Estates & Future Interests

Question 1

THREE

Defeasible Fee Simple Estates

Answer 1

1. Fee simple determinable (FSD)
2. Fee simple subject to condition subsequent (FSSCS)
3. Fee simple subject to an executory interest (FSSEI)

Question 2

Fee Simple Determinable (FSD)

Answer 2

1. A fee simple determinable is an estate that AUTOMATICALLY terminates on the happening of a stated event and goes back to the grantor.
2. A fee simple determinable is freely alienable - the owner may convey her estate.
3. It is created using durational, adverbial language, such as:
   
   1. “so long as”
   2. “while”
   3. “during”
   4. “until”
4. Future Interest in Grantor: Because the grantee’s estate may end upon the happening of the stated event, there is a possibility the land may revert back to the grantor. The grantor has a “possibility of reverter.”

Question 3

Fee Simple Subject to Condition Subsequent (FSSCS)

Answer 3

1. A fee simple subject to condition subsequent is created when the grantor retains the power to terminate the estate of the grantee upon the happening of a certain event. Upon the happening of the event, the estate of the grantee continues until the grantor exercises their power of termination by bringing suit or making reentry.
2. NOTE: The difference between a fee simple determinable and a fee simple subject to condition subsequent is that the FSD terminates AUTOMATICALLY upon the happening of the stated event, whereas the grantee’s estate in a FSSCS continues upon the happening of the stated event until the grantor decides to exercise their power of reentry.
   
   1. If the language is the conveyance is ambiguous, courts typically adopt a preference for the FSSCS over an FSD.
3. A FSSCS is created using conditional words such as:
   
   1. “upon the condition that”
   2. “provided that”
   3. “but if”
   4. “if it happens that”
4. Future Interest in Grantor: The grantor has a “right of entry,” which can be exercised at will if the stated event occurs. The “right of entry” must be expressly reserved by the grantor in the grant.
   
   1. In most jurisdictions, this right is devisable and descendible, but it cannot be transferred during the owner’s lifetime.
   2. The owner may waive this right, but the mere failure to assert it does not constitute a waiver.

Question 4

Fee Simple Subject to Condition Subsequent (FSSCS)

Examples:

Answer 4

Example: “O to A upon the condition that the premises are never to be used by A for the sale of liquor, and in the event they are so used, then O or her heirs may enter and terminate the estate hereby conveyed.” A has a fee simple since his estate could go on forever, as long as the premises aren’t used for the sale of liquor. If they are, then O has a right of entry, which O expressly reserved in the grant.

Example: A conveys Blackacre “to B and his heirs, but if B gets married, then A can reenter Blackacre.” B will retain ownership until A exercises his right to reenter. B has a FSSCS in Blackacre, and A has a right of entry. Even if B gets married, B will retain his current possessory estate in Blackacre until A exercises his right to terminate B’s estate. Remember that until A retakes Blackacre, B continues to own the land.

Question 5

Fee Simple Determinable (FSD)

Examples

Answer 5

Example: “O to A so long as he uses the property as a dance academy.” A has a fee simple because the grant may last forever if he keeps using the property as a dance academy. However, O has a possibility of reverter since there is a chance A’s estate will end if the stated event happens. So, for example, if A decides to turn the property into a soccer field, the estate will automatically come to an end and O will again be the property owner via his possibility of reverter.

Example: A conveys Blackacre “to B and his heirs until B gets married.” The estate reverts back to A if B gets married. Therefore, B has a fee simple determinable in Blackacre, and A has a possibility of reverter.

Question 6

Fee Simple Subject to an Executory Interest (FSSEI)

Answer 6

1. A fee simple subject to an executory interest is an estate that, upon the happening of a stated event, is automatically divested in favor of a third person rather than the grantor.
2. In this instance, the third party gains a right to terminate the estate, or by specific conditional language, such that, upon the occurrence of a specified condition, title will automatically pass to a third party (i.e., someone other than the grantor or the holder of the present fee).

