BAR FLASHCARDS - PEFI 4

Question 1

Rule Against Perpetuities (RAP)

Answer 1

Certain future interests are void if there’s any possiblity they might vest more than 21 years after a person alive at the time of grant has died.

The Rule Against Perpetuities (“RAP”) provides that certain kinds of future interests are void if there is any possibility, however remote, that the interest might vest more than 21 years after a person alive at the time of the grant has died.

Think of this Rule as one against perpetual uncertainty.

We’re trying to strike a balance between, on the one hand, letting landowners exert control over who’ll take their land after they’ve died and, on the other, knowing for sure who’ll take a piece of land in the future. So we allow any uncertainty about future ownership to persist only for a particular period of time: the perpetu- ities period.

Question 2

The Rule Against Perpetuities applies only to…

Answer 2

The Rule Against Perpetuities applies only to:
- contingent remainders,
- executory interests,
- vested remainders subject to open,
- options to purchase, and
- rights of first refusal.

The grantor’s interests (reversions, possibili- ties of reverter, rights of entry) are safe from the Rule; you don’t need to consider them.

Question 3

WHen PerPetuItIes PerIOd BeGIns tO run

Answer 3

The time the interest is created and the perpetuities period begins to run depends on the instrument and the interest created. For inter- ests granted by will, it runs from the date of the testator’s death; for deeds, it is the date of delivery. The period runs on an irrevocable trust from the date it is created; it runs on a revocable trust from the date it becomes irrevocable.

Question 4

“Must Vest”

Answer 4

An interest vests for purposes of the Rule when it becomes: (1) possessory, or (2) an indefeasibly vested remainder or a vested remainder subject to total divestment.

Question 5

Key

Answer 5

the key is when the interest could possibly vest—not when it’s likely to vest or even when it did. You
must examine the grant as of the time of its creation and be sure that if the interest vests it will be within the period of the Rule (that is, life in being plus 21 years). If there’s any possibility that it could vest beyond the period, it’s void.

Question 6

“LIVes In BeInG”

Answer 6

Unless other measuring lives are specified, one connected with the vesting of the interest is used.
You are looking for a person alive at the date of the conveyance whose life and/or death is relevant to the prescribed condition’s occurrence.

Question 7

Interests eXeMPt FrOM ruLe

Answer 7

Except for vested remainders subject to open, the Rule Against Perpetuities does not apply to vested interests. Thus, other vested remainders, reversions, possibilities of reverter, and rights of entry are not subject to the Rule. Moreover, there is a charity-to-charity excep- tion to the Rule (that is, the Rule does not apply to any disposition from one charity to another), and an exception for options to purchase held by a current tenant.

Question 8

COnseQuenCes OF VIOLatInG ruLe – OFFensIVe Interest strICKen

Answer 8

Violation of the Rule destroys only the offending interest.

Question 9

4 step technique for RAP problems

Answer 9

1. Determine the future interest.
   - Does not apply to grantor, indefeasible remainders or remainders subject to divestment.
   - Only applicable to contingent remainders, executory interest, and certain vested remainders subject to open.
2. What has to happen for future interest holder to take?
3. Find measuring Life: A person alive at the date of the conveyance who’s life or death is relevant to what has to happen for the future interest to take
4. When will we know if future interest holder can take?
   Will we know for sure within 21 years of the death of the measuring life, whether the future interest holder is certain to take or not take.

Question 10

step 1 – determine the Interests

Answer 10

First, determine which future interests have been created by the conveyance and whether the Rule could apply to that interest.
Remember, the Rule potentially applies only to contingent remainders, executory interests, and certain vested remainders subject to open.
CR, EI, VRstO

The Rule does not apply to any of the three future interests capable of creation in the grantor (the possibility of reverter, the right of entry, and the reversion), indefeasibly vested remainders, or vested remainders subject to total divestment.

Question 11

step 2 – How does the Future Interest Holder take?

Answer 11

Second, determine what has to happen for the future interest holder to take. Does the holder of a previous estate need to die? Does a previous holder need to have had children? Does a certain condition need to be met?

Question 12

step 3 – Find the Measuring Life

Answer 12

Third, look for the people alive at the date of the conveyance whose lives and/or deaths are relevant to what has to happen for the future interest holder to take.

Question 13

step 4 – When Will We Know If the Future Interest Holder Can take?

Answer 13

Fourth, determine whether we’ll know for sure within 21 years of the death of a measuring life if the future interest holder(s) can take.
If so, the conveyance is good.
By contrast, if we won’t know for sure within 21 years of the death of a measuring life whether the future interest holder can take, the future interest is void.

