Future Interests
Types of future interests 1. interests retained by transferor a. reversion b. possibility of reverter c. right of entry (aka power of termination) 2. interests created in a transferee a. vested remainder b. contingent remainder c. executory interests CLASSIFY INTERESTS IN SEQUENCE AS THEY ARE WRITTEN Reversion „A for life‟ Reverts back to O at A dies Definition o interest remaining in the GOR, in a donee by inter vivos or causa mortis gift in a heir in a successor designated in a will o when GOR transfers a vested estate of a lesser Quantum o then the vested estate which he has may or may not become possessory in the future o The value of the reversion changes depending on what happens in the future Possibility of Reverter In most cases, arises when determinable estate is passed Right of Entry when estate subject the condition subsequent is passed Remainder Definition o future interest o that is capable of becoming possessory o at the end of the prior estate must be possible for interest to become possessory at time of creation The prior estate runs to completion. Types Vested – certain to become possessory 1. Given to an ascertained person, and o At least one person of a class must be known
Examples/Notes
A future interest gives legal rights to its owner “to A for life, then to B and her heirs”. B can: sell or give away her remainder enjoin A from committing waste sue a third party who is injuring the land
Note: never use ‘possibility of reversion’! it is a reversion’
At CL, reversion is transferable during life and descendable and devisable
The preceding estate must be less than a fee simple absolute Ex: „to A for life, then to B and her heirs if B survives A‟. If B dies before A, reverts back to O. But if A dies before B, then B and heirs and does not come back to O. Ex: „O to A as long as used for library purposes‟ Ex: ‘O to A, but if it ceases to be used as library then O has right of re-entry‟
Can have Alternative contingent Remainders. Must be made in the same conveyance.
Ascertained: already born and is identified Ex: „to A for life, then to A‟s children and their heirs‟.
D:\Docstoc\Working\pdf\3ba9d760-def3-4fc9-a219-28a06da10240.doc
Page 1 of 7
2.
Vested subject to open Vested subject to partial divestment Not subject to a condition precedent
If A has at least one child, then „open‟ to let in later-children If A has no children, then the remainder is contingent (if other persons (children) can come in later on) Ex: “to A for life, then to B and her heirs” Ex: „to A for life, then to the heirs of B‟. B is alive. B has no heirs, only heirs apparent. Therefore, this is contingent remainder. Ex: “to A for life, then to B and her heirs if B survives A’. Ex: „. . . to A‟s window‟. Even if A is married now, he may divorce and marry 10 times between now and time of death. So, „window‟ is un-ascertained. Ex: „to A for life, then to B and her heirs if B survives, otherwise to C and heirs‟ Ex: „to A for L, the to B if B has reached 21‟ (condition precedent)
Indefeasibly vested: certain of becoming posessory in the future and cannot be divested If ambiguous, construe as vested remainder. Not subject to Rule against Perpetuities. Contingent 1. Given to an un-ascertained person, or Applies to persons or events that look into the future 2. Made contingent upon some event occurring other than the natural termination of the preceding estate (condition precedent) Could have alternative contingent remainder a. Must be satisfied before the estate becomes possessory b. Set out within the description of a particular estate Majority: transferable during life and reachable by creditors Subject to Rule against Perpetuities. When a property right is for a child‟s benefit, a child will be treated retroactively as in being from the time of conception if the child is later born alive
o o
If conditional is incorporated into description of, or into the gift, to the reamainderman, then contingent If, after words giving a vested interest, a clause is added divesting it, then the remainder is vested. Rule: future interests after a LIFE estate 1. if 1st future interest is a contingent remainder in fee simple then 2nd interest in a TEE will be a contingent remainder 2. if 1st future interest is a vested remainder in fee simple then 2nd will be a divesting executory interest.
Ex: „to A for life, then to A‟s first son and his heirs‟. A‟s son born 3 months after A‟s death. Title is retroactively vested in the son.
Continues to be called remainder even when conveyed back to GOR If multiple future interests in one person, then we give it the name of the larger estate. Vested Remainder subject to divestment o A vested remainder burdened by an executory interest that could prevent the vested interest from becoming possessory o “subject to divestment before becoming possessory’ o Ask yourself „can the divesting condition happen before the remainder Ex: „O to A for Life, but if X, then to O‟. O has reversion and rightof-entry. We call O‟s estate the larger: Reversion.
