One of the major concerns about inheritance advances is the cost. While there will be expenses associated with choosing an inheritance advance, there are risks and expenses associated with settling estates without one as well. Understanding how each of these may apply to your situation can help you determine if an inheritance advance is a fit in your circumstance.
Price Risk
As anyone who lived through the 2008 financial crisis can attest, prices of assets can change suddenly with little warning. On May 19th, 2008, the S&P 500, a measure of the average performance of stocks in the US, hit a high of 1,440.24 points. But by March 6, 2009, it touched a low of 666.79, a 53% decline in just over 9 months. During the same period, a measure of housing prices, the Case Schiller US National Home Price Index declined by over 12%, with some specific areas hit much harder. Given that probate can last a year or more, there may be meaningful price risk, depending on how the estate is allocated.
For example, let’s assume an estate is worth $500,000, with half of it in stock based investments like the S&P 500, and the other half in a home. If both assets experienced the same kind of price decline experienced in 2008, the total estate would be worth somewhere around $335,000 just 9 months later, a decline of nearly 33%.
Attorney and Court Costs
The fees associated with settling an estate can add up quickly. Depending on the state, the court will have fees ranging from hundreds to thousands of dollars, while attorney’s fees can range from 2-4% of the total estate. In addition to attorneys and courts, appraisers, executors, and accountants may be necessary and have their own cost. Added all up, it’s easy to see how between 5-10% of an estate can disappear to fees.
Legal Risk
While one’s status as a beneficiary may seem cut and dry when a loved one passes away, it may not be that simple. It’s possible that other beneficiaries may emerge, a will can be contested, and certain assets may not be transferred as expected. This can lead to disputes and increased legal cost, and in a worst-case scenario, a beneficiary may lose his or her status.
Emotional Cost
The process of settling an estate can be a complex, challenging and lengthy process. Unfortunately, we are faced with these challenges while also dealing with the loss of a loved one. Even if everything goes smoothly, navigating a loved one’s estate can be incredibly taxing. If there are disputes, dealing with other grieving family members can make the emotional cost overwhelming.
Understanding the costs and deciding which direction is best is dependent on each person’s needs and circumstances. If you are interested in finding out more about an inheritance advance, go here.
