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

June 18, 2018

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

The following is Part 4 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. Parts 1, 2 & 3 can be found here, here and here. What are the Risks in Probate Funding? Similar to California Probate Code 11604, (formerly Cal. Probate Code 1021.1), the Legislature, in enacting Probate Code 11604.5, has specifically indicated that Assignments relative to Probate Advances will not be set aside unless it is clear that the consideration paid is “grossly unreasonable”, at the time the transaction was executed. In fact, the Probate Court can presume the validity of an Assignment, in the absence of any objection raised or evidence submitted to the contrary. See Lynch v. Cox. (1978) 83 Cal. App. 3rd 296, 147 Cal. Rptr. 861. However, nothing in the Probate Code Sections 11604 or 11604.5 indicates a legislative intent to modify the law concerning the evaluation date to be utilized in appraising the fairness of a contract. In interpreting statutes, courts are required to do so in a manner which will produce a reasonable and not an absurd result. See Freedland v. Greco (1955) 45 Cal. 2d 462, 289 P.2d 463. Thus, in the absence of any evidence that the consideration received by the Assignor was grossly unreasonable, at the time received, the Assignee should be presumed to have had the benefit of all the protection the law provides. See Boyd v. Baker (1979) 98 Cal. App. 3rd 125, 159 Cal. Rptr. 298, 304. Moreover, given that the Probate Funding Company has no assurance of recovery at the time the Assignment is executed, nor any recourse against the Assignor/Heir, it is imperative that the Court consider the many risks a Probate Advance Company assumes during administration.    The following are just a few examples of those risks: *Mismanagement or conversion of Estate funds by the Personal Representative; *Unanticipated claims, such as Medical, Medicaid, Uninsured Medical Hospital or Nursing Bills; *Litigation, including but not limited to Will Contests, Property Disputes, Reimbursement Claims; *Inaction or Delays by the Personal Representative and/or Probate Attorney; *Previously unknown will discovered, disinheriting the Assignor; *Spousal/Domestic Partner Support Claims; *Tax Liability/Litigation; *Partnership Dissolution; *Foreclosure of Estate property; *Child Support Liens; *Unusually high extraordinary personal representative and/or Attorney Fee Claims; *Devaluation of Real Estate Market (i.e. 2008); *Bankruptcy by an heir; *Litigation against the heir. Alienation:  An Heir’s Right. Clearly, the Probate court has the jurisdiction to review an Assignment under Probate Code §11604.5 and consider whether the consideration paid was “grossly unreasonable” at the time it was executed. See Estate of Wright (2001) 90 Cal. App.4th 228, 108 Cal. Rptr. 2d 572.  Yet, it must be remembered that an heir’s right to alienate his/her interest is an important one and should not be infringed upon in a random or desultory manner. See Gold, et. Cal Civil Practice: Probate and Trust Proceedings (2005) §3:86, p. 3-78. Conditions restraining alienation, when repugnant to the interest created are void. See California Civil Code §711. In this vein, Courts should also consider the fact that the lion’s share of heirs who have obtained probate advances have done so out of their own free will, without solicitation and/or direct marketing.[1] Many heirs who research probate advances find that it is a preferred option to loans or other sources of funding, which take substantial time to qualify, require credit checks and extensive documentation and create personal obligations. Therefore, as long as terms of the Assignment are simple, straightforward and unambiguous – and it appears on its face that the Heir was given full disclosure and consented to the transaction – Courts should be hesitant to interfere with the Heirs’ right of alienations. Conclusion It is intellectually dishonest to ignore the obvious legal distinctions between Probate Assignments and Loans. Probate Funding Companies like IFC provide a valuable option for many heirs who would not be able to qualify for a traditional loan and/or do not wish to personally obligate themselves. Probate Funding Companies assume a myriad of risks while administration is pending with no guaranty of absolute repayment. In California, the Legislature has enacted Probate Code Section 11604.5 which governs the transfer of a beneficial interest in the form of an Assignment, and clearly distinguishes these transactions from loans. Further, that section affords the Probate Court all the authority it needs to review Assignments and determine whether, at the time the Assignment was given, the consideration paid was grossly unreasonable. In reviewing its terms, Courts must always consider an Heir’s inherent right of alienability. If fair disclosure was given by the Probate Advance Company, and it is found that the heir understood and consented to the Assignment, the Court should be very cautious in modifying the terms of an Assignment, ex post facto. In part 1 of this series, we cited just one case of many which demonstrates why Probate Funding is a useful option for so many heirs, and a far better option than a recourse loan.  In that case, Ms. Tanner would have likely lost her house to foreclosure if it was not for the availability of the Probate Advance provided by IFC. In hindsight, Helen Tanner made a very good deal for herself – even if she had the ability to qualify for a loan, the cost to her over such a protracted period would have been significantly greater. On the other hand, the return for IFC, some nine (9) years later, was considerably less than ideal. That being said, the end-result in Tanner was far better for IFC than in the numerous other Estates in which it has incurred significant losses through the years. Heirs/beneficiaries are fortunate that there are Companies willing to take risk and pay heirs a sum of money for a fixed Assignment during Probate administration with zero personal recourse against the heir. 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] Over 90% of heirs seek funding through IFC’s website, by other heirs who have already contracted with IFC, by lawyers or personal representatives.
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Consumer

