Probate Funding: A Useful Option for So Many (Part 2 of 4)
Public
June 4, 2018
Probate Funding: A Useful Option for So Many (Part 2 of 4)
The following is Part 2 of our 4-Part series on Probate Funding by Steven D. Schroeder, Esq., General Counsel/Sr. Vice President at Inheritance Funding Company, Inc. since 2004. Part 1 can be found here.Comparing Assignments with Loans: Apples Are Not Oranges As previously stated, there has been some recent criticism of the companies engaged in Probate funding.[1] An Article entitled: “Probate Lending” started and ended with the premise that Probate Assignments are in fact disguised loans and should be regulated as such. Despite the predetermined conclusion by one author, in fact, the law treats Assignments and Loans quite differently and those distinctions are significant.[2]
What is an Assignment?
An Assignment is a term that may comprehensively cover the transfer of legal title to any kind of property. Commercial Discount Co. v. Cowen (1941) 18 Cal. 2d 601, 614; see alsoIn re: Kling (1919) 44 Cal. App. 267, 270, 186 P. 152. When valid consideration is given, the Assignee acquires no greater rights or title than what is assigned. In other words, the Assignee steps in the shoes of the Assignor’s rights, subject to any defenses that an obligor may have against Assignor, prior to Notice of Assignment. See Parker v. Funk (1921) 185 Cal. 347, 352, 197 P. 83. See also Cal. Civil Code §1459; Cal. Code of Civil Procedure §369. An Assignment may be oral or written and no special form is necessary provided that the transfer is clearly intended as a present assignment of interest by the Assignor. If only a part of the Assignor’s interest is transferred, it may nevertheless be enforced as an equitable Assignment. SeeMcDaniel v. Maxwell, (1891) 21 Or. 202, 205, 27 P. 952. It has been held that any expectancy may be assigned or renounced. SeePrudential Ins. Co. of America v. Broadhurst 157 Cal. App. 2d 375, 321 P. 2d 75. Similarly, a beneficiary may assign or otherwise transfer his or her interest in an Estate prior to distribution. See Gold et. al., Cal Civil Practice: Probate and Trust Proceedings (2005) §3:86, p. 3-78. Probate Assignments are those taken prior to the completion of probate administration for which an heir/beneficiary transfers a portion of his/her expected inheritance in the estate in consideration of a cash advance (i.e. the purchase price).
What is a loan?
A loan agreement is a contract between a borrower and a lender which governs the mutual promises made by each party. There are many types of loan agreements, including but not limited to: “home loans”, “equity loans”, “car loans”, “mortgage loan facilities agreements”, “revolvers”, “term loans” and “working capital loans” just to name a few. In contrast to Assignments, loans do not transfer legal title and instead are contracts in which the borrower pays back money at a later date, together with accrued interest to the lender. A loan creates a debtor and creditor relationship that is not terminated until the sum borrowed plus the agreed upon interest is paid in full. Milana v. Credit Discount Co. (1945) 27 Cal. 2d 335, 163 P.2d.869. In order to constitute a loan, there must be a contract whereby the lender transfers a sum of money which the borrower agrees to repay absolutely; together with such additional sums as may be agreed upon for its use.[3] The nature of a loan transaction, can be inferred from its objective characteristics. Such indicia include: presence or absence of debt instruments, collateral, interest provisions, repayment schedules or deadlines, book entries recording loan balances or interest, payments and any other attributes indicative of an enforceable obligation to repay the sums advance. Id, citing Fin Hay Realty Co. v. United States 398, F.2d 694, 696 (3d Circ. 1968). Also, unlike Assignments, lenders typically insist upon several credit worthy factors prior to funding. For example, the “borrower” makes representations about his/her character including creditworthiness, cash flow and any collateral that he/she may pledge as security for a loan. These creditworthy representations are taken into consideration because the lender needs to determine under what terms, if any, they are prepared to loan money and whether the borrower has the wherewithal to pay it back, generally within a certain time frame. In cases of Probate Assignments, an Advance Company rarely considers creditworthiness of the Assignee, because it is not he/she who is responsible to satisfy the obligation. That obligation falls upon the Estate or Trust fiduciary. In addition, Probate Assignments cannot be deemed to be a loan if the return is contingent on the