Ex: O to A for life, then to B for life, the to C, but if B sells liquor on
D:\Docstoc\Working\pdf\3ba9d760-def3-4fc9-a219-28a06da10240.doc
Page 2 of 7
becomes possessory? If so, then „subject to divestment‟
o Previous estate is not determinable but subject to CS
the property, then to D. C has a vested remainder subject to divestment. Ex: O to A for life, then to B, but if A fails to give A a proper funeral within 2 months, then to C. Right after A dies B becomes possessor. So, the condition does not divest before B takes possession. B‟s estate is not „subject to divestment‟ (not technically correct description – these don‟t apply to executory)
Executory Interest Divests or cuts short (shifts) the preceding interest o Takes effects only by divesting another interest. o Equivalent to „right-of-entry‟ or „possibility of reverter‟ if estate created in GOR. But unlike right-of-entry, divesting is automatic (like determinable) Shifting executory interest o Title of one person passes to another
Ex: “To A and her heirs, so long as X, and if X, then to B and his heirs”
Springing executory interest o Spring up from the GOR estate at some time in the future o Not supported by any present estate in a GEE Fee simple subject to executory limitation o Fee simple that, upon the happening of a stated event, is automatically divested by an executory interest in a TEE. Can have executory interest from o Determinable o An estate that is subject to an executory limitation
Ex: „to A for life, then to B and heirs, but if B does not survive A to C and heirs‟ B has a vested remainder subject to divestment. C has a shifting executory interest which can become possessory only by divesting B‟s remainder. Ex: „to A and her heirs one year from today‟ Ex: „to A for life and then, one year after her death to B and his heirs‟ Ex: „to A and his heirs, but if A dies without issue surviving him, to B and heirs‟ A has possessory fee simple subject to an executory limitation B has an executory interest. Kind of interest Nature of Added limitation interest 1. Possessory 1. Fee simple 1. Absolute /no Estate limitations 2. Reversion 2. Fee tail 2. Determinable 3. Possibility of 3. Life Estate 3. Subject to Reverter Condition subsequent 4. Right of entry 4. Life estate 4. Subject to pour autre executory vie limitation
Terms: Vested, Contingent, Remainder, subject to Condition subsequent Shifting, springing, executory interest Subject to Executory Limitation Subject to open, subject to partial divestment Subject to divestment Fee simple, fee tail, determinable, subject to condition subsequent Alternative contingent remainder, Possessory Estate, Future Estate, Fee simple absolute Reversion, Right of Entry, Possibility of reverter, Life Estate, Terms of Years, Pour autre vie
D:\Docstoc\Working\pdf\3ba9d760-def3-4fc9-a219-28a06da10240.doc
Page 3 of 7
5. 6.
7. 8.
9.
Vested Remainder Vested Remainder subject to divestment Contingent Remainder Shifting executory interest Springing executory interest
5.
Terms of years
5.
Subject to open
Post Conveyances Death Death does not affect interest (unless interest ends at death) Life Estate: Not inheritable; not devisable Fee Tail: Not inheritable; not devisable automatically passes to holder‟s issue Removal of Contingencies Subsequent Vesting of a Contingent Remainder Conveyance of a fee tail A Holder can only convey right to possess in his lifetime A holder can, in his lifetime, convey a fee simple to someone else cannot be done by will or intestate succession Subsequent Conveyance of a Reversion or Remainder The GOR of a retained Reversion can convey the reversion the new GEE now holds a reversion. Future interest moving into possession Usually estate names don‟t change except no longer being future Merger Works when there is no intervening estate Combines future FS estate and a life estate into a FS If there is an intervening contingent remainder, it is destroyed. Rule: If a life estate and The next vested estate in fee simple Come into the hands of one person The lesser estate merged into the larger.
Ex: if O is a fee tail holder. O can simply convery „O to A and her heirs‟. A can then turn around and „A to O and his heirs‟. Now has a fee simple absolute.
Ex: O to A for life, then to A‟s first child for life, then to C. Subsequently C conveys to A. (A has no children). They Merge. Interests created in separate documents and are separated by a contingent estate.
