The Problem:
When scheduled to inherit a sum of money via a will, an heir will often need to wait a long time for those inheritance funds to come available. In this problem, I’m not just thinking of a probate situation or even a terminal illness inheritance situation. The problem here is much broader. Can loans be made available to heirs without the inheritance or other assets of the testator (the guy who will die) securing the loan, even though those will be the funds used for payback?
The Business
Providing loans to future heirs, without necessarily using the inheritance as collateral. This is different than probate loans, which are commonplace.
Doableness
Extremely complex, and, therefore, relatively difficult.
In theory it is simple – the borrower will get a future sum of money via the inheritance that will pay off the loan plus interest.
First, there is the issue of not knowing how long the one with the money will live. This is the easier problem to fix. If reverse mortgages and life settlements can work, that problem can’t be so tough.
In practice, however, the bigger issue is fraud.
For example, a father and son team up and simply switch the inheritance to a generation skipping trust the son cannot get to. The son declares bankruptcy and whoops, no need to pay back the loan.
If you can get past the threshold issues, you still need to build a business. You need to model the returns, then you need access to a large pool of funds and/or buyers for the loans. Then all the standard to-do’s, such as sales and marketing, internal technology, hiring good people, etc.
My Thoughts
One possible way around the fraud issue is simply having the inheritance secure the loan. This is initially what I was trying to avoid, as it brings the previous generation into the equation. With the previous generation involved, there will likely be much resistance to this type of loan, which will necessarily have high interest rates.
That said, the previous generation is likely involved anyway. The presence of the funds, as well as the current will (or testamentary trust), needs to be proven.
Others slated to inherit, such as charitable organizations, might be interested in this as well.
The waiting around for (six-figure plus) inheritance is a problem that impacts a very small percentage of the population. However, for those it impacts, it’s a very big problem. Large sums of money are involved, and large sums of money would be paid to deal with the issue. There’s the business opportunity.