Question 14

“To A for life, then to A’s children.” A is alive. She has no children.
Step one: What is the future interest?
Step two: What has to happen for the future interest holder to take?
Step three: Find a measuring life. Whose life and/or death is relevant to what has to happen for the future interest holder to take?
Step four: Will we know within 21 years of the death of that measuring life whether there will be someone eligible to take

Answer 14

“To A for life, then to A’s children.” A is alive. She has no children.

Step one: What is the future interest? Contingent remainder bc contingent on A having a child. The future interest is the unborn child have a contingent remainder.

Step two: What has to happen for the future interest holder to take? A must die and had a child.

Step three: Find a measuring life. Whose life and/or death is relevant to what has to happen for the future interest holder to take? A is bc she must die and have a child before it applies.

Step four: Will we know within 21 years of the death of that measuring life whether there will be someone eligible to take?
Yes we will know within 21 years whether she is death and whether she had a child.

So the RAP does not void it.

Question 15

O conveys “To A for life, and if B becomes a veterinarian, to B.” A is alive. B is 9 years old.

Step one: What is the future interest? Why?

Step two: What has to happen for the future interest holder to take?

Step three: Find a measuring life. Whose life is relevant to what has to happen for the future interest holder to take?

Step four: Will we know within 21 years of the measuring life’s death if he is qualified to take?

Answer 15

O conveys “To A for life, and if B becomes a veterinarian, to B.” A is alive. B is 9 years old.
- that’s a Condition precedent.
Step one: What is the future interest? Why? B has a contingent remainder.

Step two: What has to happen for the future interest holder to take? B has to become a veterinarian.

Step three: Find a measuring life. Whose life is relevant to what has to happen for the future interest holder to take?
- Bs life is relevant to whether B becomes a veterinarian.

Step four: Will we know within 21 years of the measuring life’s death if he is qualified to take?
- Yes, we will know at the moment of Bs death whether they will become a veterinarian.

Question 16

Executory interest without time limit (no limit on the time when it must vest)

Answer 16

Violates RAP.

Question 17

To A as long as alcohol consumed on premises, then to B.

Answer 17

VOID under RAP.

Question 18

Bright Line rule–executory Interest With no time Limit Violates the rule

Answer 18

An executory interest that follows a defeasible fee, with no limit on the time within which it must vest (for example, “to A for so long
as no liquor is consumed on the premises, then to B”), violates the Rule Against Perpetuities, and the executory interest is stricken. (An executory interest following a defeasible fee is valid only if the condi- tion is specific to the fee holder or expressly limited to the perpetu- ities period.)

Question 19

“To A and his heirs so long as the land is used for farm purposes, and if the land ceases to be so used, to B and his heirs.”

Step one: What is the future interest?
Why?

Step two: What has to happen for B to take?

Step three: Find a measuring life.

Step four: Will we know for sure, within 21 years of the death of our measuring life, if the future interest holder can take?
What does A have?
What does O have?
Is there a Rule Against Perpetuities problem?

Answer 19

“To A and his heirs so long as the land is used for farm purposes, and if the land ceases to be so used, to B and his heirs.”

Step one: What is the future interest? B has a shifting Executory interest
Why? bc it follows a defeasible fee and will cut short someone other than the grantor if the condition is betrayed.
- SO within the RAP.
Step two: What has to happen for B to take? The land must cease to be used for farming.

Step three: Find a measuring life.: A is the measuring life bc A has the power to abide by the condition.

Step four: Will we know for sure, within 21 years of the death of our measuring life (A’s death), if the future interest holder can take?
No. At the time of this grants creation, we do not know bc i could still be being used for farm purposes but we dont know the future. So strike the offenseive future interest in B. We are left with “to A and his heirs so long as the land is used for farm purposes.

What does A have? A fee simple determinable
What does O have? Possibility of reverter.
After the first RAP struck… Is there a Rule Against Perpetuities problem now? No, now the RAP doesn’t apply to future interests in the grantor.

Question 20

When a void interest is stricken, the interests are classi- fied as if

Answer 20

When a void interest is stricken, the interests are classi- fied as if the void interest were never there. For example, if O conveys “to A for as long as no liquor is consumed on
the premises, then to B,” B’s interest would be stricken, A would have a fee simple determinable, and O would have a possibility of reverter. In contrast, if O conveys “to A, but if liquor is ever consumed on the premises, then to B,” B’s interest and the condition are stricken, and A has a fee simple absolute. That’s because now, once the offensive future interest is stricken (“then to B”), the conveyance is no longer grammatically sound. Hence, the entire language of condition is stricken, leaving us with “to A.” A has a fee simple absolute.

