Trending Now
  • An LFJ Conversation with Jason Levine, Partner at Foley & Lardner LLP
  • Joint Liability Proposals Threaten Consumer Legal Funding
Consumer Special Features

Probate Funding: A Useful Option for So Many (Part 1 of 4)

May 31, 2018

Probate Funding: A Useful Option for So Many (Part 1 of 4)

The following is a contributed article by Steven D. Schroeder, Esq., General Counsel/Sr. Vice President at Inheritance Funding Company, Inc. since 2004.  There have been a few recent articles written on the topic of Probate Advances.[i] Probate Advances are available because a handful of companies are willing to assume a risk and provide funding in return for a partial assignment of a beneficiary’s interest in an Estate, and to a lesser extent Trust Proceedings. One critic has conflated Assignments to Loans without a fair analysis of the many differences between the two legal maxims.[ii] This 4-part series expands upon those differences and provides a legal and practical perspective as to why Probate Advances are a useful option for so many. Why is Probate Funding Needed? Probate Funding is growing in importance due to the increasing percentage of the population (i.e. baby boomers) who die annually and have their Estates and/or Trusts go through probate administration. In theory, the process of distributing a Decedent’s estate should not be complicated. But in practice, administration is rarely quick and easy. Even simple or uncontested Probate administrations take no less than eight (8) months to a year to finalize, while the vast majority of administrations of Probate or Trust Estates take much longer. Due to funding and short staffing issues, many Courts set hearings months out even on uncontested petitions. Quite often, because of questions relating to the admissibility of a Will, the location of intestate heirs, and/or questions regarding those who may be an interested party, it can take a year just to have someone appointed personal representative.[iii] Moreover, once a Personal Representative is appointed, notice is required to be given to creditors which affords creditors anywhere from four (4) months to one (1) year to file a claim, depending upon the jurisdiction. Then, there is the tedious process of locating and marshalling bank accounts and investments, cleaning up and disposing a lifetime of possessions and/or marketing the Decedent’s real property. Rarely are homes sold within a year, even under the best market conditions. Some properties are occupied by holdover tenants or relatives. Even after the property is liquidated, the process of closing an estate through an accounting, setting a hearing and obtaining Court approval, can take many additional months even if the accounting is uncontested. Because of the inherent delays of administration, some heirs, who have pressing financial needs (i.e. debts, foreclosure, rent payments, et. al.), are relieved to know that there is a product provided by Probate Funding Companies which can solve their personal financial problems while probate is ongoing.[iv] Whether the purpose of the funds is to prevent foreclosure, pay rent, pay medical bills, pay household debts or pay for continuing education, it makes simple economic sense that individuals would choose to minimize their risks by obtaining an advance now by assigning a fraction of their future and undetermined interest in an estate, rather than waiting for months or years to receive a distribution. A Case for Probate Funding Vivian Doris Tanner died in Shasta County, California on April 22, 1997. Her May 10, 1992 Will was admitted to probate by Order of the Probate Court on June 16, 1997 and her named Executor, Earl C. Tanner, Jr. was issued Letters Testamentary with full authority under the Independent Administration and Estate’s Act.  