happening of some future event, (i.e. Final Distribution). Altman v. Altman (Ch. 1950) 8 N.J. Super.301, 72 A.2d 536., Arneill Ranch v. Petit 64 Cal. App. 3d, 277, 134 Cal. Rptr. 456, 461-463 (Cal. Ct. App. 1976). True Probate Assignments, executed in consideration of an advance, have no time limit for payment, nor do they accrue interest post-funding. Furthermore, an assignee is not required to make periodic interest payments and in the vast majority of cases no payment at all. Moreover, although loans are often secured against real property, Assignments in Probate should not be secured. Estate Property is generally not owned or distributed to the heir at the time the Assignment is executed. A critical distinction between Probate Assignments and loans, is that when an Assignment is executed, there is no unconditional obligation that the Assigned amount be paid and/or when it might be paid. Once assigned, the Assignor owes no further obligation to the Assignee over those rights sold/assigned. And, the Assignee has no recourse against the Assignee/Heir should the heir’s distributive share be less that what he/she assigns. In other words, to “constitute [a] true loan [] there must have been, at the time the funds were transferred, an unconditional obligation on the part of the transferee to repay the money, and an unconditional intention on the part of the transferor to secure repayment.” Geftman v. Comm’r 154 F3rd 61, 68 (3d Cir. 1998) quotingHaag v. Comm’r 88.T.C. 604, 615-16, 1987 WL 49288 aff’d 855 F. 2d 855 (8th Cir. 1987). Many jurisdictions in addition to California, recognize that the absolute right to repayment or some form of security for the debt as the defining characteristics of loan.[4] While the structure and elements slightly vary, the following is a side by side comparison of some of the basic distinctions of loans and Assignments in Probate Funding:
Loans
Assignments
Tenor: This is the time limit for repaying the loan as well as the interest rate charge.
Tenor: No time limit for payment. No interest accrues.
Obligor on the Assignment: The Borrower is contractually obligated to repay.
Assignee on the Assignment: Assignee/Heir does not pay anything. A third party (i.e. administrator pays the Assignment.
Recourse: The Borrower is unconditionally obligated.
Recourse: In absence of fraud, the Assignee has no recourse should his interest be less than what is assigned or even $0.00.
Interest Payment and Capitalization: The interest rate charge for the loan and time limit for interest payment. It also stipulates conditions under which unpaid Interest will be added to the outstanding loans.
Interest Payment and Capitalization: Interest does not accrue post funding and the Assignment is fixed.
Penalties: Late payments are typically subject to penalties and/or trigger default.
Penalties: No payments are due. No Default deadlines for payment imposed on Assignee/Heir.
Creditworthiness: Essential for approval
Creditworthiness: Not essential
Default: Foreclosure is an option; a borrower could bear default.
Default: No penalty no matter when Assignment is paid. Assignments are not secured. Foreclosure is not an option.
Moreover, given the uncertain time frame for recovery and absence of recourse against the Assignee/Heir, it would be impossible to assign an interest rate or make a Truth in Lending (“TILA”) disclosure, 15 U.S.C. §1601 (2012). Since the purpose of the TILA is to assure meaningful disclosure, the simplicity of an Assignment eliminates any necessity of making interest rate disclosures as required by interest bearing loans. When the Assignor sells a portion of his/her interest for a fixed sum Assignment, what additional disclosures are necessary? In short, there are many significant differences between Probate Assignments and Loans. Courts and Legislatures throughout the country have recognized these distinctions and have considered them when regulating or providing necessary review over either product. Stay tuned for Part 3 of our 4-Part series, where we discuss California’s regulation of Probate Funding, and how such regulation can serve as a model for other jurisdictions.