Trending Now
  • New York Times Investigation Examines Securitization of Consumer Legal Funding Advances
  • ARC Argues the Cost of Waiting Belongs in the Litigation Funding Debate
Consumer Special Features

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.

Consumer

View All
Consumer

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.