About Inheritance Advances for Financial Advisors

By Lucas Whelan, CFA, CFPC

As any financial advisor who has helped a client with the probate process can attest, lengthy legal processes can create significant headaches, both for a client waiting to receive an inheritance and for advisors managing an account from a deceased client. Beyond the logistical headaches, there can also be significant financial costs to waiting. An inheritance advance can help alleviate both by providing immediate access to capital. 

Most financial advisors have had the experience of a client passing away and handling distributions to beneficiaries. Unfortunately, many have also had the experience of dealing with an impatient beneficiary who wants the money immediately and is unwilling to accept the natural process of settling an estate and distributing assets. In those circumstances an inheritance advance can be an easy solution. By helping the beneficiary gain access to the money quickly, you help them get what they want, while reducing the administrative headaches for you and your team.  

But, what if your client is due to inherit some money? In what circumstances might an inheritance advance make sense? That can be a little more complicated as costs, risks, time and client objectives all need to be considered. While not appropriate in all circumstances there are a few things to look for when helping the client decide.

The first is any immediate financial need. While most advisors don’t have a lot of clients facing immediate financial shortfalls, there may be circumstances where a client has assets in retirement accounts or illiquid investments, but is also facing an unforeseen financial circumstance. In those circumstances, the cost of an inheritance advance can provide liquidity while helping the client avoid taxes, penalties, surrender charges or the loss of a valuable insurance policy.

It’s also important to consider the allocation of investments within the estate. While assets sit in probate, very little can be done about an overly risky asset allocation or a particularly risky position, until the process is complete. If the deceased was investing aggressively, or if the risk of a particular position spikes, waiting a year or more for probate to complete could mean a significant loss to the beneficiary’s inheritance. In those instances, getting an advance at a known cost may be a worthwhile trade off vs. an uncertain risk.

Along the same lines, your client may have an investment opportunity that is time sensitive. Market dynamics can create valuable possibilities. A private placement may be closing soon, or a business may need to make a key acquisition. These can have a significant impact on the client’s results. Rather than having to liquidate other investments, taking an advance can allow the client to exploit an opportunity while keeping their core portfolio intact.

There can also be nonfinancial reasons for choosing an advance over waiting for probate to settle. If there are family disagreements or your client is struggling to deal with the probate administrator, getting an advance can allow them to exit the process early.

Ultimately whether an inheritance advance makes sense will be based on each client’s individual situation. While there are costs to an inheritance advance, there are many circumstances where having control of capital today can save on other costs, allow an investor to exploit an opportunity or simply avoid the personal headaches of dealing with a lengthy probate process. In those circumstances an inheritance advance can be a valuable resource.