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. —- [1] David Horton and Andrea Chandrasenkher, supra (2016) 126 Yale 105-107. Professors Horton and Chandrasekher analogized Litigation Funding to the ancient doctrine of champerty even though acknowledging California has never recognized the doctrine, See e.g. Mathewson v. Fitch, 22 Cal. 86, 95 (1863). [2] The conclusions in Probate Lending were debunked, by Jeremy Kidd, Ph.D. Associate Professor of Law, Mercer, Probate Funding and the Litigation Funding Debate, See Wealth Strategies Journal, August 14, 2017. [3] 47 C.J.S. Interest and Usury; Consumer Credit Section 123 (1982). [4] See In re Nelson’s Estate (1930) 211, Iowa 168; Dobb v. Yari, (NJ 1996), 927 F. Supp 814; Turcotte v. Trevino (1976) 544, S.W. 2d 463; quoting.47 C.J,S. Interest and Usury; Consumer Credit Section 123 (1982); Turcotte v. Trevino 544 S.W.2d 463 (1976), Cherokee Funding, LLC v. Ruth (2017) A17A0132; “…New York recognizes the absolute right of repayment or some form of security for the debt as the defining characteristic of a loan. Its courts have explicitly stated that ‘[f]or a true loan it is essential to provide for repayment absolutely and all events or principal in some way to be secured…’ MoneyForLawsuits VLP v. Row No. 4:10-CV-11537]. Thus, a transaction that neither guarantees the lender an absolute right to repayment nor provides it with security for the debt is not a loan, and as a result, cannot be subject to New York’s usury laws…” (emphasis added). “…In Brewer v. Brewer, 386 Md. 183, 196-197 (2005), the Court of Appeals held that “redistribution agreements are permissible and, so long as they comply with the requirements of basis contract law, neither the personal representative nor the court has any authority to disapprove or veto them. See also In re: Garcelon’s Estate 38 P. 414, 415 (Cal. 1894), Haydon v. Eldred, 21 S. W.457, 458 (Ky 1929). See Massey vs. Inheritance Funding Company, Inc. Court of Appeals, 7th Dist (TX), 07-16-00148-CV.
When people talk about third party litigation financing, they often lump everything into one bucket—as if every type of funding that touches the legal system is essentially the same. But that’s a misconception. The world of legal finance is much more varied, and each type serves a distinct role for a distinct audience.
A good way to understand the differences is to step away from the courtroom and into the world of music. Think of Consumer Legal Funding as a rock band, Commercial Litigation Financing as a symphony orchestra, and Attorney Portfolio Financing as a gospel choir.
All three make music—they all provide funding connected to the legal system—but they produce very different sounds, are organized differently, and serve different purposes. Let’s explore these three “musical groups” of legal funding to understand how they work, why they exist, and what separates them.
Consumer Legal Funding: The Rock Band
Immediate, Personal, and Audience-Driven
A rock band connects directly with its fans. The music is raw, emotional, and often tied to the lived experiences of ordinary people. That’s exactly what Consumer Legal Funding does—it provides individuals with direct financial support while they are waiting for their personal injury cases to resolve.
Most people who seek consumer legal funding have been in a car accident, or experienced some other harm caused by negligence. While their cases work their way through the legal system, they still need to pay rent, buy groceries, keep the lights on, and support their families. Consumer Legal Funding steps in to help them cover these day-to-day expenses.
Like a rock band that thrives on the energy of a crowd, Consumer Legal Funding is closely tied to the needs of everyday people. It’s not about abstract legal theories or corporate strategy. It’s about giving real people financial breathing room so they can withstand the pressure from insurers who might otherwise push them to settle for less than they deserve.
Flexibility and Accessibility
Just as a rock band doesn’t require a massive concert hall or multimillion-dollar backing, Consumer Legal Funding is accessible on a small, personal scale. A consumer can request a few hundred or a few thousand dollars to cover immediate needs, and repayment is contingent on the case outcome. If the plaintiff loses, they owe nothing.
This non-recourse structure mirrors the risk of a rock band going on tour—they might make money, or they might not, but the fans are there for the experience. Similarly, Consumer Legal Funding companies take the risk that the case might not succeed, and they may not get their investment back.
Critics and Misconceptions
Rock bands often face criticism for being too loud, too disruptive, or too unconventional compared to “serious” classical music. Consumer Legal Funding gets similar pushback. Critics sometimes argue it encourages frivolous lawsuits or drives up settlement costs. But the reality is the opposite—the funds provided to a consumer doesn’t fund lawsuits; they fund life necessities for individuals already in the legal system.
Consumer Legal Funding’s role is narrow but vital. Like a rock band giving a voice to ordinary people, it empowers individuals who might otherwise be silenced by financial hardship.
