Chapter 10: Construction of Trusts: Future Interests
Classification of Future Interests
Remainders Executory
interests
Definition of a Remainder
A remainder is a future interest in a transferee capable of becoming possessory immediately upon the termination of the preceding preceding freehold estate.
There are four kinds of remainders
Indefeasibly vested remainder
Contingent remainder
Vested remainder subject to open (partial divestment)
Vested remainder subject to complete divestment
Indefeasibly Vested Remainder
Will become possessory immediately upon termination of preceding estate
Indefeasibly Vested Remainder
A for life, then to B
Contingent Remainder
May become possessory if a condition precedent occurs
Contingent Remainder
To
A for life, then to B if B survives A To A for life, then to B’s first born child To A for life, then to B’s heirs
Vested Remainder Subject to Open
Limited in favor of class of persons collectively described of which there is at least one living member
Vested Remainder Subject to Open
A for life, then to B’s children
Vested Remainder Subject to Complete Divestment
May fail to become possessory (or become indefeasibly vested) because of the happening of a condition subsequent
Vested Remainder Subject to Complete Divestment
A for life, then to B but if B does not survive A, then to C
A for life, then to B’s children but if none of them attain age 21, to C
There are two kinds of executory interests
Executory Interests
Shifting
executory
interest Springing executory interest
Shifting Executory Interest
Future interest which in order to become possessory must divest the vested interest of another transferee
Shifting Executory Interest
Future interest which in order to become possessory must divest the vested interest of another transferee
The vested interest that is divested may be a present possessory interest such as a fee simple
B but if B does not attain age 21, then to C
B as a fee simple C has a shifting executory interest
The vested interest that is divested may be a vested remainder
A for life, then to B but if B predeceases A, then to C
A has a life estate B as a vested remainder subject divestment C has a shifting executory interest
Springing Executory Interest
Future interest limited in favor of transferee that can become possessory only after some period of time when no other transferree was entitled to possession
Springing Executory Interests
To
B 20 years from now To A for life, then 1 day after A dies, to B
Contingent remainder compared to vested remainder subject to complete divestment
The Right Eye Test
Contingent
Vested
remainder –Subject to a condition precedent
Remainder subject to complete divestment –Subject to a condition subsequent
To A for life, then if B reaches the age of 21, to B but if B dies under age 21,then to C
To A for life, then if B reaches the age of 21, to B but if B dies under age 21,then to C
A for life, then to B but if B does not reach the age of 21, then to C
A for life, then to B but if B does not reach the age of 21, then to C
•A FOR LIFE, THEN IF B REACHES AGE 21 TO BUT IF B DOES NOT REACH AGE 21 THEN TO C
–B and C have alternative contingent remainders
B
•A FOR LIFE, THEN TO IF REACHES AGE 21 BUT IF B DOES NOT REACH AGE 21, THEN TO C
–B has a vested remainder subject to divestment and C has a shifting executory interest
B
Avoid Confusion
•A FOR LIFE, THEN IF B
REACHES AGE 21, TO B
•A FOR LIFE, THEN TO B IF B REACHES AGE 21
•B HAS A CONTINGENT REMAINDER IN BOTH CASES-Do you see why?
Problems
Page 716, Problem2 Page 717, Problem 1 Page 717, Problem 2 Page 717, Problem 3
In re Estate of Gilbert
Facts
– Discretionary trust f/b/o Lester Gilbert – Remainder to Lester’s issue – Lester renounces interest – Acceleration of remainders – EPTL 2-1.1(d) (disclaimant deemed to predecease)
Some Rules of Construction
Give
effect to grantor’s intent Classify interests in the order in which they are set forth in the governing instrument
More rules of Construction
Give
effect to all the words used Rundundancy
First National Bank v. Anthony
First National Bank v. Anthony
• Franklin creates REVOCABLE trust.
• Franklin reserves income • Corpus “in equal shares to Franklin’s children, John, Peter and Dencie” • John dies before Franklin survived by three children, Deborah, Christopher and Paul • Franklin dies testate leaving estate to persons other than John’s children
Security Trust Company v. Irvine
Security Trust Company v. Irvine
To sisters, A and B, for their lives, then to brothers and sisters, issue of deceased parent to take the parent’s share
SECURITY TRUST CO. V. IRVINE
PARENTS
T
A
B
C
D
E
F
G
DEATH WITHOUT ISSUE
T wills property to B but if B dies without issue to C
Scenario
1-B dies in T’s lifetime without issue
Scenario
2-B survives T then dies without issue
Death without issue
• Substitutional vs. Successive construction –Which makes property more readily marketable –Which preserves C’s interest for the longest period of time
T wills property to A for life, then to B but if B dies without issue then to C
–Survivorship Options:
• B could die before A without issue • B could survive A and die without issue • B could survive A and die with issue
Who
takes: –B’s issue –B’s estate (heirs or legatees under B’s will, i.e, B’s interest is transmissible)
LAWSON vs. LAWSON
T by will to A for life, then to B, but if B dies without issue surviving A, then to C
T wills to Daughter, Opal, for life, then to her children in fee simple, or if none, to Opal’s brothers and sisters. Opal later dies without children. Opal survived by 4 of her six siblings. Two predeceased leaving descendants who claim their parent’s share.