Pursuant to the Will, the named beneficiaries were Helen L. Tanner (20%), Marsha L. Tanner (20%), Katherine L. Courtemanche (20%), Erla Tanner (20%) and Earl C. Tanner (20%). In February 2009, Robert Frey, an Attorney in Reno, Nevada contacted Inheritance Funding Company, Inc. (“IFC”) on behalf of his client Helen Tanner, a resident of Incline Village, because his client was experiencing hard times due to the crash of the real estate market. His client needed a significant influx of cash ($100,000.00 or more) in order to prevent the foreclosure of her properties while administration of her mother’s estate was pending. The only remaining assets of the Estate at that time were the Decedent’s interest in Tanner Construction, Inc. which owned a 20% interest in the Dublin Land Company.  IFC was informed that there was ongoing litigation with the Dublin Land Company, including a partnership dissolution suit and a partition action set for trial in the latter portion of 2009. After completing its due diligence, IFC approved funding a $100,000.00 advance for Helen Tanner in consideration of a fixed sum Assignment in the amount of $192,000.00.[v] Shortly thereafter, two (2) other heirs (Marsha Tanner and Katherine Courtemanche) contacted IFC and applied for smaller cash advances, which were also approved.[vi] During the course of administration, the Executor (Earl Tanner, Jr.) filed at least nine (9) annual status reports requesting continuances of administration until the litigation was resolved and the Dublin land was sold.  Finally, on or about November 23, 2017, the Third and Final Account and Report of the Executor was filed and set for hearing on December 11, 2017. The Account was approved, as were IFC’s three (3) Assignments, which were paid off in full on December 27, 2017, approximately nine (9) years after Ms. Tanner’s original $100,000.00 advance was funded.[vii] The Tanner case and others like it illustrate the inherent risk in Probate Funding. It took IFC nearly a decade to collect its Assignments in the Tanner case, while in many other cases the funder never collects. With that risk of non-repayment in mind, we now turn to the legal distinctions between Assignments and Loans. Stay tuned for Part 2 of our 4-Part series, where we explain the differences between Assignments and loans, with reference to relevant case law. Steven D. Schroeder has been General Counsel/Sr. Vice President at Inheritance Funding Company, Inc. since 2004. Active Attorney in good standing, licensed to practice before all Courts in the State of California since 1985 and a Registered Attorney with the U.S. Patent and Trademark Office.  —- [i] Horton, David and Chandrasenkher, Andrea, Probate Lending (March 24, 2016). 126 Yale Law Journal. 102 (2016); Kidd, Jeremy, Clarifying the ‘Probate Lending’ Debate: A Response to Professors Horton and Chandrasekher (November 16, 2016). Available to SSRN: https://ssrn.com/abstract=2870615; Lloyd, Douglas B., Inheritance Funding: The Purchase of an Assignment From an Heir to a Probate or Trust, Litigation Finance Journal (October 31, 2017), http://litigationfinancejournal.com/inheritance-funding-purchase-assignment-her-probate-trust/. [ii] Probate Lending, supra. Professors Horton and Chandrasekher, supra.  Article entitled ‘Probate Lending’. [iii]  In many instances an executor or proposed administrator who is a family member cannot qualify for a bond. [iv] IFC has been providing cash advances in the field for over 25 years. [v] The Assignments included a negotiated provision for early payoff rebates which reduced the assigned amounts to $140,000.00 and $166,000.00 if paid off within 12 and 24 months respectively. [vi] Marsha Tanner and Katherine Tanner each received advances in consideration of a $41,000.00 assignment and a lesser amount with early payoff rebates. [vii] Helen Tanner’s net distributive share was $661,532.00, less IFC’s Assignment, and an unrelated promissory note she owed to estate.