Commercial Litigation Financing: The Symphony Orchestra
Complex, Structured, and High-Stakes
Where Consumer Legal Funding is the rock band of the legal funding world, Commercial Litigation Financing is the full symphony orchestra—large, complex, and meticulously coordinated.
Here, the players are not individuals injured in accidents but corporations, investors, and law firms involved in high-value commercial disputes. These cases can involve intellectual property battles, antitrust issues, international contract disputes, or shareholder actions. The stakes often run into the tens or hundreds of millions of dollars.
Like an orchestra, Commercial Litigation Financing is structured and multi-layered. Each section—strings, brass, woodwinds, percussion—must work together under the baton of a conductor. In litigation finance, this “conductor” is the funding company, aligning investors, lawyers, and plaintiffs toward a common goal: seeing the case through to resolution.
Strategic and Long-Term
Orchestras don’t play three-minute songs; they perform long symphonies that require endurance, precision, and careful planning. Similarly, Commercial Litigation Financing is not about immediate cash flow. It’s about supporting a complex legal strategy over years of litigation.
Funds can cover attorney fees, expert witnesses, discovery costs, and even corporate operations while a case drags on. The financing enables companies to pursue claims they might otherwise abandon because of the sheer cost and duration of litigation.
Audience and Impact
The audience for an orchestra is often more formal, more elite, and more willing to pay for a grand performance. Commercial Litigation Financing likewise serves a specialized, high-stakes audience: multinational corporations, hedge funds, and sophisticated investors. The outcomes affect entire industries and markets, not just individual households.
While a rock band might play in bars or stadiums, an orchestra plays in concert halls before an audience expecting refinement. That’s the difference in scale between Consumer Legal Funding and Commercial Litigation Financing.
Attorney Portfolio Financing: The Gospel Choir
Collective Strength and Community
If Consumer Legal Funding is a rock band and Commercial Litigation Financing is a symphony orchestra, then Attorney Portfolio Financing is a gospel choir. It’s powerful, collective, and rooted in the idea of strength in numbers.
Attorney Portfolio Financing provides capital to law firms by pooling together multiple cases—often personal injury or contingency fee cases—into one financing arrangement. Instead of betting on a single case, the funding spreads across a portfolio, much like the voices of a choir blend to create a unified sound.
Stability and Predictability
A gospel choir doesn’t rely on one soloist to carry the performance. If one voice falters, the rest keep singing. Similarly, portfolio financing reduces risk because the outcome of any one case doesn’t determine the success of the financing. The strength lies in the collective performance of many cases.
This allows law firms to take on more clients, expand their practices, and better withstand the financial ups and downs of litigation. For clients, it means their attorneys have the resources to see their cases through rather than being pressured into quick settlements.
Purpose and Spirit
Gospel choirs aren’t just about music—they’re about inspiration, resilience, and community. Attorney Portfolio Financing carries a similar spirit. It’s designed not only to provide financial stability for law firms but also to empower them to serve clients more effectively.
While the audience for a gospel choir is often the community itself, the “audience” for portfolio financing is law firms and, indirectly, the clients who benefit from better-resourced representation.
Comparing the Three Sounds
To appreciate the differences, let’s put the three side by side:
Type of Funding
Musical Analogy
Audience
Scale
Purpose
Consumer Legal Funding
Rock Band
Individuals waiting for case resolution
Small-scale, personal
Helps consumers cover living expenses while awaiting settlement
Commercial Litigation Financing
Symphony Orchestra
Corporations, investors, large law firms
Large-scale, complex
Funds high-stakes commercial disputes over years
Attorney Portfolio Financing
Gospel Choir
Law firms (and indirectly their clients)
Medium-to-large scale
Provides stability by funding multiple cases at once
Why These Distinctions Matter
Understanding these distinctions isn’t just an academic exercise—it has real implications for policy, regulation, and public perception. Too often, critics conflate Consumer Legal Funding with Commercial Litigation Financing or assume Attorney Portfolio Financing operates the same way as individual case advances.
But regulating a rock band as if it were an orchestra—or treating a gospel choir as if it were a solo act—would miss the point entirely. Each type of legal funding has its own purpose, structure, and audience.
