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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), https://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.

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New York Times Investigation Examines Securitization of Consumer Legal Funding Advances

A New York Times investigation published Wednesday reports that some of the largest consumer legal funding companies are bundling cash advances made to personal injury plaintiffs into asset-backed securities sold to investors, and examines how that financing cycle interacts with a sharp rise in personal injury litigation.

As reported by The New York Times, reporters Ellen Gabler, Robert Gebeloff and Julie Tate identified six major funders that securitize their advances, accounting for more than 90% of advances nationwide according to industry trade group figures. The Times found more than two dozen securitization deals since 2020, representing hundreds of thousands of cases and raising $2.8 billion from investors. Advances carry fees and interest averaging 35% to 45% a year, and in one cited example a New York plaintiff who received $76,500 in advances owed at least $1.4 million by the time her case settled.

The article situates this alongside a 70% increase in personal injury filings in state courts over the past decade, and notes that since 2023 companies including Geico, Allstate, Uber and FedEx have brought at least 60 civil racketeering suits accusing lawyers and medical providers of inflating claims. Funders quoted in the piece dispute that fraud is widespread, with the American Legal Finance Association's Jack Kelly arguing that cutting off securitization would cut off the supply of money to victims. The Times also reports that more than a dozen states have restricted third-party litigation funding, with West Virginia the first to explicitly limit securitization.

The Alliance for Responsible Consumer Legal Funding responded to the report by calling for regulation rather than restriction.

"Some of the conduct described in The New York Times article is exactly the type of conduct responsible regulation should prevent," said Eric Schuller, President of the Alliance for Responsible Consumer Legal Funding. "New York has now put strong protections in place that directly address many of these concerns, while states such as Kansas have adopted similarly comprehensive regulatory frameworks. The answer is not to take Consumer Legal Funding away from injured consumers who need help paying their rent, mortgage, utilities or putting food on the table while their case moves through the legal system. The answer is to establish clear rules, enforce those rules and hold anyone who violates them accountable. Responsible regulation protects consumers while preserving access to Consumer Legal Funding for the people who truly need it."

Consumer

ARC Argues the Cost of Waiting Belongs in the Litigation Funding Debate

The Alliance for Responsible Consumer Legal Funding has published a commentary arguing that debates over litigation costs concentrate on indirect costs passed through the economy while overlooking the direct financial pressure on injured consumers waiting for their claims to resolve.

As reported by the National Law Review, the piece was written by Eric K. Schuller, president of ARC. It draws on U.S. Bureau of Labor Statistics data showing average household expenditures reached $78,535 in 2024, or roughly $6,545 a month, with housing averaging $2,189 per month, transportation $1,110 and food approximately $847. Extended across a claim's lifespan, ordinary household expenditures average about $157,070 over 24 months and $235,605 over 36 months.

Schuller cites the Federal Reserve's 2026 report on household economic well-being, which found that only 63% of adults said they could cover a $400 emergency expense entirely with cash or its equivalent. The commentary argues that if many households struggle to absorb a $400 shock, expecting an injured consumer to absorb months or years of reduced income while a claim moves through the system is unrealistic.

The article is careful to note that the figures do not suggest an injured consumer must replace every dollar of normal household spending. It describes Consumer Legal Funding as non-recourse and not used to pay attorneys, writing that the funds "can help consumers meet ordinary household obligations" and that "if there is no recovery, the consumer owes the funding company nothing."

Consumer

Consumer Legal Funding Is Not the Problem Facing America’s Truckers

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

America’s trucking industry deserves a fair civil justice system. So do injured consumers. Those principles are not in conflict.

In his recent Transport Topics commentary, “Truckers Deserve Lawsuit Transparency,” American Trucking Associations Chairman Greg Hodgen raises concerns about third-party litigation financing. He describes hedge funds, private equity firms and foreign sovereign wealth funds investing in lawsuits for profit.

Those concerns deserve discussion. But that discussion becomes problematic when Consumer Legal Funding is swept into the same category.

They are fundamentally different products.

Consumer Legal Funding is not Wall Street financing a lawsuit. It is not a hedge fund paying attorneys’ fees or litigation expenses. And it does not give a funding company control over litigation strategy or settlement decisions.

Consumer Legal Funding provides relatively small amounts of financial assistance directly to individuals who have pending legal claims and need help paying ordinary household expenses while those claims are resolved.

Simply put, it is funding lives, not litigation.

Consider the Independent Truck Driver

The trucking industry itself provides a good example of why Consumer Legal Funding exists.

Consider an independent truck driver who is seriously injured when another vehicle runs a red light and crashes into his truck.

The accident was not his fault, but suddenly he cannot work.

For an independent driver, that can mean his income stops immediately. Yet his mortgage or rent remains due. He still has to buy groceries, keep the electricity on, make vehicle payments and support his family.

His attorney may be pursuing a legitimate claim against the responsible party, but claims do not get resolved overnight. The defendant may have the resources to wait months for a settlement. The independent truck driver may not.

A Consumer Legal Funding company might provide him with $4,000 to help pay those household expenses while his claim is pending.

