity or Surrogate Court. The main function of the probate court is to ensure assets of a deceased individual are properly disbursed per the provisions of the decedent’s will, if there is one. If there is no will, the probate judge will assign a probate executor to administer the estate.
In addition to estate administration, probate courts also oversee a variety of cases which require the enforcement of equity law. These include matters pertaining to adoption, birth certificates, guardianship, marriage licenses and name changes.
What Is Probate?In the United States, each state government adopts its own probate laws. Therefore, the probate process varies slightly from state to state, and even jurisdiction to jurisdiction. However, in all states, the primary function of the probate court is to administer the division or disbursement of estates of deceased individuals. This probate process begins when a person dies. When it comes to distributing inheritance property to heirs and beneficiaries, each state requires the estate to be administered by an appointed executor (male)/executrix (female) or Estate Administrator. Exactly how this is done depends upon whether the decedent left a will or not.
In short: Probate is the designated process that enables the proper transfer of the decedent’s estate to the rightful beneficiaries. The process is designed to allow a means for any objections to the will (if there is a will!), collect any taxes due on the transfer of estate property, settle outstanding estate debts, and distribute any remaining estate assets to heirs. Types of items dealt with through the probate process include real estate, art, furniture, land, vehicles, money, and business interests.
Important Note: Probate may not necessary when: a) titled assets are in joint names and have contractual beneficiaries; and b) if there are no significant assets or titled possessions in the decedent’s will.
The Probate System: How Does It Work?If the decedent did execute a will and, in it, designated an executor, appointing the executor becomes a pretty straightforward process. The probate judge will simply appoint the designated probate executor specified in the will - given that the specified person is willing and able to perform the executor's tasks. At this point, you may be wondering why probate is needed if a will exists. Consider this: There may be people that wish to contest the will for various reasons, and the court has a responsibility to give these people a fair chance to contest it.
This is especially true if the decedent left a substantial estate. There is a great chance that long lost relatives may come crawling out of the woodwork. This point is especially important to those heirs who are not financially well off and need money immediately. This is where probate funding can be the answer to their prayers.
However, should the decedent die intestate (without a will or revocable living trust), the probate court will appoint a responsible individual to administer the estate. Typically, it will appoint a family member to this position - again, given that some relative is willing and able to carry out the Executor's duties.
If the decedent has no living relatives or no living relative willing to accept this responsibility, the probate judge will appoint an outsider, or public administrator to administer the estate.
Once the probate process is initiated, the designated estate executor is required to appear before the probate judge. During this meeting, the judge will formally appoint the named personal representative. The probate judge will review the will to ensure it is valid. Once the will is validated, it is admitted into probate.
When the estate enters probate, it becomes public record. In most states, public notice of probate must be placed in the newspaper where the decedent resided. The purpose of public notice is to inform potential beneficiaries and creditors of the decedent's death.
All interested parties with a claim against the estate are provided a certain amount of time (in some places, 60 days) to make their claim. Normally, this would also be the time when here-to-fore unknown relatives suddenly appear out of the woodwork making their claim.
Everything the decedent owned is placed into probate. The estate administrator is required to collect, inventory and appraise all assets subject to probate. Again, this includes real estate (or real property), personal property, financial holdings, checking accounts, life insurance policies, retirement accounts, mutual funds, savings accounts, monies owed to the decedent, etc.
In addition to collecting and inventorying the estate’s assets, a major part of the executor’s duties is to settle all creditor debts accrued to the estate.
In most cases, the executor must establish an estate bank account to pay outstanding bills, estate expenses, funeral expenses, mortgage payments, taxes and probate administration fees.
In cases where the decedent does not have the funds to pay outstanding debts associated with their estate, the administrator or probate attorney will negotiate with creditors to reduce or eliminate outstanding balances.
Once completed, the executor must report to the probate judge and provide evidence that everything within the estate has been accounted for and properly distributed. This includes paying creditor debts, documenting inventory of assets and personal belongings, and filing accounting and tax forms.
The judge then reviews the estate to ensure the decedent's wishes have been properly adhered to and that all creditors and taxes have been paid in full. Once the probate judge approves the estate settlement, any remaining assets can be distributed to heirs.
Important Note: Though the probate process in most jurisdictions does not mandate the use of a probate attorney, having the services of a probate lawyer may expedite the process, especially for complicated estates. The probate process is an exacting one. Unfortunate mistakes in the process may delay successful resolution. Having the assistance of an experienced probate lawyer may help.
Important Note: For those seeking probate funding, most inheritance funding companies will only fund clients in cases where a probate lawyer is assisting.