Let’s Get the Definition Right: Litigation Financing is Not Consumer Legal Funding

By Eric Schuller |

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

Across the country, in both state capitols and Washington, D.C., policymakers and courts are giving increasing attention to the question of “litigation financing” and whether disclosure requirements should apply. At the heart of this debate is a push for transparency, who is funding lawsuits, what contracts exist, and what parties are behind those agreements.

While the intent is understandable, the challenge lies in the lack of a consistent and precise definition of what “litigation financing” actually is. Too often, broad definitions sweep in products and services that were never intended to fall under that category, most notably Consumer Legal Funding. This misclassification has the potential to cause confusion in the law and, more importantly, harm consumers who rely on these funds to stay afloat financially while pursuing justice through the legal system.

As Aristotle observed, “The beginning of wisdom is the definition of terms.” Without careful definitions, good policy becomes impossible.

The Distinction Between Litigation Financing and Consumer Legal Funding

The difference between litigation financing and Consumer Legal Funding is both simple and significant.

Litigation financing, sometimes referred to as third-party litigation funding (TPLF), typically involves an outside party providing monies to attorneys or to plaintiffs’ firms to pay for the costs of bringing or defending lawsuits. These funds are used to pay legal fees, expert witnesses, discovery expenses, and other litigation-related costs. The funders, in turn, often seek a portion of the litigation’s proceeds if the case is successful. In short, this type of financing directly supports the litigation itself.

Consumer Legal Funding, on the other hand, serves an entirely different purpose. In these transactions, monies are provided directly to consumers, not attorneys, for personal use while their legal claim is pending. These funds are not used to pay legal fees or case expenses. Instead, consumers typically use them for necessities such as rent, mortgage payments, groceries, utilities, childcare, or car payments. Funding companies are not influencing the litigation but rather ensuring that individuals have the financial stability to see their case through to its conclusion without being forced into a premature settlement simply because they cannot afford to wait.

This is why treating Consumer Legal Funding as though it were litigation financing is both inaccurate and potentially harmful.

Legislative and Judicial Recognition of the Difference

Several states have already recognized and codified this critical distinction. States including Arizona, Colorado, Louisiana, and Kansas have examined disclosure requirements for litigation financing and have made it clear that Consumer Legal Funding is not subject to those laws. Their statutes expressly define litigation financing in a way that excludes consumer-focused products.

Courts have also weighed in. In Arizona, for example, the state’s rules of civil procedure expressly carve out Consumer Legal Funding, recognizing that these transactions are unrelated to litigation financing and should not be treated as such. Likewise, when the Texas Supreme Court considered proposed rules surrounding litigation financing, the Court ultimately declined to proceed. While no new rule was adopted, the process made clear that Consumer Legal Funding was not intended to be part of the conversation.

These examples demonstrate that policymakers and jurists, when carefully considering the issue, have consistently drawn a line between products that finance lawsuits and those that help consumers meet basic living expenses.