Consumer

View All
Consumer

Legal Bay Pre-Settlement Funding Announces Registration in New States

By John Freund |

Legal Bay LLC, a leading national pre-settlement funding company, has announced compliance with new regulatory guidelines in California and Georgia effective January 1. The company is now registered and accepting applications in both states as part of its ongoing commitment to transparency, disclosure, and regulatory compliance within the legal funding industry. The announcement comes amid increased scrutiny of lawsuit loans and settlement funding arrangements by courts and lawmakers nationwide.

According to PR Newswire, recent legislation in California and Georgia has highlighted concerns surrounding disclosure practices, contract clarity, and consumer understanding of legal funding agreements. Both states have clarified that litigation finance is not a loan but a non-recourse agreement. Legal Bay maintains internal compliance protocols designed to ensure transparency, consumer protection, and adherence to applicable laws in every state where it operates.

Chris Janish, CEO of Legal Bay, emphasized that "legal funding is not a one-size-fits-all product," noting that state laws change and compliance expectations shift. He stated that the regulatory activity in 2025 has been the most significant in the industry in quite some time. With New York and California both passing bills enabling legal funding in their states, Janish expects more states to follow this national trend of validating legal funding.

Legal Bay through its funding division, LB Capital, has successfully registered to do business in California, Georgia, Missouri, Tennessee, and Oklahoma in 2025. The company's compliance team continues to work on registration in additional states in 2026 where state legislation mandates it. Legal Bay provides non-recourse pre-settlement funding to plaintiffs involved in personal injury, medical malpractice, wrongful termination, and other cases, with clients repaying funds only if they win their case.

Consumer

Joint Liability Proposals Threaten Consumer Legal Funding

By John Freund |

Consumer legal funding has increasingly become a focal point for legislative scrutiny, with some policymakers framing new regulations as necessary consumer protections. A recent commentary argues that one such proposal—imposing joint and several liability on consumer legal funding companies—may do more harm than good, ultimately restricting access to justice for the very consumers these laws are meant to protect.

At its core, the debate centers on whether funders should be held jointly and severally liable alongside plaintiffs for litigation outcomes or related conduct. Proponents of these measures suggest that attaching liability to funders would deter abusive practices and align incentives across the litigation ecosystem. Critics, however, warn that this approach misunderstands the role of consumer legal funding and risks destabilizing a market that many injured or financially vulnerable plaintiffs rely upon to pursue meritorious claims.

An article in National Law Review states that joint and several liability provisions would dramatically alter the risk profile for consumer legal funding companies, forcing them to assume exposure far beyond their contractual role as non-recourse financiers. The piece argues that such liability would likely lead to higher costs of capital, reduced availability of funding, or a wholesale exit of providers from certain jurisdictions. In turn, consumers who lack the means to sustain themselves financially during prolonged litigation could be left without viable alternatives, effectively pressuring them into premature or undervalued settlements.

The article also challenges the notion that consumer legal funding requires punitive regulation, pointing to existing disclosure requirements, contract oversight, and state-level consumer protection laws that already govern the industry. By layering on joint liability, legislators may unintentionally undermine these frameworks and introduce uncertainty that benefits defendants more than consumers. The author further notes that similar liability concepts are generally absent from other forms of non-recourse financing, raising questions about why legal funding is being singled out.

Consumer

What Happens to Consumers When Consumer Legal Funding Disappears

By Eric Schuller |

The following was contributed by Eric K. Schuller, President, The Alliance for Responsible Consumer Legal Funding (ARC).

The Real-World Consequences of Over-Regulation and Misclassification

State lawmakers across the country are increasingly focused on how to regulate third-party financial activity connected to litigation. That attention is appropriate and necessary. However, when Consumer Legal Funding (CLF) is misclassified as a loan, conflicted with commercial litigation finance, or subjected to regulatory structures designed for fundamentally different financial products, the consequences fall not on providers, but on consumers who need it the most.

Consumer Legal Funding, Funding Lives, Not Litigation, exists to help individuals with pending legal claims meet basic household needs while their cases move through the legal system. These consumers are often recovering from serious injuries, unable to work, and facing mounting financial pressure. When CLF disappears due to over-regulation or misclassification, those consumers do not suddenly become financially secure. Instead, they are pushed into worse, more dangerous alternatives, or forced into decisions that undermine both their legal rights and their long-term financial stability.

Who Uses Consumer Legal Funding and Why

Consumers who turn to CLF are not seeking to finance their litigation. They are seeking financial stability. On average, CLF transactions range between $3,000 and $5,000. These monies are used for rent, mortgage payments, utilities, groceries, childcare, transportation, and medical co-pay. In many cases, it is differences between maintaining housing or facing eviction, between keeping a car or losing the ability to get to medical appointments or work.

CLF is non-recourse. If the consumer does not recover in their legal claim, they owe nothing. That structure places all financial risk on the provider, not the consumer. It is precisely this risk allocation that distinguishes CLF from loans and traditional credit products, and it is why courts and legislatures in numerous states have recognized that CLF is not a loan.

