I recently saw an episode of “Hawaii Five-O” (Episode 6.8, “Why Wait Until Uncle Kevin is Dead?” originally running on 10/30/1973) in which the premise is some skullduggery involving a company who makes “bequests” in advance for a nominal fee. The premise: Let’s say you’re going to inherit $50,000 when the old geezer croaks–oops, the dearly beloved issueless uncle passes away. They give you maybe $25,000 now, and you sign over your inheritance to them. You get some money now, and they get a lot more at some undefined time in the future.
I know it was just a TV episode, but have there ever been companies that do this sort of thing? (I know that various lawyer types advertise this same premise now for lotter winners, but that doesn’t involve estates.)
Well, I don’t know much about companies that will dupe you this way, but it’s certainly possible for one to collect inheritance before the benefactor dies, if the benefactor and other recipients of inheritance are willing.
My aunt used a chunk of her inheritance from my still-living grandmother to make a down payment on her house. Basically, when my grandmother dies and her estate is divided up, the amount my aunt borrowed will be deducted from her share.
I don’t know if any companies have ever tried the OP’s scenario, but they’d have to be incredibly stupid to do so. If ol’ Uncle Earl decides to change his will, they’d never get a penny back.
The problem with paying off inheriances early (as opposed to insurance policies) is that until the benefactor dies, the bequest is what’s called a “mere expectancy.” In other words, you don’t have any legal right to anything under a regular will; your expectation is contingent upon (a) the guy dying and (b) the guy leaving you what he promised to leave you. It is generally held that promises to make someone an heir are unenforceable, so all you have in most cases is the the “mere expectancy.” People generally won’t give you money up-front for a mere expectancy, since there’s no way to guarantee they’ll collect on their end later. (This is generally; there are a number of exceptions, like vested trusts, and contracts to make wills.)
The technical name for these is a “viatical settlement.” Under a viatical settlement a person (or, more usually, a group of investors) purchases a life-insurance policy (or several policies) from a terminally-ill patient or patients. The patient gets money up front for medication or that dream trip to Disneyland, and the investors get the life-insurance proceeds when he or she died.
It is true that viatical settlements are much less popular today than in the '80s, but it is also true that they were never really very popular to begin with – the whole “trading on death” and “waiting for someone to die to collect” aspect struck many as distinctly unsavory. But viatical settlement companies are still around and available for investment.
To amplify on Jodi’s comments: Because your inheritance is a mere expectancy, under the law of most states, no contract about it in enforceable. Therefore the heir could sign an agreement, get the payout, wait until the benefactor kicked off, and then collect the inheritance. He’d be under no legal obligation to pay off on the contract, because when he signed it, all he head was an exectancy, and those are worthless in the eyes of the law. Now, the heir would probably have to give the original pay out back (otherwise it would be “unjust enrichment”), but that’s OK – he’s had the use of it in the interim and now he’s got access to the whole inheritance, of which the payout was likely only a part (it having been discounted by the investor because of the time it would take to collect). If it turns out that for whatever reason the inheritance isn’t enough to pay back the payout, the heir can just follow through on the original contract, sign over the inheritance, and keep the proceeds from the payout. Either way, the heir wins and the investor loses.
I believe that such contracts were more common back in England in the heyday of the “strict settlement” in the 18th and 19th centuries - i.e. - when the aristocracy tied up their estates through entailments and marriage contracts to ensure it would pass to the heirs.
So young Lord Wastrel, who knows that eventually he will inherit the estate from his father, the Earl of Moneysworth, would be able to find people who would lend him money on the “expectancy” - and that contract would be good in law, because the Earl of Moneysworth would not have the power to leave the estate away from Lord Wastrel.
Of course, this only worked if you were the eldest son or heir-at-law of someone who held property through a settlement. If you were the son of someone who had earned the money the new-fangled way, by sweatshops and spinning jennys, it’s unlikely that anyone would make such a deal with you, because of the possibility of the old man cutting you out of the will with a shilling.
Contracts of this sort were called “post-obit. bonds.”
(Interestingly, under the civil law systems, such contracts are automatically void as contrary to public policy, possibly because of the ethics of making money off someone’s death, or maybe because of the temptation it would create to hurry matters along…)
If the Earl really were so constrained, then Lord Wastrel wouldn’t have a mere expectancy. He’d have to outlive the Earl, but that’s a solid enough possibility that he’d have an interest. Interests are alienable (that is, you can sell them); expectancies are not.
As far as the idea that the heir of the will has only an expectation of an inheritance, I have a question:
If the benefactor told (promised?) the heir that the heir would receive x dollars, and the heir used that promise to enter into some sort of arrangement of the sort mentioned in the OP, and then the benefactor changed the will, could the heir sue the estate for reliance damages?
I don’t think that’s so - fee simples and life interests, yes - but not entailed interests.
If all of the people with a potential to inherit agree (e.g. the Earl of Moneysworth, Lord Wastrel and Lord Wastrel’s son, the Hon. John Noble), then they can break the entail. But if the Earl is not prepared to do so (and why would he, if he really thinks Lord Wastrel just wants to dissipate the assets), then Lord Wastrel can’t alienate his entailed interest.
But, it’s been a long time since Prop. 1, so I may be misremembering.