D:\Docstoc\Working\pdf\3ba9d760-def3-4fc9-a219-28a06da10240.doc
Page 4 of 7
Also applies to when life estate was followed by i. Contingent remainder ii. Reversion Does not apply to Executory interests Destruction of Contingent remainder A Contingent Remainder is destroyed if it did not vest upon the natural termination of the life estate Right of possession moves to the next vested estate. A life tenant could destroy contingent remainders whenever he wished Abolished in most states The interest reverts back to O until contingency met. Rule of Shelley’s Case (Abolished in most states) 1. if a. one instrument (same document) b. creates a life estate in land in A, and c. 2. then a. The remainder becomes a remainder in fee simple in A. i. (that is: land becomes immediately alienable by A) purports to create a remainder in persons described as A‟s heirs (or the heirs of A‟s body)
Ex: „O to A for life, then to B and heirs if B reaches 21”. If B not 21 at time of A‟s death, B losses his estate and it reverts back to O.
Ex: “to A for life, then to A‟s heirs to A”. A gets a fee simple Note: No merger if there is an intervening vested life estate. Rule would not apply if conveyance said “to A‟s children” or “to A‟s issue” Applies only to remainders – does not apply to executory interests. Ex: “O to A for life, then to B for life, then A‟s heirs. A” Merger would not merge these because of intervening vested interest But Rule of Shelly would.
Summary Shelly’s Case 1. O to A for life, then to A’s heir A. The same document conveys a. an inherently limited estate to a GEE and b. Remainder to that GEE‟s heirs
Doctrine of Worthier Title O to A for life, the to O’s heirs O. 1. The same inter vivos conveyance conveying a. An inherently limited estate to a GEE, and b. Remainder or executory interest to GOR‟s heirs Destructibility of Contingent Remainders O to A for life, then to B if B reaches 21. [A dies before B reaches 21] A remainder is destroyed a. It does not vest i. At or before the termination of the preceding estate
D:\Docstoc\Working\pdf\3ba9d760-def3-4fc9-a219-28a06da10240.doc
Page 5 of 7
b. Merger
Does not apply to executory interests
O to A for life, then to B
[then A conveys to B.] B now has a possessory estate in fee simple
If 1. Possessory of vested estate and the next vested estate in fee simple come into the hands of the same person, and these 2 estates are not separated by a vested estate the estates merge, and Any contingent remainder between them is destroyed.
If the estates are created in the same document, an intervening contingent estate is safe.
2. then 1. 2.
Options
An option is treated like a future interest. Contingent upon exercise of the option Options in real estate are subject to the RAP o If it can be exercised outside the RAP period, then it is void
An Appendant/Appurtenant option is valid if: 1. it originates in one of the lease provisions 2. not exercisable after the lease expires 3. incapable of separation from the lease. Preemptive right (right of first refusal): in the context of government and commercial tx encourage use and development of land. Therefore, they are not subject to RAP. Where parties are corps, there is no measuring life. Period = 21 yrs Saving Statute: Judicial reformation of an invalid interest is normally authorized by statute o (reformation at time of creation removes any uncertainties but requires a law suit) o (but wait-and-see does not require law suit) Try to preserve the intent until contrary intents are clear. does not authorize courts to rewrite instruments that unequivocally allow interests to vest outside the RAP period Applies only if contrary intentions do not appear in the instrument. USRAP is inapplicable to options. They remain subject to the CL rule.
Wait-And-See
The traditional RAP rule gives certainty but usually strikes down some interests Wait-and-see for the CL Perpetuities period o Adopted by majority of states o a contingent interest is valid if it actually vests within the CL perpetuities period Each contingent interest has an inherent perpetuities period applicable to it
D:\Docstoc\Working\pdf\3ba9d760-def3-4fc9-a219-28a06da10240.doc
Page 6 of 7
alone
Measured by person: o Preceding life tenant o Taker or takers o Anyone who can affect identity of taker(s) o Anyone who can govern the time when the gift is to vest
USRAP – 90 yr o Valid if: It will necessarily vest, if at all, within lives in being + 21 yrs It will necessarily vest, if at all, within 90 years Otherwise, we wait and see what happens in 90 years.
D:\Docstoc\Working\pdf\3ba9d760-def3-4fc9-a219-28a06da10240.doc
Page 7 of 7