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Probate Funding: A Useful Option for So Many (Part 3 of 4)

June 6, 2018

Probate Funding: A Useful Option for So Many (Part 3 of 4)

The following is Part 3 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. You can find Parts 1 & 2 here and here. Probate Assignments are Adequately Regulated in California In California, it is the exclusive jurisdiction of the Probate Court to determine entitlement for distribution, Cal. Probate Code §§11700-11705. Probate Courts may also apply equitable principles in fashioning remedies and granting relief in proceedings otherwise within its jurisdiction. Estate of Kraus (2010) 184 Cal. App 4th 103, 114, 108 Cal. Rptr. 3d 760, 768. Thus, even without a specific statute addressing assignments, Probate Courts in California, as well as other jurisdictions, have conducted oversight over the propriety of Assignments in Probate.  See In Re: Michels’s Estate 63 P. 2d 333, 334 (Cal. Dist. Ct. App. 1936). For decades, the California Legislature has also regulated Assignments or Transfers by a beneficiary of an estate, see Cal. Probate Code §11604 (formerly Cal. Probate Code §1021.1). The validity of those statutes was well established. Estate of Boyd (1979) 98 Cal. App. 3d 125, 159 Cal. Rptr. 298, and the Courts have recognized the Probate Judge is empowered to give much stricter scrutiny to the fairness of consideration than would be the case under ordinary contract principals. Estate of Freeman (1965) 238 Cal. App., 2d 486, 488-89; 48 Cal. Rptr. 1. The initial purpose of Probate Code Section 1021.1(followed by 11604), was to provide for judicial supervision of proportional assignments given by beneficiaries to so called “heir hunters” (Estate of Wright (2001) 90 Cal. App. 4th 228; Estate of Lund (1944) 65 Cal. App. 2d 151; 110 Cal Rptr. 183.  However, courts have since interpreted that these sections are not limited to that class and can also be applied to Assignees and Transferees generally. Estate of Peterson (1968) 259 Cal. App. 2d. 492, 506; 66 Cal Rptr. 629. Despite the broad interpretation, California adopted additional legislation specifically directed to Probate Advance Companies. In 2006, the California Legislature enacted Probate Code Section 11604.5,[1] to regulate companies (Probate Advance Companies) who are in the business of making cash advances in consideration of a partial Assignment of the heir’s interest. With the enactment of Section 11605.4, the California Legislature also made it abundantly clear that the transactions under this section are not those made in conformity with the California Finance Lenders Law. Cal. Probate Code Section 11604.5 (a) This section applies when distribution from a decedent’s estate is made to a transferee for value who acquires any interest of a beneficiary in exchange for cash or other consideration. (b) For purposes of this section, a transferee for value is a person who satisfies both of the following criteria: (1) He or she purchases the interest from a beneficiary for consideration pursuant to a written agreement. (2) He or she, directly or indirectly, regularly engages in the purchase of beneficial interests in estates for consideration. (c) This section does not apply to any of the following: (1) A transferee who is a beneficiary of the estate or a person who has a claim to distribution from the estate under another instrument or by intestate succession. (2) A transferee who is either the registered domestic partner of the beneficiary, or is related by blood, marriage, or adoption to the beneficiary or the decedent. (3) A transaction made in conformity with the California Finance Lenders Law (Division 9 (commencing with Section 22000) of the Financial Code) and subject to regulation by the Department of Business Oversight. (4) A transferee who is engaged in the business of locating missing or unknown heirs and who acquires an interest from a beneficiary solely in exchange for providing information or services associated with locating the heir or beneficiary…(emphasis added). Although it is not specifically required under Probate Code Section 11604, the Legislature also imposed an affirmative obligation on Probate Assignees to promptly file and serve their Assignments, to ensure full disclosure to the representatives, the Courts and/or other interested parties.[2] Also, the legislature made it clear that unlike loans, Probate Assignments are non-recourse, meaning that the beneficiary faces no further obligation to the Assignee, absent fraud. As stated in 11604.5: (f)“…(4) A provision permitting the transferee for value to have recourse against the beneficiary if the distribution from the estate in satisfaction of the beneficial interest is less than the beneficial interest assigned to the transferee for value, other than recourse for any expense or damage arising out of the material breach of the agreement or fraud by the beneficiary…” …(*emphasis added). Moreover, in enacting PC 11604.5, the legislature specifically gave the Probate Court wide latitude in fashioning relief, when reviewing probate Assignments. “… (g) The court on its own motion, or on the motion of the personal representative or other interested person, may inquire into the circumstances surrounding the execution of, and