Why the Distinction Matters

The consequences of failing to make this distinction are not abstract, they are very real for consumers. If disclosure statutes or procedural rules are written too broadly, they risk sweeping in Consumer Legal Funding.

Disclosure requirements are aimed at uncovering potential conflicts of interest, undue influence over litigation strategy, or foreign investment in lawsuits. None of these concerns are relevant to Consumer Legal Funding, which provides personal financial support and, by statute in many states, explicitly forbids funders from controlling litigation decisions.

As Albert Einstein noted, “If you can’t explain it simply, you don’t understand it well enough.” When the difference between litigation financing and Consumer Legal Funding is explained simply, the distinction becomes obvious. One finances lawsuits, the other helps consumers survive.

A Clear Request to Policymakers

For these reasons, we respectfully urge legislators and courts, when drafting legislation or procedural rules regarding “litigation financing,” to clearly define the scope of what is being regulated. If the issue is the funding of litigation, then the measures should address the financing of litigation itself, not the consumer who is simply trying to pay everyday bills and keep a roof over their head while awaiting the resolution of a legal claim.

Clarity in definitions is not a minor issue; it is essential to ensure that the right problems are addressed with the right solutions. Broad, vague definitions risk collateral damage, undermining access to justice and harming the very individuals the legal system is meant to protect. By contrast, carefully tailored definitions ensure transparency in litigation financing while preserving critical financial tools for consumers.

Finally

The debate around litigation financing disclosure is an important one, but it must be approached with precision. Litigation financing and Consumer Legal Funding are two fundamentally different products that serve very different purposes. One finances lawsuits, the other helps individuals survive while waiting for justice.

It is important to begin with a clear definition. As Mark Twain wisely noted, “The difference between the almost right word and the right word is really a large matter, ’tis the difference between the lightning bug and the lightning.” If legislators and courts wish to regulate litigation financing, they must do so with precision, ensuring clarity in the law while also preserving the essential role that Consumer Legal Funding plays in supporting individuals and families during some of the most difficult periods of their lives.

Consumer

Critics Argue Litigation Funding May Lift Malpractice Insurance Premiums

By John Freund |
Healthcare malpractice insurers are re-evaluating how third-party litigation funding could alter claim dynamics, with potential knock‑on effects for premiums paid by physicians, hospitals, and allied providers. An article in South Florida Hospital News and Healthcare Report points out that for providers already facing staffing pressures and inflation in medical costs, even modest premium shifts can ripple through budgets. Patients may also feel indirect effects if coverage affordability influences provider supply, practice patterns, or defensive medicine. While clearly antagonistic towards the industry, the piece outlines how prolonged discovery, additional expert testimony, and higher damages demands can flow through to insurers’ loss ratios and reserving assumptions, which ultimately inform premium filings. It also notes that providers could see higher deductibles or retentions as carriers adjust terms, while some plaintiffs may gain greater access to counsel and case development resources. For litigation funders, med-mal remains a critical niche. Watch for state-level disclosure rules, court practices around admissibility of funding, and evolving ethical guidance—factors that will shape capital flows into healthcare disputes and the trajectory of malpractice premiums over the next few renewal cycles.
Consumer

Consumer Legal Funding: Support for People, Not Control Over Litigation

By Eric Schuller |

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

Summary: Consumer legal funding (CLF) is a non-recourse financial product that helps people meet essential living expenses while their legal claims are pending. It does not finance lawsuits, dictate strategy, or control settlements. In fact, every state that has enacted CLF statutes has explicitly banned providers from influencing the litigation process.

1) What Consumer Legal Funding Is

CLF provides modest, non-recourse financial assistance, typically a few thousand dollars to individuals awaiting resolution of a claim. These funds are used for rent, food, childcare, or car payments, not for legal fees or trial costs. If the case is lost, the consumer owes nothing.

CLF is not an investment in lawsuits or law firms, it is an investment in the consumer. 