CLOBBERIE’S CASE
T
wills $10,000 to A at 21, to be paid with interest and A dies under age 21, the gift is paid to A’s estate as the gift is VESTED---Holding T wills $10,000 to A at 21-Dicta (“at” means “if”) T wills $10,000 to A to be paid (or payable) at 21-Dicta
T
leaves $10,000 to A to be paid when A attains age 21. T leaves the residue of T’s estate to X
– Who is entitled to the income on the $10,000 until A attains age 21 – If A dies prior to age 21, should the $10,000 be paid to A’s estate? – If the $10,000 should be paid to A’s estate, should it be paid when A dies or when A would have reached age 21?
Gift to Children or Issue
A
B
C
D
E
F
G
H
I
Gift to Children or Issue
A
B
C
D
E
F
G
H
I
Gift to Children or Issue
A
B
C
D
E
F
G
H
I
Gift to Children or Issue
A
B
C
D
E
F
G
H
I
Dewire v. Haveles
What are the facts of this case?
– Widow for life, widow of Jr. for life and Jr’s children, then, 21 years after death of surviving child of Jr. trust terminates and becomes payable to the issue of T’s grandchidlren.
Questions:
– As each grandchild dies who gets that grandchild’s share of income. – During the 21 year period following death of surviving grandchild, who gets the trust income.
Options:
– Surviving grandchildren – Implied gift of income to issue of deceased grandchild – Accumulate for distribution to ultimate remaindermen
MINARY vs. CITIZENS FIDELITY BANK AND TRUST COMPANY
To son for life, then to my surviving heirs Son adopts wife Son dies leaving wife/child as his and T’s only heir Can wife take as T’s heir?
I was wrong
A for life, then to A’s issue who reach age 21, remainder is VOID
Stranger to the adoption rule
ESTATE OF WOODWORTH
T
by will to wife for life, then sister, Elizabeth if living, or if not living, to Elizabeth’s heirs Elizabeth dies before T’s wife. Her husband survives. Husband dies and leaves his estate to charity T’s wife then dies and trust terminates When are her heirs determined?
Determine
Elizabeth’s heirs at Elizabeth’s death Determine Elizabeth’s heirs at death of wife
• A remainder limited in favor of the heirs of the life tenant is void and the remainder is deemed to be limited in favor of the life tenant • Rule of Law • Impact of the Doctrine of Merger if there is no intervening estate
DOCTRINE OF WORTHIER TITLE
First Branch • A devise to a person who would be the testator’s heir if the testator died intestate is void if the devise is of the same size and quality that the heir would have taken if testator had died intestate • No longer followed
Second Branch
• A remainder limited in favor of the heirs of the grantor is void and the grantor has a reversion • Rule of Law • Rule of Construction • What difference does it make? E.g. O conveys property to A for life, then to O’s heirs
Rule in Shelley’s Case
T wills property to A for life, then to A’s heirs (Merger), but T wills property to A for life, then to A’s first born child if she survives A, but if she dies before A, then to A’s heirs (No Merger-A does not have the next vested estate)
CLASS GIFTS-The Class Closing Rules
CLASS OPEN
If a class is open, then new members may join the class until the class closes A for life, then to A’s children
CLASS CLOSED
a class closed, no new members may join the class Even if class closed, members in the class may fall out of the class upon happening of some condition
If
MINIMUM-MAXIMUM
• Once class closes we know maximum membership and minimum share of members • Once all conditions fulfilled or failed, we know minimum number of members and maximum shares
HOW DOES A CLASS CLOSE
Physiologically
HOW DOES A CLASS CLOSE
Rule of convenience
At least one class member is entitled to demand possession of his/her share
When Can A Person Demand Possession of His/Her Share?
No outstanding present possessory estate With respect to the person who might make a demand there is no outstanding condition precedent (not subsequent)
T
wills $50,000 to the children of B. At T’s death, B has three children. Another child is born to B: –Two months after T dies. –One year after T dies –At T’s death B has no living children •Who takes the gift?
T
wills $50,000 in trust to pay the income to A for life, then to the children of B.
At T’s death, B is deceased but has three children who survive T B survives T but dies in A’s lifetime survived by four children. B and three children of B survive both T and A. Another child is born to B: Two months after A dies One year after A dies
T wills $50,000 in trust to pay the income to A for life, then to B’s children who attain age 21 – B dies in A’s lifetime. A dies survived by B’s three children, none of whom are 21 or over. – B and B’s three children survive A. • None of B’s children are 21 or over • One of B’s children is over age 21 –In either case, one year after A dies B has another child • B but no child of B survives A
Page 779 Problems 1-2 Page 780-81, Problems 1-3
LUX vs. LUX
T
wills real property “to be maintained for the benefit” of T’s grandchildren and “shall not be sold until the youngest of said grandchildren has reached” the age of 21. –T survived by one son and five grandchildren.
What did T mean by the “youngest grandchild”
Options are: Youngest grandchild alive when will was executed Youngest grandchild alive when T died Youngest grandchild alive is 21 Youngest grandchild whenever born reaches 21