Question 7

Fee Simple Subject to an Executory Interest (FSSEI)

Examples

Answer 7

Example: “O to Church; provided however, that if the premises shall ever cease to be used for church purposes, title shall pass to the American Heart Association.” This looks like it could be a FSSCS because of the language used. However, if the stated event happens, the property will go to a third party – the American Heart Association – instead of back to the grantor. The grantor no longer has any interest. Church has a fee simple subject to an executory interest, and the American Heart Association has an executory interest.

Example: A conveys Blackacre “to B and his heirs; but if B gets married, then to C.” In Blackacre, B has a fee simple subject to an executory interest, C has an executory interest, and A does not have an interest.

Question 8

Life Estate

Answer 8

An estate for life is an estate that is not terminable at any fixed or computable period of time but cannot last longer than the life or lives of one or more persons.

Question 9

For Life of Grantee

Answer 9

1. The usual life estate is measured by the life of the grantee. It may be indefeasible (so it will end only when the grantee dies) or it may be defeasible (determinable, subject to condition subsequent, subject to executory interest), which means it could end prior to the death of the grantee.
2. A life estate is fully transferable during the life of the person by whom the life estate is measured. Because the interest terminates at the death of the person by whom the life estate is measured, a life state measured by the grantee’s life is generally neither devisable nor descendible.
3. If a life estate is received by will or intestacy, the life tenant may renounce the estate if he so chooses.

Question 10

Life Estate

Examples

Answer 10

1. “O to A for life, then to B.” A has a life estate. When A dies, the property will go to B in fee simple absolute. B has a vested remainder, which we’ll discuss below in future interests. O has no interest.
2. “To A for life or until she remarries.” Note the use of the word “until,” which indicates a defeasible fee (fee simple determinable). Here, A has a life estate determinable and O has a possibility of reverter.

Question 11

Life Estate Pur Autre Vie (Life of Another)

Answer 11

1. A life estate pur autre vie is a life estate measured by the life of someone else. It can be created in two ways:
2. Directly by the grantor, i.e., “O to A for the life of B;” or
3. Indirectly by the grantee, i.e., O grants A a life estate and then A grants her interest to B. B has a life estate pur autre vie, which will end at A’s death.
   
   1. The grantee is free to make inter vivos transfers, but possession of land by a third party ends at the death of the original grantee (see example C above).

Question 12

PRESENT STATE MATRIX

Answer 12

Question 13

Future Interests Retained by Grantor

Answer 13

1. Reversion: A reversion (or reverter) is the future interest held by the grantor who grants a life estate or estate for years but does not convey the remaining future interest to a third party.
2. Possibility of Reverter: A possibility of reverter is automatically retained by the grantor when a fee simple determinable is conveyed.
3. Right of Reentry: A right of reentry (also called “right of entry” or “power of termination”) is a future interest held by the grantor after a fee simple subject to a condition subsequent is granted.

Question 14

Future Interests

Definition

Answer 14

A future interest is an interest in a presently existing property, or in a gift or trust, which may commence in use, possession, or enjoyment sometime in the future.

Question 15

Remainder

Answer 15

1. A remainder is a future interest created in a grantee that is capable of becoming an estate that is presently possessory upon the natural expiration of a prior possessory estate (e.g., a life estate) that is created in the same conveyance in which the remainder is created.
2. By definition, a remainder interest CANNOT follow a defeasible fee interest.
3. A remainder can either be vested or contingent.

Question 16

Vested Remainder (VR)

Answer 16

1. An interest that is not subject to any conditions precedent and is created in an ascertainable grantee.
2. A vested remainder looks like the following: A conveys Blackacre “to B for life, and then to C and his heirs.” Here, the grantee, C, is ascertainable, and there is no conditions precedent.

Question 17

Vested Remainder Subject to Open (class gifts) (VRSO)

Answer 17

A class gift consists of a group of unspecified persons whose number and identity and share of the interest are determined in the future, like at the death of the donor. Usually, the members of the group are children of a specified person.

Example: A conveys a present gift of a remainder interest “to my children.” Here, A conveys a class gift to an unspecified group because the recipients (those who will qualify as A’s children upon A’s death) are not known until A dies.

Question 18

Vested Remainder Subject to Open (class gifts) (VRSO)

When one grantee receives a vested remainder….