Question 21

Age Contingency Beyond age 21 in Open Class

Answer 21

A gift to an open class conditioned on members surviving beyond age 21 violates the Rule.

“To A for life, then to those of A’s children who attain the age of 25.” A is alive. She has one child, B, who is 30.
The remainder in A’s children violates the Rule and is void.
Why? Because A is still alive.
Thus, the class is still open.
B could die tomorrow.
A could die there-after, without having had another child, or A could live, have another child, and die in labor or live.
We won’t know today, at the time of the grant’s creation, whether A will have a child to reach 25 within 21 years of A’s death.
Thus, the gift is void.

Some states have enacted perpetuities reform legislation that reduces such age contingencies to 21.
a. “Bad-as-to-One, Bad-as-to-all” rule: If the interest of any class member may vest too remotely, the whole class gift fails. For the class gift to vest, the class must be closed and all conditions precedent must be satisfied for every member.

Question 22

Fertile Octogenarian

Answer 22

A woman is conclusively presumed to be capable of bearing children, regardless of her age or medical condition.
A few states have enacted perpetuities reform statutes that raise a presumption that women over a certain age (for example, 55) cannot bear children. Also, medical testimony regarding a woman’s child- bearing capacity is admissible in these states.

Question 23

Unborn Widow or Widower

Answer 23

Because a person’s widow (or widower) is not determined until their death, it may turn out to be someone who was not in being at the time of the disposition.

Question 24

O conveys “to A for life, then to A’s widow for life, then to A’s sur- viving issue in fee.”

Answer 24

O conveys “to A for life, then to A’s widow for life, then to A’s sur- viving issue in fee.” In the absence of a statute to the contrary, the gift to A’s issue is invalid because A’s widow might be a spouse who was not in being when the interest was created.

Compare: A remainder “to A’s children” would be valid because, unlike issue, they would be determined at A’s death.

Question 25

administrative Contingency

Answer 25

A gift conditioned on an administrative contingency (for example, admission of will to probate) violates the Rule.

A gift “to my issue surviving at the distribution of my estate” is inval- id because the estate might be administered beyond the period of the Rule.

Question 26

Options and rights of First refusal

Answer 26

An option is a contract, supported by consideration, that creates in the optionee a right to purchase the property on terms provided in the option. Under a right of first refusal, if a seller receives a third party’s offer to purchase the property, the right of first refusal gives its holder the right to purchase the property, usually on the same terms as that offer.

a. extension to Heirs and assigns Violates the rule
For exam purposes, options or rights of first refusal that are not personal to the holder (that is, which are extended to the holder’s heirs and assigns) will violate the Rule because they might be exercised later than the end of the perpetuities period. Note: The Rule Against Perpetuities does not apply to options to purchase held by the current lessee.

b. Modern trend–apply rule against restraints on alienation
Under modern authorities, the Rule Against Restraints on Alienation is applied to options and rights of first refusal rather than the Rule Against Perpetuities. An option or right of first refusal will thus be valid if it does not impose an unreasonable restraint on alienation. A significant minority of courts will also construe an option or right of first refusal as lasting only for a reasonable time to avoid invalidating the interest.

Question 27

Where a tenant has an option to purchase beyond the perpetuities period…

Answer 27

where a tenant has an option to purchase beyond the perpetuities period.
Remember that the Rule does not apply to such an option held by a current tenant or his assignee, but it does apply to a former tenant and to any party to whom the current tenant might transfer the option separately from the lease (in jurisdictions permit- ting such a transfer).

Question 28

aPPLICatIOn OF tHe ruLe tO CLass GIFts
“Gift to subclass” exception

Answer 28

Each gift to a subclass may be treated as a separate gift under the Rule.

Ex: “Income to A for life, then to A’s children for their lives. Upon the death of each of A’s children, the corpus is to be distributed to that child’s issue, per stirpes.” The gifts to each of A’s children’s issue are considered separately. Thus, the gifts to issue of A’s children living at the time of the disposition are good, but the gifts to the issue of afterborn children of A violate the Rule and are void.

Question 29

reFOrM OF tHe raP

Answer 29

“Wait and see” or “second Look” doctrine: Validity determined per facts as they come to be. Under this majority reform effort, the validity of any suspect future interest is determined on the basis of the facts as they exist at the conclusion of our measuring life.

The uniform statutory rule against Perpetuities (USRAP): This codifies the common law RAP and, in addition, provides for an alternative 90-year vesting period.

Cy Pres doctrine (“as near as Possible”): Some reform measures allow a court to reform invalid interests. If a given disposition violates the rule, a court may reform it in a way that most closely matches the grantor’s intent, while still complying with the RAP.