2) Why Control Is Banned

The attorney–client relationship is central to the justice system. CLF statutes protect it by prohibiting funders from interfering. Common provisions include:
- No control over litigation strategy or settlement.
- No right to select attorneys or direct discovery.
- No settlement vetoes. Only the client, guided by counsel, makes those decisions.
- No fee-sharing or referral payments.
- No practice of law. Funders cannot provide legal advice.

These bans are spelled out in statutes across the country. Violating them exposes providers to penalties, voided contracts, and regulatory action.

3) Non-Recourse Structure Removes Leverage

Control requires leverage, but CLF offers none. Because repayment is only due if the consumer recovers, providers cannot demand monthly payments or seize assets. They do not fund litigation costs, so they cannot threaten to cut off discovery or expert testimony. The consumer retains ownership of the claim and full authority over all decisions.

4) Ethical Safeguards Reinforce Statutes

Even without statutory language, attorney ethics rules bar outside influence:
- Lawyers must exercise independent judgment and loyalty to clients.
- Confidentiality rules prevent improper information-sharing.
- No fee-sharing with non-lawyers ensures funders cannot 'buy' influence.
- The decision to settle rests solely with the client, not third parties.

Together, these rules and statutes guarantee that litigation decisions remain with client and counsel.

5) Market Realities: Why Control Makes No Sense

CLF contracts are relatively small, especially compared to the cost of litigation. They are designed to cover groceries and rent, not discovery budgets or jury consultants. Trying to control a case would be both unlawful and economically irrational.

Because repayment is contingent, funders want efficient and fair resolutions, not drawn-out litigation. Their interests align with consumers and counsel: achieving just outcomes at reasonable speed.

6) Addressing Misconceptions

- Myth: Funders push for bigger settlements.
  Fact: They cannot veto settlements. Dragging out cases only increases risk and cost.

- Myth: Funders get privileged information.
  Fact: Attorneys control disclosures; privilege remains intact. Access to limited case status updates does not confer control.

- Myth: CLF pressure consumers to reject fair settlements.
  Fact: Statutes forbid interference. And because advances are non-recourse, consumers are not personally liable beyond case proceeds.

- Myth: CLF is an assignment of the claim.
  Fact: Consumers remain the sole parties in interest. Providers have only a contingent repayment right.

7) How Statutes Work in Practice

States that regulate CLF typically require:
1. Plain-language contracts advising consumers to consult counsel.
2. Cooling-off periods for rescission.
3. Bright-line bans on control over strategy or settlement.
4. No fee-sharing or referral payments.
5. Regulatory oversight through registration or examination.
6. Civil remedies for violations.

This model balances access to financial stability with ironclad protections for litigation independence.

8) The Consumer’s Perspective

CLF does not alter case strategy; it alters life circumstances. Without it, many injured individuals face eviction, repossession, or the inability to pay basic bills. That pressure can lead to ‘forced settlements.' By covering essentials, CLF allows clients to consider their lawyer’s advice based on legal merits, not immediate financial desperation.

9) Compliance in Contracts

Standard CLF contracts reflect the law:
- Providers have no authority over legal decisions.
- Attorneys owe duties solely to clients.
- Terms granting control are void and unenforceable.

National providers adopt these clauses uniformly, even in states without explicit statutes, creating a strong industry baseline.

10) Enforcement and Oversight

Regulators can discipline providers, void unlawful terms, or impose penalties. Attorneys risk ethics sanctions if they allow third-party interference. Consumers may also have remedies under statute. These enforcement tools make attempted control both illegal and unprofitable.

11) Policy Rationale

Legislatures designed CLF frameworks to achieve two goals:
1. Preserve litigation integrity by keeping decisions between client and counsel.
2. Expand access to justice by giving consumers breathing room while claims proceed.

The explicit statutory bans on control ensure both goals are met.

Conclusion

Consumer legal funding is a support tool for people, not a lever over lawsuits. Statutes across the country make this crystal clear: CLF providers cannot influence litigation strategy, cannot veto settlements, and cannot practice law. The product is non-recourse, small in scale, and tightly regulated.

For consumers, CLF offers stability during difficult times. For the justice system, it preserves the attorney–client relationship and the independence of litigation. The result is access to justice without interference—because control of litigation is not only absent, but also expressly banned by law.