That money does not pay his lawyer. It does not pay an expert witness. It does not finance the lawsuit. And the funding company does not tell his attorney how to handle the case or whether to accept a settlement.

It helps the truck driver keep his family financially stable while he waits for the legal system to work.

And because Consumer Legal Funding is non-recourse, if he receives no recovery from his legal claim, he owes the funding company nothing.

That truck driver is not part of the litigation financing problem described in Hodgen’s article. He is a consumer who needs financial help because of an accident that was not his fault.

The Distinction Matters

Hodgen describes investors “pouring money into civil litigation” and argues that outside capital can fuel inflated claims and settlement demands. He also raises concerns that third-party financiers can discourage settlements when their financial interests depend on obtaining a larger recovery.

Those concerns do not accurately describe Consumer Legal Funding.

Consumer Legal Funding companies do not determine whether a lawsuit is filed. They do not select the consumer’s attorney. They do not direct litigation strategy. They do not determine the value of a claim or decide whether a settlement should be accepted.

Those decisions remain with the consumer and the consumer’s attorney.

There is also an enormous difference in scale. Consumer Legal Funding typically involves relatively modest amounts, often approximately $3,000 to $5,000, provided directly to an individual consumer. Commercial litigation financing can involve millions of dollars invested in individual lawsuits, law firms or portfolios of cases.

Policymakers should not treat those transactions as interchangeable simply because both have been placed under the broad umbrella of “litigation financing.”

Consumer Legal Funding Can Help Prevent Forced Settlements

There is another side to this debate that deserves greater attention.

Financial pressure can influence litigation decisions just as surely as outside investment can.

Imagine that independent truck driver again. His attorney believes the claim is worth substantially more than the insurance company is offering, but it may take another six months to reach a fair resolution.

The defendant can wait.

The truck driver facing next month’s mortgage payment may not be able to.

Without some financial breathing room, he could be forced to accept an early settlement, not because it fairly compensates him for his injuries, but because his family needs money immediately.

Consumer Legal Funding can help level that imbalance.

It does not guarantee a larger settlement. It simply gives the consumer something critically important: time to make a decision based on the merits of the claim rather than immediate financial desperation.

Non-Recourse Is Not Traditional Lending

Hodgen’s article also characterizes certain litigation financing arrangements as “predatory lending.”

But Consumer Legal Funding is fundamentally different from a traditional loan because repayment is contingent upon the consumer recovering proceeds from the underlying legal claim.

If there is no recovery, the consumer owes nothing.

The funding company therefore assumes the risk that it may receive less than the contracted amount or nothing at all.

That distinction matters and should be recognized when policymakers consider how these products should be treated.

Transparency Should Be Relevant to the Litigation

The article argues that litigation financing arrangements should be disclosed because defendants may otherwise be unaware that an outside party has a financial interest in a lawsuit.

That argument may be relevant when a commercial litigation financier possesses contractual rights that could influence litigation strategy or settlement.

Consumer Legal Funding presents a very different situation.

If the funding company cannot control the litigation, cannot select the attorney and cannot decide whether a consumer accepts a settlement, what legitimate purpose is served by automatically giving the defendant or its insurer access to the consumer’s private financial contract?

If a judge determines that a particular agreement is relevant to an issue in a case, normal discovery procedures can address it.

Automatic disclosure, however, could reveal something very different: how financially vulnerable the plaintiff is.

The defendant learning that an injured consumer needed funding to pay rent, utilities or groceries could gain information about how long that consumer can financially withstand litigation. That risks creating leverage for the very party with the resources to wait.

Truckers and Consumers Should Not Be Pitted Against Each Other

Hodgen makes an important point when he emphasizes that more than 90% of motor carriers operate 10 trucks or fewer.

Those businesses deserve protection from fraudulent lawsuits, staged accidents and abusive litigation practices.

But an independent truck driver injured through someone else’s negligence deserves protection too.

These goals can coexist.

Congress can address multimillion-dollar commercial investments in litigation without treating a $4,000 funding used to keep an injured family in its home as the same product.

It can demand transparency when outside investors exercise control or influence over litigation without automatically exposing an individual consumer’s personal financial circumstances to defendants and insurance companies.

Regulate the Product, Not the Label

The real problem is that “third-party litigation financing” has become an umbrella term covering very different products.

Policymakers should distinguish between commercial litigation financing, where institutional capital may finance litigation, law firms or portfolios of cases, and Consumer Legal Funding, where relatively small amounts are provided directly to individuals for personal and household expenses.

Hodgen concludes his article by calling for “transparency, accountability and fairness in our courts.”

We agree.

But fairness requires precision.

A hedge fund investing millions of dollars in litigation is not the same as an independent truck driver receiving $4,000 to make his mortgage payment and put food on the table after an accident that was not his fault.

One is funding litigation. The other is helping fund someone's life while the litigation runs its course.

America’s truckers deserve a fair civil justice system. So do America’s consumers.

Protecting one does not require harming the other.

Consumer Legal Funding is not the problem. For consumers facing financial hardship through no fault of their own, it can be the lifeline that allows them to keep their families financially stable while they wait for the justice system to work.