Consumer Legal Funding keeps people afloat in times of crisis.
Commercial Litigation Financing enables corporations to fight complex battles on equal footing.
Attorney Portfolio Financing stabilizes law firms and expands access to justice.
All three are part of the broader “music” of legal finance, but they are distinct genres with distinct contributions.
Conclusion: Harmony Through Diversity
Music would be dull if every performance sounded the same. The same is true for legal finance. A rock band, a symphony orchestra, and a gospel choir all create music, but their sounds, audiences, and purposes differ dramatically.
Similarly, Consumer Legal Funding, Commercial Litigation Financing, and Attorney Portfolio Financing are all forms of legal finance, but each plays a unique role. Recognizing these differences is crucial for policymakers, industry professionals, and the public.
When we appreciate the rock band, the orchestra, and the choir for what they are, we begin to see the full richness of the legal finance “soundtrack.” Together, they form a diverse ecosystem that, when balanced correctly, ensures both individuals and institutions can pursue justice without being silenced by financial pressure.
Express Legal Funding announced it has reached its fifth year as a member of the Alliance for Responsible Consumer Legal Funding (ARC), underscoring a commitment to best practices in an often-polarized pre-settlement space. For a company that brands itself around transparent pricing and consumer education, the ARC imprimatur doubles as a marketing and compliance asset—especially as statehouses revisit disclosure, APR caps and contract clarity.
An announcement in PR Newswire positions the milestone within a “rapidly growing” lawsuit-cash-advance market. While the release is light on metrics, the message tracks with the broader U.S. consumer-funding narrative: pressure from insurers and tort-reform groups on one side; advocates and funders emphasizing access to liquidity and non-recourse safety on the other.
For plaintiff firms, vendor due diligence remains a reputational imperative; for consumers, independent accreditation—however voluntary—can serve as a quick proxy for baseline standards when shopping funding offers. The strategic subtext is clear: as more states contemplate rules around discoverability, disclosures and rate structures, firms that can point to consistent adherence to codes like ARC’s may enjoy smoother law-firm relationships and fewer regulatory headwinds.
With regulatory skirmishes likely to continue at the state level, recurring membership signals (ARC or otherwise) will matter more.
Editor's Note: An earlier version of this article stated that Express Legal Funding reached its fifth consecutive year as a member of the Alliance for Responsible Consumer Legal Funding. Express Legal Funding reached its fifth year, but not consecutively. We regret the error.
High Rise Financial has added industry veteran Karyn Cerulli as Regional Vice President of Sales, deepening the Los-Angeles-based funder’s reach into the personal-injury bar. Cerulli spent more than a decade with FindLaw and Thomson Reuters, where she partnered with firms on digital marketing and business-development strategies. In her new role she pivots from lead generation to liquidity, positioning High Rise’s non-recourse advances as a client-care tool for plaintiffs’ firms facing lengthy litigation timelines.
A post on LinkedIn sets out Cerulli’s agenda: hands-on attorney support, a “best rate guarantee,” and white-glove service that places “zero pressure” on case strategy while delivering cash within days. Cerulli frames High Rise as a complement rather than a competitor to existing funders, inviting firms to keep her on standby as a “second option” or safety net when primary partners stall or pricing shifts.
The move comes amid rapid growth for High Rise, which secured a $100 million senior credit facility late last year to expand its pre-settlement portfolio and medical-lien program. The funder touts 24-hour approvals, no credit checks, and repayment only from a successful resolution—features that resonate with Cerulli’s long-time focus on consumer-friendly legal services. With her network of plaintiff-side marketers and case managers, the company hopes to accelerate origination across high-volume auto and premises claims.
Sign Up for LFJ’s Weekly Newsletter & Daily Alerts
Thank you for signing up for the LFJ Newsletter!
Stay informed on the latest news and events taking place in the global legal funding space.
You'll now receive the latest global legal funding news, insights, and analysis straight to your inbox.
Please check your email to confirm your subscription.
By completing this form, you agree to allow LFJ to communicate with you per the terms of our Privacy Policy. Your personal information will never be shared or sold to 3rd parties.
Access Premium Content
LFJ members, please log in below to access premium content.
