Probate & Bridging Finance – A Guide
By Helen Jackson -
Having someone close to you pass away can be an upsetting and difficult time, sometimes more complicated if you’re named as the will’s executor. A situation like this can be a bit of a head-scratcher, adding further complications to an already stressful time.
This guide looks at the probate process and if, how, and when to use bridging finance to support you — hopefully, the following can answer some of the questions you might have.
What financial challenges can arise from inheritance?
When someone dies and leaves behind their estate (perhaps consisting of property, money, and/or possessions), this can trigger several financial hurdles that the will’s executor must navigate when figuring out who gets what in the form of inheritance.
The first challenge is securing probate, which is the process of applying for the right to deal with the affairs of a deceased individual.
But there are a few costs you should be aware of before you start this process:
- Whoever you get to support you in gaining probate — a bank, solicitor or probate specialist, for example, you should factor in having to part with between 5-5% of the overall estate value.
- When undergoing debt settlement and liquidation or retaining a property, you may also have to part with £100-£300 per hour in legal fees.
- Inheritance tax will be charged at 40% on anything above the £325,000 threshold.
Inheritance tax can be avoided if you are the spouse or civil partner of the deceased and everything has been left to you. This also applies if all the money is left to a registered charity or community amateur sports club.
Can I use a Bridging Loan to secure probate or a will?
Bridging loans are becoming an increasingly popular option to support an application for probate. As long as you have appropriate assets, such as commercial or residential property, you can secure your loan, which can help you through the probate application.
As the probate process can take anywhere between six months to a year, you may want to explore other options before taking bridging finance. Bridging loans have high interest rates, which may be very expensive over the course of a year.
While harder to come by, an open bridging loan may be a better option in these situations. Read more about the difference between open and closed bridging loans in our guide.
Bridging loans might be better for more straightforward probate processes because they can take less time, incurring less debt.
Can I borrow against the value of the will?
In short, yes, you can borrow against the value of the will. When taking control of a person’s estate, you may need to restructure their assets or pay off debts before even undergoing the probate process. This is where a bridging loan could come in handy — they’re fast, short-term and flexible.
A bridging loan allows breathing space for the next of kin at a very difficult time, helping to pay off any outstanding debts of the deceased quickly, rather than being forced to liquidise valuable assets, potentially under market value, to settle these debts.
Bridging loans for probate are identical to your standard bridging loan, requiring you to present an asset, in this instance, the value of the will, along with a structured exit strategy (how you’ll repay the loan).
However, it’s worth noting that some providers may shy away from lending against a will based on how complicated the estate is. As a borrower, you may also want to consider the complexities of your circumstances, as the longer the process, the longer you will be paying interest on your bridging loan.
We recommend seeking advice from a financial/probate specialist to analyse your situation before taking out any loan, especially when using a will as collateral.
Can I use a Bridging Loan to settle any debt of the recently deceased?
Sometimes, being named in someone’s will isn’t always the financial windfall you might expect. In most situations, following the passing of a loved one, it’s the debts of the recently deceased that will need to be taken care of first. This pressure usually leads the person responsible for liquidising assets of the will, usually below market rate, in order to pay off the outstanding debts.
Sometimes the finances of the deceased aren’t in great shape, and there might be debts to settle; in these instances, bridging finance can be used to relieve the pressure on you when paying off these debts.
Can I use a Bridging Loan to pay inheritance tax?
Yes, you can use a bridging loan to pay inheritance tax — you can use the assets of the deceased’s estate as security for this loan.
HMRC requires you to pay inheritance tax within six months after someone’s death, and the government will not grant probate (access to the assets of the estate) until all outstanding tax is paid in full. It’s not usually possible to use the assets given to you in the will to pay off the inheritance tax, leaving you needing to dip into your own pocket. Causing a bit of a catch 22.
If the beneficiary does not have enough money to pay the inheritance tax out of their own pocket, a short-term bridging loan may be the best option.
What should I know before taking out a loan to settle probate matters?
Just like with any form of finance, there are always risks when taking on debt. Bridging loans can be an expensive financing option, as interest is calculated monthly, which means the longer you have the loan, the more expensive it becomes.
This is particularly important to consider when it comes to probate. As we’ve mentioned already, probate can take between six and 12 months to go through. All the while, the interest is increasing on your loan. If the will is particularly complicated, you might want to consider alternative forms of finance.
Make sure, after necessary dedications, that the money coming back to you from the will, will easily cover the costs of your bridging loan.
Can you recommend Bridging Loan companies that specialise in probate matters?
Yes, we can. You should always compare bridging loan providers before settling; that’s where our bridging loan directory comes in handy. We’ve compiled a variety of specialist bridging lenders so you can take your time and find the best fit for your needs.