Answer 18

If a conveyance grants a remainder to a class of grantees and at least one of the grantees receives a vested remainder at the time of the conveyance, then that vested remainder is subject to open (i.e., the property interest is uncertain because other grantees may become vested and able to share in the grant).

Example: A conveys “to B for life, and then to B’s children as they turn 18.” B has three children upon death, X (9 years old), Y (12 years old), and Z (21 years old). Z has a vested remainder subject to open because the property interest may be shared if Y and/or X become vested (reach the age of 18).

Question 19

Vested Remainder Subject to Open (class gifts) (VRSO)

Rule of Convenience

Answer 19

Absent a closing date, the rule of convenience closes the class when any member of the class becomes entitled to immediate possession of the property.

Example: A conveys “to B for life, and then to C’s children.” If the conveyance does not specify when the class closes, then the class closes when B dies, regardless if any of C’s children are born after B’s death.

Question 20

Vested Remainder Subject to Complete Divestment (Defeasance) (VRSCD)

Answer 20

A vested remainder subject to complete divestment (defeasance) indicates that the occurrence of a condition subsequent will completely divest the remainder interest.

Example: A conveys “to B for life, and then to C; but if C has no children, then to D’s children.” C has a vested remainder interest, but if he is not survived by his children at the time of B’s death, then C’s interest will be divested.

Question 21

Contingent Remainder (CR)

Answer 21

A remainder is contingent if it is created in a grantee that is unascertainable, or if it is subject to an express condition precedent to a grantee’s taking.

A contingent remainder normally happens in one of two circumstances:

1. When the property cannot vest because the beneficiary is unknown; or
2. When the property cannot vest because the known beneficiary is subject to a condition precedent that has not yet occurred
3. Contingent remainders were destroyed at common law if they had not vested by the time the preceding estate terminated. In such a situation in most states today, the grantor’s reversion becomes possessory, and the person holding the contingent remainder takes an executory interest, which becomes possessory if and when the condition precedent is met.

Question 22

Rule in Shelley’s Case (d/c in NC 10-01-1987)

Answer 22

Most jurisdictions, including NC, have abolished this rule, and the parties now take the present and future interests according to the language in the deed.

Example: A conveys “to B for life, remainder to B’s heirs.” If the Rule in Shelley’s Case applies, then after the merger, B will receive the property in fee simple absolute. If the Rule in Shelley’s Case has been abolished, then B has a life estate, and B’s heirs have a contingent remainder in the property.

Question 23

Executory Interest

Defined

Answer 23

1. An executory interest is a future interest in a third party that is not a remainder and that generally cuts the prior estate short upon the occurrence of a specified condition.
2. A future interest that follows a fee simple determinable and is held by a third party (rather than the grantor) is an executory interest, even though it arises naturally out of the termination of the fee simple determinable because a remainder NEVER follows a defeasible fee.

Question 24

Executory Interest

Two Types

Answer 24

Shifting executory interest (SHEI)

Springing executory interest (SPEI)

Question 25

Shifting executory interest (SHEI)

Answer 25

Divests the interest of the grantee by cutting short a prior estate created in the same conveyance. The estate “shifts” from one grantee to another on the happening of a condition.

Example: A conveys “to B and his heirs, but if C returns from Portugal, then to C.” This conveyance creates a fee simple subject to an executory interest in B and a shifting executory interest in C, because the interest would shift from B to C (grantee to grantee).

Question 26

Springing executory interest (SPEI)

Answer 26

Divests the interest of the grantor or fills a gap in possession in which the estate reverts to the grantor.

Example: A conveys “to B for life, and one year after B’s death, to C and his heirs.” This conveyance creates a life estate in B, a one-year reversion in A (in fee simple subject to executory interest), and a springing executory interest in C because it goes from A to C (grantor to grantee).

Question 27

Transferability of Remainders and Executory Interests

Answer 27

1. Vested remainders are fully transferable inter vivos, devisable by will, and descendible by inheritance.
2. Under common law, executory interests and contingent remainders were not transferrable. Today, in most jurisdictions, they are transferable inter vivos.
3. Most states permit any transferable interest to be reached by creditors, except for those interests held by unascertainable or unborn persons.