the consideration for, the written agreement to determine that the requirements of this section have been satisfied. (h) The court may refuse to order distribution under the written agreement, or may order distribution on any terms that the court considers equitable, if the court finds that the transferee for value did not substantially comply with the requirements of this section, or if the court finds that any of the following conditions existed at the time of transfer: (1) The fees, charges, or consideration paid or agreed to be paid by the beneficiary were grossly unreasonable. (2) The transfer of the beneficial interest was obtained by duress, fraud, or undue influence. (i) In addition to any remedy specified in this section, for any willful violation of the requirements of this section found to be committed in bad faith, the court may require the transferee for value to pay to the beneficiary up to twice the value paid for the assignment. An Assignment under 11604.5 is Best Reviewed by the Local Probate Court At present, it does not appear that there has been a reported case interpreting an Assignment under Probate Section 11604.5, including whether the consideration paid was grossly unreasonable. However, there have been a long list of cases interpreting precisely that under Probate Code Section 11604 and Probate Code Section 1021.1) See Estate of Boyd, supra, 159 Cal. Rptr. 301-302; Molino v. Boldt (2008) 165 Cal. App. 4th 913, 81 Cal Rptr 3d. 512. At the same time, it should be noted that there are distinct differences between Assignments given to Heir-Finders and those to Probate Advance Companies. One critical distinction is Probate Advance Companies, such as IFC, provide the Assignor with cash in consideration of a partial Assignment. On the other hand, Heir-Finders, take back a percentage of the Heir’s interest (typically 15% to 40%). Thus, the amount of fees incurred by the Assignee could vary widely depending on the amount the heir recovers. In most instances, the Assignment far exceeds the consideration given to a Probate Advance Company. Moreover, Heir-Finders often receive assignments from multiple heirs in one estate administration even though much of the work would be duplicated. On the other hand, Probate Funding Companies outlay cash consideration for every Assignment they receive. Thus, Probate Funding Companies take on an increased financial risk with every transaction. Also, as in any industry, there are also significant distinctions among the practices of individual Probate Funding Companies including the disclosures they make to the Assignor/Heir. For example, IFC’s contracts, are limited to less than three (3) pages with no hidden fees or other costs tacked on the Assignment post-funding.[3]  The Assignee simply agrees to assign a fixed portion of his/her inheritance for a fixed sum of money.  In other words, a simple $X for $Y purchase.  Thus, it would be a fatal mistake to make a broad-based analysis based on the assumption that one size fits all when it comes to Probate Funding Companies. [4] Moreover, under Probate Code Section 11604.5, the Legislature has placed an affirmative burden on the Transferee (Probate Funding Companies) to file and serve their Assignments shortly after their execution. Hence, the terms are open reviewable by the Courts, Personal Representatives, Attorneys, other interested parties and/or to the public in general. Therefore, there is more than adequate opportunity for objections to be filed or for the Court to question the consideration given for an Assignment, sua sponte. In short, the Legislature left the determination of what amount of fees, charges and other consideration would be deemed “grossly unreasonable” up to the particular Court where administration is ongoing, and to do so on a case by case basis if deemed necessary.   In fact, it is in the best interest for all concerned for the local Court to conduct inquiry if legitimate objections are raised, or on the Court’s own motion. In fact, on many occasions, IFC has responded to questions raised by various courts with regard to the Assignments it has filed and served.[5] Stay tuned for Part 4 of our 4-Part series, where we discuss the risks inherent in Probate Funding, and how those risks should inform the court’s assessment on the validation of an Assignment.  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] IFC provided substantial input, counsel and proposed legislative language in response to California Senate Bill 390 which was enacted into law as Probate Code Section 11604.5 on January 1, 2006 regulating the Probate Funding industry in California. SB 390.Section 1 2015, Ch. 190 (AB 1517) Section 71 [2] Probate Code 11604 does not have a time limitation filing period reflected. [3] Some Probate Advance Companies have charged interest or other fees post-funding. [4] See Probate Lending, supra, page 130, in which the author makes questionable statistical findings from one county during a limited period of time, with the assumption that each Probate Advance Company has the same terms and business practices. [5] IFC has responded to multiple orders to show cause in California.
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Consumer Legal Funding Is a Lifeline for Americans Living Paycheck to Paycheck

