Difference Between an Advance and a Loan?

A probate advance and a probate loan are both financial options that involve accessing funds related to an inheritance during the probate process. However, there are some key differences between the two.

The primary difference is that the probate advance is not a loan. Funds are merely advanced in exchange for an assignment of your interest in the estate. The party making the advance is paid from the estate. The party making the advance usually only looks to the estate assets for repayment.

A loan is money advanced that you or the estate has to pay back. The loan can be paid by you or the estate, but it is not dependent on the estate having any funds or assets to make the payments. For payment, the party making the loan will usually look to the borrower (be it you and/or the estate) and any other guarantors who guarantee the loan.

Key Features

1. Nature of the Transaction:
   • Probate Advance: A probate advance is not a loan but rather an advance payment provided by a third-party company. The company purchases a portion of the expected inheritance from the beneficiary at a discounted rate. The beneficiary receives immediate cash, while the company assumes the risk of waiting for the probate process to conclude.
   • Probate Loan: A probate loan, on the other hand, is a traditional loan obtained by the beneficiary which may or may not use their expected inheritance as collateral. The beneficiary borrows a specific amount of money and must repay it with interest over a predetermined period. This is no different than taking out other commercial loans.
2. Repayment:
   • Probate Advance: Since a probate advance is not a loan, there is typically no repayment required by the beneficiary. The company providing the advance is repaid directly from the beneficiary’s portion of the inheritance when it is distributed.
   • Probate Loan: With a probate loan, the beneficiary is obligated to repay the borrowed amount, usually with interest, according to the loan terms agreed upon with the lender. Repayment is typically expected regardless of the outcome of the probate process.
3. Risk and Cost:
   • Probate Advance: The risk associated with a probate advance lies with the company providing the advance. They assume the uncertainty of the probate process and may not recover their investment if the inheritance does not materialize as expected. The cost to the beneficiary is typically a percentage of the anticipated inheritance that is deducted by the company as a fee.
   • Probate Loan: The beneficiary assumes the risk with a probate loan, as they are responsible for repaying the borrowed amount even if the expected inheritance is lower or does not materialize. The cost includes interest charges on the loan, which can vary depending on the lender and loan terms.

The probate advance and probate loan can be useful for those who need funds sooner rather than later. Please contact us to see how we might be able to help.