Inheritance Financing Companies in California – An Emerging Business Practice That Captured Legislative Attention
Several companies, mostly concentrated in California, are now offering to advance their clients’ inheritance money before the completion of the probate process. Some of the major companies involved include Inheritance Funding Company, Inc., Heir Advance Company, Inc., and Estate Finance™.
In this process, an inheritance financing company offers to buy a portion of the inheritance from court identified heirs for a fixed amount of money. The heir makes no monthly payments and the financing company gets compensated directly from the estate upon completion of the probate process. The company’s compensation depends on several factors such as the size of the advance, the complexity of the inheritance, and the length of time in which the company anticipates to get paid. The customer usually receives the advance between two to five business days from the time of the application. The amount of the advance available may exceed $1,000,000.
Most of these companies also assure that heirs will not be personally liable if the estates lack funds upon completion of probate. The caveat to this statement is absence of fraud on the part of heirs. This no liability assurance is mandated by the California Probate Code § 11604.5, which became effective on January 1, 2006. This section imposes certain restrictions and notice obligations on companies engaged in the business of advancing inheritance. It is also California’s first attempt at regulating this new and growing industry. See The Cal. State Senate Democratic Caucus, Californians Can Look Forward to a New Year, New Laws, US States News, Dec. 1, 2005. This new legislation has received a warm welcome from commentators who feared that big companies would take advantage of the grieving families by charging unreasonably high and hidden fees while inadequately explaining the process. See David Lazarus, Reckless Spending Is No Relief, San Francisco Chron., Sept. 11, 2005, at B1.
Special thanks to Tammy Gerhart (May 2008 J.D. Candidate, Texas Tech University School of Law) for her assistance in preparing this blog entry.