How Long Does The Probate Process Take?Short answer: That depends! By its nature (…and some would argue, by law), probate is a slow, deliberate process.
In cases where the decedent leaves a will, the probate process generally takes at least seven months to settle. Remember, this is the case in which everything is set: the executor is known, the decedent has divided the estate in the will, there are enough assets in the estate to pay all taxes and bills, all creditors and heirs are known, and the heirs are in agreement with the distribution.
This seven month timeframe represents the best case scenario. If the decedent dies without a will or the will is contested in any way (i.e., accusations of mental instability, improper influence, forgery, etc), that is a totally different story.
When the decedent dies intestate, the typical probate takes 9 to 15 months to distribute once the case is open. However, there are many cases where probate cases have taken up to three years to settle! Much depends upon whether heirs agree or disagree on disbursement of assets. If one or more heirs disagree, probate can drag on for extended periods of time.
Who May Need Probate FundingShort answer: It depends! Given an heir’s particular financial circumstances, probate funding may be his or her best option to receive some immediate cash. Many times, heirs are in desperate starits. This is especially true given the recent financial turmoil many in this country have been experiencing.
Having said this however, probate funding is relatively expensive, compared to bank loans. It is not designed for everyone. If an heir needs money and can obtain financing through traditional means (i.e., bank loan, savings, etc), he or she should normally explore those options prior to requesting probate funding...if at all possible.
Probate funding is really designed for people who are in very difficult situations without any other viable options. Because of its steep discount, inheritance funding should not be used for any frivolous reason such as shopping, buying unneeded consumer item, etc. It may best be used by heirs facing financial hardship or dire crisis.
No matter the circumstances, some heirs will require inheritance funding to meet any number of problems that may arise. Some problems which an inheritance advance may help include maintaining estate property to maximize value, paying a mortgage note, paying a tax bill, etc.
Additionally, the probate process may take a great deal of time, especially if some individual or entity contests the will. In this case, a financially-poor heir may not have an option other than to seek an inheritance advance.
How Does Probate Funding Benefit HeirsA probate estate may have substantial assets, but in so many instances, the heirs have to wait many months or even years before the assets are distributed. Oftentimes, heirs may not be financially well off. They may need a way to convert a portion of their interest into cash they can use right away. Unfortunately, most lenders will not accept probate estate interests as security for their loans. Worse yet, the heirs most in need of help are too often least able to qualify for a loan due to poor credit, lack of employment, or the inability to make loan payments. This is normally where probate funding companies enter the picture.
Instead of making a loan, these companies buy a portion of the heir’s interest in a probate estate at a discount. In other words, these companies provide the heir with an advance on their portion of the estate.
Because they look to the probate estate for repayment, these companies are not normally concerned with low credit scores, employment status or the lack of current income. The client heir makes no monthly payments because the company is paid directly and in full from the probate estate upon distribution.
Additionally, heirs normally do not incur liability should the funding company suffer losses from risks to the estate not known to the heir. Such losses can come as a result of unexpectedly large estate debts, litigation costs, loss in market value of the estate’s assets, the appearance of previously unknown heirs, etc.
Cost of Probate FundingTypically, the cost of probate funding depends upon the complexity of the estate, nature of the estate’s assets (i.e., liquid or real estate) and the estimated time to distribution. As a general rule of thumb, inheritance companies normally pay anywhere from 50 to 55¢ on the dollar on advances up to (max) 30% of the projected final cash distribution to the heirs. For example, if an heir was expected to receive $50,000 as his or her portion of the estate, an inheritance funding company might advance up to $15,000 (30% of $50,000) to that heir.
The heir would actually receive anywhere from $7500 in hand (50 to cents on the dollar of the $15,000 advance). When the estate is finally settled, and before the heir receives his or her distribution, the probate funding company would receive its $15,000.
For many, at first blush, receiving only $7500 immediate advance in hand in exchange for $15,000 to be paid back at some undetermined time in the future may seem a steep price to pay. And it is.
However, one must keep in mind that there are no guarantees in the probate arena, especially for an inheritance funding company. These probate funding companies takes all the risk. Depending upon cirumstances, they may not get any of their money back.
Remember, there is no guarantee that the estate will be settled without unexpectedly large estate debts, litigation costs, loss in market value of the estate’s assets, or the appearance of previously unknown heirs. These situations do occur. And when they do, the value of the estate can quickly be eaten away to nothing.
In the example above, should any circumstance occur which reduces the heir’s portion of the estate to less than the advance, there would be no funds left to repay the funding company for its advance. The funding company would be forced to absorb this loss.
Therefore, faced with such huge risk of loss, probate funding companies normally take a discount greater than traditional financing institutions