By Eric Schuller |

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

In today’s economy, far too many Americans are walking a financial tightrope. New data from the Bank of America Institute shows that 24 percent of U.S. households now spend more than 95 percent of their income on basic necessities such as rent, groceries, utilities and transportation. That number jumps to 29 percent among lower income households.

Even more surprising, this strain is not limited to those on the lower end of the income ladder. A recent report from Fortune found that 41 percent of workers earning between $300,000 and $500,000, and 40 percent of those earning more than $500,000, say they too are living paycheck to paycheck. Lifestyle costs, debt and high inflation have eroded financial resilience even at the upper end of the income scale.

When an unexpected injury occurs, these households do not simply experience inconvenience. They experience crisis. Income stops or drops. Medical bills rise. Transportation becomes a barrier. Childcare becomes more complicated. Daily life becomes harder and more expensive, just as a legal claim begins the long march through the justice system.

This is the reality facing millions of Americans. It is also why Consumer Legal Funding exists.

The Delay Between Injury and Justice Creates Hardship

After an accident, a consumer who has a valid legal claim. But that claim will take time to resolve. Insurance negotiations, medical assessments and legal reviews do not operate on the timeline of rent due on the first of the month. Consumers cannot tell the electric company to wait until their settlement arrives. They cannot tell the landlord that the case is moving slowly. Yet all of those bills continue to accumulate.

For people who already have no financial cushion, even a short interruption in income can be catastrophic. Families fall behind on rent. Utilities get disconnected. Cars fall into repossession. Groceries become unaffordable.

These pressures far too often push consumers into accepting low settlement offers simply to survive. That is not justice. That is coercion.

Consumer Legal Funding Helps Consumers Survive the Wait

Consumer Legal Funding provides consumers with access to a portion of the future proceeds of their legal claim. Those funds help pay for essential daily expenses, such as:

• Rent and utilities
• Groceries and basic household needs
• Car payments and repairs
• Childcare and family necessities
• Transportation to medical appointments

This support is not used to pay attorney fees or litigation expenses. It is used to keep food on the table and a roof over a family’s head. It is, quite literally, the difference between stability and crisis while consumers await a fair resolution.

Equally important, Consumer Legal Funding is non-recourse. If the consumer does not win or settle their case, they owe nothing. No debt is created. No financial penalty follows them. The risk is on the funding company, not the consumer.

In a financial landscape where payday loans, credit cards and title loans can trap people in cycles of debt, Consumer Legal Funding offers a safer alternative that respects their long term financial well being.

Leveling the Playing Field

Consumer Legal Funding gives consumers the ability to withstand delay tactics. It gives them the time they need for their attorney to negotiate properly. It allows the civil justice system to work on the merits of the case, not the desperation of the injured person.

In an economy where both low income and high-income earners are struggling to stay afloat, tools that protect fairness in the justice system have never been more important.

A Necessary Safety Net for a Fragile Economy

The numbers paint a clear picture. Whether someone earns $40,000 or $400,000, far too many Americans are living without a financial buffer. A single injury can create a domino effect that jeopardizes a family’s housing, transportation, health and financial future.

Consumer Legal Funding does not solve every challenge. But it solves one critical one: it keeps consumers stable during the long wait for justice. It prevents them from being forced into unfair settlements. And it protects them from predatory financial alternatives that create long term harm.

In short, it helps Americans in their moment of need.

Funding Lives, Not Litigation

Consumer Legal Funding exists for one purpose: to help people survive while their legal claim makes its way through the system. It allows injured consumers to focus on recovery, not crisis. It restores balance against powerful insurance companies. And it ensures fairness is not compromised because someone cannot afford to wait for what they are rightfully owed.

Consumer Legal Funding is about Funding Lives, Not Litigation. And in an economy where far too many Americans are living paycheck to paycheck, that mission has never been more essential.

Consumer

Consumer Legal Funding: A Quiet Force Driving Innovation and Economic Welfare

By Eric Schuller |


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

This year’s Nobel Prize in Economics was awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt for their groundbreaking work on how innovation fuels economic growth and human welfare. Their research, centered on endogenous growth and creative destruction, shows that societies advance when new ideas challenge old systems, replacing inefficiency with opportunity.

While their theories are often discussed in the context of technology or industrial progress, they also apply to financial and social innovations that empower people. One of the most quietly transformative examples is Consumer Legal Funding, a financial service that provides individuals with non-recourse funds while their legal claims are pending.

Viewed through the lens of these Nobel-winning theories, Consumer Legal Funding is far more than a niche product. It is an economic innovation that expands access, promotes fairness, and strengthens the very mechanisms that drive growth and human welfare.

