What is the difference between a loan and a probate cash advance?
I will begin by stating that while most people think of a probate cash advance as a loan, this is generally not the case. Most probate inheritance cash advances are actually assignments of interest. The heir has a probable inheritance coming their way, but often cannot wait until the completion of the court supervised process, for all or part of the inheritance. This may literally take 18 months or more.
An assignment of interest is when someone (the assignor) possesses the rights to something of value, and sells all or a portion of their rights to another. In our discussion, the buyer (the assignee) will then acquire the rights to that portion of the inheritance, but only the portion covered by the assignment. This transaction is limited, and does not affect the interests of other probate heirs.
There are two major differences between a loan and an assignment. A loan has a date certain for repayment, while an assignment of interest does not. This is important, since the date of the Estate’s closing is unknown. If the process drags on for 2 or 3 years, additional interest or costs do not build up.
The second major difference is that an assignment of interest is a non-recourse transaction. A loan includes a personal obligation for repayment, while an assignment does not. The individual or company that makes the cash advance, cannot come back to the assignor, if the assigned amount is not collected. The purchaser, who has made the cash advance takes on all the responsibility for collecting the funds due them from the Estate. The only exception would be for fraud on the part of the assignor.
These two differences are significant benefits to the heir, and the general reason that traditional lenders such as banks, do not make probate heir loans.