When lawmakers impose loan-based frameworks on CLF, including usury caps, amortization requirements, or repayment obligations disconnected from case outcomes, the product becomes economically impossible to offer. The result is not a cheaper product. The result is no product at all.

The Immediate Impact of CLF Disappearing

When CLF exits a state market, the effects are immediate and measurable.

First, consumer access disappears. Providers cannot operate under regulatory structures that ignore the non-recourse nature of the product. Capital exits the market, and consumers lose an option that previously helped them remain financially afloat during litigation.

Second, consumers are forced into inferior alternatives. Without CLF, injured individuals frequently turn to credit cards, payday lenders, installment loans, or borrowing from friends and family. These options often carry guaranteed repayment obligations, compounding interest, collection risk, and damage to credit. Unlike CLF, these products do not adjust based on whether the consumer recovers anything in their legal claim.

Third, financial pressure forces premature settlements. When consumers cannot meet basic living expenses, they are more likely to accept early, undervalued settlements simply to survive. This undermines the fairness of the civil justice system and benefits defendants and insurers, not injured parties or the courts.

Misclassification Harms the Most Vulnerable Consumers

The consumers most harmed by the elimination of CLF are those with the fewest alternatives. These are individuals with limited savings, limited access to traditional credit, and limited ability to absorb income disruption following an injury.

Ironically, regulations intended to protect consumers often end up harming precisely the consumers they sought to help. When CLF is treated as a loan, the regulatory burden drives responsible providers out of the market while doing nothing to improve consumer outcomes. Consumers do not gain safer options. They lose transparent, regulated, non-recourse funding and are pushed toward products with higher risk and fewer protections.

This is not hypothetical. States that have enacted overly restrictive frameworks or applied inappropriate rate caps have seen providers exit, access shrink, and consumer choice vanish. The lesson is clear. When regulation ignores economic reality, consumers pay the price.

CLF Does Not Drive Litigation or Verdict Inflation

A common concern raised in policy debates is whether CLF encourages litigation, prolongs cases, or contributes to so-called nuclear verdicts. The evidence does not support these claims.

CLF is accessed after a legal claim already exists. It does not finance attorneys’ fees, court costs, or litigation strategy. Providers have no control over legal decisions, settlement timing, or trial outcomes. Their only interest is whether a consumer recovers at all.

Moreover, the small size of typical CLF transactions makes it implausible that they influence case strategy or verdict size. A $3,000 to $5,000 transaction used to pay rent or utilities does not drive multi-million-dollar litigation outcomes. Conflating CLF with commercial litigation finance obscures these realities and leads to policy mistakes.

A Better Path Forward for Policymakers

Legislators can protect consumers without eliminating CLF. States that have enacted thoughtful CLF statutes have focused on disclosure, transparency, contract clarity, and consumer choice, rather than imposing loan-based rate structures that do not fit a non-recourse product.

Effective regulation acknowledges three core principles. First, CLF is not a loan and should not be regulated as one. Second, consumers benefit from access to a regulated, transparent product rather than being pushed into worse alternatives. Third, clear rules provide stability for both consumers and providers.

When policymakers get this balance right, consumers retain access to a product that helps them weather one of the most difficult periods of their lives without distorting the justice system or creating unintended harm.

Conclusion

The issue confronting lawmakers is not whether Consumer Legal Funding should be subject to oversight, but whether existing and future frameworks accurately reflect how the product operates and whom it serves. When CLF is swept into regulatory regimes designed for loans or commercial litigation finance, the result is not improved consumer protection. It is the quiet elimination of a non-recourse option that many injured consumers rely on to remain financially stable while their legal claims are resolved.

Careful, informed policymaking requires recognizing that Consumer Legal Funding is distinct, limited in size, non-recourse, and consumer-facing. Regulation that acknowledges those characteristics preserves transparency and accountability without stripping consumers of choice or forcing them into riskier financial alternatives. When rules are tailored to economic reality rather than broad assumptions, consumers are better protected, markets remain stable, and the civil justice system functions as intended.