1. Expanding Access to Justice: Empowering Consumers and Communities

Access to justice is both a moral and an economic imperative. When ordinary people cannot afford to pursue their legal rights because they cannot provide for their family, justice becomes a privilege for the wealthy, and the rule of law erodes. Consumer Legal Funding addresses this inequity directly by providing individuals with the funds they need to meet essential household expenses, rent, mortgage, groceries, utilities, childcare, while their cases make their way through the legal system.

Because these funds are non-recourse, consumers owe nothing if they do not win their case. That makes Consumer Legal Funding uniquely empowering: it provides stability and breathing room at the moment people need it most. In economic terms, this keeps families solvent, prevents forced settlements driven by financial desperation, and allows cases to be resolved based on fairness rather than necessity.

This democratization of access produces tangible economic benefits. Families stay in their homes, local businesses receive payments, and workers avoid the financial collapse that often accompanies serious injury or wrongful termination. In this way, Consumer Legal Funding strengthens both household balance sheets and community well-being, a microeconomic engine of stability and resilience.

2. Protecting Innovation and Small Business Resilience

The Nobel laureates emphasized that innovation flourishes when barriers to participation are lowered. The same principle applies to individuals and small businesses facing powerful opponents in legal disputes. Whether it is a local contractor owed payment, a delivery driver injured in an accident, or an inventor defending intellectual property, the ability to pursue justice can determine whether innovation thrives or collapses.

Consumer Legal Funding helps level this playing field. It gives consumers and small enterprises the financial capacity to sustain legitimate claims without surrendering early under financial pressure. By doing so, it safeguards the principles of accountability and fair dealing that encourage entrepreneurship and innovation.

Every successful resolution supported by Consumer Legal Funding reinforces market integrity: contracts are honored, negligence is deterred, and honest competition is rewarded. This is how progress occurs, when individuals and innovators have the means to defend their rights and contribute fully to economic life.

3. Fueling Creative Destruction: Redefining How Justice Is Financed

In economic terms, Consumer Legal Funding is itself an innovation that embodies creative destruction. For generations, access to justice was limited by the rigid structure of the legal system: lawyers and clients bore the full financial risk, and those without resources were often shut out entirely.

Consumer Legal Funding disrupts that outdated model. It introduces a private-market solution that operates independently of banks, insurers, or government assistance. By offering a new way for individuals to access funds tied to the potential outcome of their legal claim, it redefines the economics of fairness.

This shift mirrors other historic transformations, just as e-commerce reshaped retail or fintech expanded banking access, Consumer Legal Funding modernizes the intersection of law and finance. It replaces exclusivity with inclusion, dependency with empowerment, and uncertainty with choice. It is a vivid example of innovation that serves people first, not institutions.

4. Creating a New Financial Ecosystem: From Survival Tool to Economic Contributor

What began as a consumer support product has grown into a significant contributor to the broader economy. The Consumer Legal Funding industry now represents a direct economic driver, supporting thousands of jobs in finance, compliance, technology, and law.

“The Nobel laureates’ research ultimately centers on a profound idea: that human welfare grows when barriers to progress are removed and individuals are empowered to act. Consumer Legal Funding embodies that principle.”

Each transaction recirculates funds into the economy, paying landlords, medical providers, car repair shops, and countless other local businesses. In this way, Consumer Legal Funding acts as a stabilizer, smoothing the financial turbulence that can follow accidents, workplace injuries, or prolonged litigation.

Economists recognize that liquidity and timing matter. By bridging the gap between injury and recovery, between claim and resolution, Consumer Legal Funding enhances financial resilience and supports sustained consumer spending. This flow of capital at the household level contributes to macroeconomic stability and growth, precisely the kind of incremental innovation that Mokyr and Aghion identified as critical to human welfare.

5. Driving Institutional and Regulatory Innovation

Innovation does not occur in isolation; it prompts institutions to evolve. The rapid growth of Consumer Legal Funding has led policymakers, courts, and regulators to modernize legal and financial frameworks to reflect this new reality.

In states such as Utah, Georgia, Maine, Missouri, Ohio, Vermont and now California, legislatures have enacted laws that specifically recognize and regulate Consumer Legal Funding, ensuring transparency and consumer protection while preserving access. These frameworks establish clear rules, define the product as non-recourse, and distinguish it from loans or traditional litigation financing.

This legal clarity promotes responsible growth, protects consumers, and reinforces trust in the marketplace. It also represents exactly what Aghion and Howitt described: institutional adaptation as a driver of sustained innovation. As more jurisdictions follow suit, Consumer Legal Funding continues to model how private innovation and public policy can evolve together to serve the public good.

