When a will must be apportioned between various parties, it can occasionally throw up financial hurdles. Taking over the management of a deceased party’s affairs is not always straightforward, and it might be necessary to restructure their finances to streamline the probate process. In these situations, a form of fast, flexible finance could be the answer and bridging loans can provide a perfect solution. The flexibility of short-term funding solutions means that bridging lenders can structure loans that meet their client’s needs perfectly and resolve their probate issues.
A bridging loan is a form of secured finance, which means that the loan value is guaranteed against the assets used as collateral. This therefore allows the lender to reclaim their initial loan through the sale of these assets if the borrower should fail to repay the loan in full. Probate bridging loans can be legally complex, a fact reflected by the limited number of specialist lenders that operate in this space. For this reason, it’s imperative that anyone considering bridging loans as a form of probate finance consults their financial adviser before doing so in order to ensure it is the correct option for their situation.
Carrying out a deceased person's will is not always as straightforward as we might like. Although the ownership of their various assets might be easy enough to resolve, the average person will also develop a network of debts and credits which must also be resolved in their will, and the pressures that these exert on the estate’s executors can sometimes force compromises. An outstanding debt, for instance, might need paying imminently, which can force the sale of valuable assets at less than market value - not an ideal outcome for the will’s executors. As well as resolving outstanding debts, many estates will also be liable for inheritance tax in the UK, which might necessitate the forced liquidation of further valuable assets below their true market value.
Because there are several different financial pressures which can come into play when resolving a deceased person’s will, it’s often necessary to take out a loan that covers shortfalls in payment. Bridging finance is ideal for this purpose, as it allows a person’s family a little bit of breathing space at a very difficult time; they can use the loan to pay off debts instead of being forced to sell assets quickly and below market value. Bridging lenders are also highly flexible and very fast to put solutions in place; there is no red tape and loan structures can be tailored to individual's circumstances.
In many ways, a bridging loan for probate finance is very similar to a standard bridging loan. Many loans will be for a short, fixed term of 12 months or less but some lenders in this sector are more flexible and will accept longer terms of up to 2 to 3 years or even longer. The loans can be of any value from tens of thousands to tens of millions of pounds. Probate bridging loans are commonly secured against property but again some lenders can be very flexible advancing money against an assignment of the beneficiary’s rights provided there are other forms of ‘lendable’ assets within the will. These assets can be wide and varied in type from watches and jewellery to stocks, investment policies and bonds. The common denominator for all lendable assets is that they are easy to value and have good re-sale potential.
We can examine a typical probate bridging loan scenario to demonstrate how short-term finance can play a vital role. Let’s say the estate consists of a fairly large home (without a mortgage) worth £600,000 on the market. Upon death, the deceased’s inheritors decide to put the property up for sale, but one of the inheritors is very keen to sell at any price; they want to accept an offer from a developer for substantially less than market value. If the house were to be put on the market it could sell for £600,000, but one of the inheritors will happily take the £400,000 that the developers are offering, as they need the money quickly.
A specialist bridging loan is an excellent choice in this situation. If forced to sell quickly the estate stands to lose a lot of value so the inheritors would do much better by waiting a few months. In order to resolve the short-term requirements of one of the inheritors, a bridging loan can be secured against the property to meet their ongoing needs. In this way a bridging loan satisfies all parties; those who are keen to sell can have their money quickly, and those who are content to wait are able to maximise the sale price of the property. Although it will usually cost several thousand pounds to take out a bridging loan for this amount, the inheritors stand to make £200,000 more from the sale of the property simply by waiting a few months to sell it.
Bridging finance is also very helpful for resolving the debts of an estate. If the deceased person should have outstanding financial issues that require resolution, a bridging loan can be used to quickly satisfy creditors. In these situations, the only other option would be to rapidly liquidate the estate in order to repay outstanding loans, which would again result in a less than satisfactory proceeds being achieved from the estate.
Many larger estates in the UK become liable for inheritance tax, which must be paid by the end of the sixth month after the person dies. This can be a large bill, as the Government requires a 40% share of the estate above the NRB (Nil Rate Band) threshold upon liquidation. Whilst it may be possible to pay in instalments, inheritance tax is still commonly a difficult payment to make. Indeed, it is not uncommon for estates in the UK to become “locked” because the executor, who is responsible for paying inheritance tax, simply hasn’t got the funds to do so. It is in this situation that specialist bridging finance can be used to clear the inheritance tax liability thereby unlocking the Grant of Probate and ensuring estate funds can be distributed to all beneficiaries. At this point released funds will usually also be used to settle the loan.
Without bridging finance, it would be very difficult to resolve the financial affairs that can be brought about in a deceased person’s will. Furthermore, with beneficiaries often wanting access to their money sooner rather than later a loan advance on their inheritance can help to resolve pressing needs. Time pressures are quickly alleviated and once again the value of estates can be maximised by relieving the pressure to sell assets. Specialist probate and inheritance bridging loans are therefore a helpful tool to enable individuals to pass on their wealth through generations and allows inheritors to benefit more from their parent’s estates.
No credit checks
No personal liability
No charge over property
Probate loans allow you to borrow against items within a Will that you don't yet have full legal access to. When you eventually receive your funds then you repay the bridging loan plus interest.
Typically, 3-6 months after probate is granted, funds are released and distributed. Although with more complex estates it can take longer.
Probate loans are legally complex and essentially your solicitor and the lenders solicitor agree the process of how the money will be repaid.
Probate loans are considered as high risk due to their complex nature and therefore there are only a handful of lenders in the UK that will consider lending against probate.
Despite being legally complex – loans can be completed within 1-2 weeks.
Lenders can charge as much as 3% lenders arrangement fee (can be added to the loan) & 2% per month (can be added to the loan). You will also have to pay legal fees of approximately £1000 + VAT. Pricing can vary depending on if probate has been granted, how long the loan will take to be repaid and what it is being secured against.
You will need a copy of the Will, an IHT400 from HMRC along with providing details of all executors and solicitors involved in the transaction
The simple answer is yes, all probate loans require you to have a solicitor to act on your behalf. They will negotiate with the lenders solicitor and will also be responsible for ensuring you understand the costs involved.
All executors will need to agree to be able to take a probate loan as it is secured against the contents of the Will which will eventually be owned by the executors.
If you have a good credit file or own a property yourself then you could look to raise monies via a mortgage or loan secured against your assets. This will be a lot cheaper but remember that probate can take quite a long time for funds to be released so it is worth getting independent financial advice and exploring all avenues.