6. Consumer Legal Funding and the Economics of Human Welfare

The Nobel laureates’ research ultimately centers on a profound idea: that human welfare grows when barriers to progress are removed and individuals are empowered to act. Consumer Legal Funding embodies that principle.

By providing access to financial stability during legal uncertainty, it transforms moments of crisis into pathways toward justice and recovery. It strengthens families, reduces strain on public assistance systems, and promotes confidence in the fairness of the civil justice process.

At a macro level, the ripple effects are substantial. More equitable settlements mean greater accountability. Greater accountability deters harmful behavior. And when wrongdoing is reduced, the economy becomes more efficient and trustworthy — exactly the conditions required for sustained, inclusive growth.

7. A Call to Recognize Consumer Legal Funding as True Economic Innovation

Innovation is not defined solely by technology or machinery; it is measured by ideas that reshape systems and improve lives. Consumer Legal Funding achieves both. It is a financial innovation that serves social good, an economic tool that empowers individuals, and a policy model that encourages modern regulatory thinking.

The economists honored by this year’s Nobel Prize remind us that progress is built on the courage to rethink how systems work, and for whom they work. By that measure, Consumer Legal Funding deserves recognition not as a fringe practice, but as a quiet force of modern progress: Funding Lives, Not Litigation.

Announcements Consumer

The Alliance for Responsible Consumer Legal Funding Applauds Governor Newsom for Signing AB 931

By John Freund |

The Alliance for Responsible Consumer Legal Funding Applauds Governor Newsom for Signing AB 931, the California Consumer Legal Funding Act

The Alliance for Responsible Consumer Legal Funding (ARC) expressed its deep appreciation to Governor Gavin Newsom for signing Assembly Bill 931 -- The California Consumer Legal Funding Act -- into law. Authored by Assemblymember Ash Kalra (D–San Jose, 25th District), this landmark legislation establishes thoughtful and comprehensive regulation of Consumer Legal Funding in California—ensuring consumer protection, transparency, and access to financial stability while legal claims move through the judicial process.

The law, which takes effect January 1, 2026, provides consumers with much-needed financial support during the often lengthy resolution of their legal claims, helping them cover essential living expenses such as rent, mortgage payments, and utilities.

“This legislation represents a major step forward for California consumers,” said Eric Schuller, President of the Alliance for Responsible Consumer Legal Funding. “AB 931 strikes the right balance between protecting consumers and preserving access to a financial product that helps individuals stay afloat while they await justice. Consumer Legal Funding truly is about funding lives, not litigation.”
Key Consumer Protections Under AB 931

The California Consumer Legal Funding Act includes robust safeguards that prohibit funding companies from engaging in improper practices and mandate full transparency for consumers.

The Act Prohibits Consumer Legal Funding Companies from:

• Offering or colluding to provide funding as an inducement for a consumer to terminate their attorney and hire another.
• Colluding with or assisting an attorney in bringing fabricated or bad-faith claims.
• Paying or offering referral fees, commissions, or other forms of compensation to attorneys or law firms for consumer referrals.
• Accepting referral fees or other compensation from attorneys or law firms.
• Exercising any control or influence over the conduct or resolution of a legal claim.
• Referring consumers to specific attorneys or law firms (except via a bar association referral service).

The Act Requires Consumer Legal Funding Companies to:

• Provide clear, written contracts stating:
• The amount of funds provided to the consumer.
• A full itemization of any one-time charges.
• The maximum total amount remaining, including all fees and charges.
• A clear explanation of how and when charges accrue.
• A payment schedule showing all amounts due every 180 days, ensuring consumers understand their maximum financial obligation from the outset.
• Offer consumers a five-business-day right to cancel without penalty.
• Maintain no role in deciding whether, when, or for how much a legal claim is settled.

With AB 931, California joins a growing list of states that have enacted clear and fair regulation recognizing Consumer Legal Funding as a non-recourse, consumer-centered financial service—distinct from litigation financing and designed to help individuals meet their household needs while pursuing justice.

“We commend Assemblymember Kalra for his leadership and Governor Newsom for signing this important legislation,” said Schuller. “This act ensures that Californians who need temporary financial relief during their legal journey can do so safely, transparently, and responsibly.”

About the Alliance for Responsible Consumer Legal Funding (ARC)

The Alliance for Responsible Consumer Legal Funding (ARC) is a national association representing companies that provide Consumer Legal Funding, non-recourse financial assistance that helps consumers meet essential expenses while awaiting the resolution of a legal claim. ARC advocates for fair regulation, transparency, and consumer choice across the United States.