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Question 1

What is involved in the rule of convenience with regard to future interests and RAP?

Answer 1

This happens when a member of a class of takers is born too late. This rule determines when a class closes and says that it happens when the first member of the class can take, even if other members could potentially be born afterward. This is a default principle that is applied when the transferor doesn’t specify what they want to happen in such a situation

Question 2

If someone leaves property to his grandkids, and on his death he is survived by his son and one grandkid, if after he dies, his son has another grandkid, when does the class close?

Answer 2

It closes when any class member can take, so it is closed at the testator‘s death because he had one grandchild that was able to take at that time, so any later-born siblings are out of luck because of the rule of convenience

Question 3

The rule of convenience with regard to future interests is a default principle for what law?

Answer 3

The common law

Question 4

The rule of convenience is only used in conjunction with what?

Answer 4

RAP

Question 5

Under the rule of convenience, when does a class close?

Answer 5

• if it is testamentary, the death of the testator fixes the time and closes the class
• if the gift is to be distributed at a later determinable date, the class members in being at the testator‘s death take a vested interest in the fund then, subject to the additional members of the class born after the testator‘s death before the time of distribution.

Question 6

If the testator leaves money to “Ralph’s children when they turn 25,” if Ralph’s sixth child was adopted before the oldest child hit 25, is that sixth child included in the class?

Answer 6

Yes, but any child that is born after the oldest hits 25 is not included

Question 7

How are children that are born using assisted reproduction technology once a testator has already died treated under the rule of convenience?

Answer 7

They are treated as “in being“ at the testator‘s death if they were born within a reasonable time after his death.

Question 8

If kids enter a class through adoption, what is the applicable date?

Answer 8

The adoption, not their birth

Question 9

What are the three major exceptions to the rule of convenience?

Answer 9

– testator intent: it doesn’t apply if the language shows that the testator didn’t intend for it to
– common sense: the court cannot apply it if it wouldn’t make sense to do so
– conception before death: anyone conceived before the testator dies but born after his death is considered born before his death, and they can take

Question 10

What are the three major future interests that are in the grantor?

Answer 10

– possibility of reverter
– right of entry/power of termination
– reversion

Question 11

How does the possibility of reverter work?

Answer 11

This is automatic. It applies to fee simple determinables and is created in the grantor. The triggering event is a cessation of the required usage of the present interest, so the interest returns to the grantor automatically.

Question 12

What is involved in the future interest that is a right of entry or power of termination?

Answer 12

This happens after a fee simple on condition subsequent and is created in the grantor. The triggering event is the cessation of a required usage, but it is not automatic. The transferor has the option to regain the property, but he doesn’t have to

Question 13

What is involved in a reversion?

Answer 13

This is automatic in the grantor if the grantor fails to pass all of his estate.

Question 14

What are the two major types of beneficiaries?

Answer 14

– remainder

– executory interest

Question 15

What are the two main types of remainder interest?

Answer 15

Vested and contingent

Question 16

What is a remainder?

Answer 16

This comes after a life estate and it goes automatically to a third person that the grantor specified.

Question 17

What is a vested remainder?

Answer 17

It is a remainder given to a presently ascertainable person that is not subject to a condition precedent. The preceding life doesn’t count as a condition precedent because although it must happen first, the death WILL happen and that WILL divest ownership, so the life estate will eventually end. Interests can be vested even though they are not presently possessory. A vested remainder that follows a life estate is vested, it just isn’t vested in possession

Question 18

What does it mean if a remainder is vested subject to open or partial divestiture?

Answer 18

This is for reminders that are given to classes of people where the class is not closed and additional people can enter the class

Question 19

What is a contingent remainder?

Answer 19

A reminder that falls short because either it was not given to a presently ascertainable person, or was subject to a condition precedent where it could fail, so it is subject to a contingency and is not vested

Question 20

What is an executory interest?

Answer 20

This happens after there’s been a fee simple determinable and it automatically goes to a third-party. It’s a divested prior interest that didn’t end on its own but got unhorsed by executory interests upon the occurrence of the triggering event.

Question 21

What are the two types of executory interest?

Answer 21

– shifting executory interest: this changes possession from one beneficiary to another
– springing executory interest: this changes possession from the transferor to a beneficiary

Question 22

What is the rule in Shelley’s case?

Answer 22

If you give a life estate to one person and the remainder to their heirs, you create a fee simple in that first person. This has been abolished in most jurisdictions but it does come up occasionally.

Question 23

If you create a life estate in A and a remainder in his heirs, what have you created?

Answer 23

Under the rule in Shelley‘s case you’ve created a present fee simple in A which lets him dispose of his property however he wants

Question 24

What is involved in the IRC’s unified system of estate and gift taxation?

Answer 24

This gives credits so that whenever you dispose of your property through either life or through your estate, it is subject to taxation.

Question 25

What is the general rule with regard to tax liability?

Answer 25

It rests on the donor or testator, not the recipient

Question 26

What is a gift tax?

Answer 26

This applies when you make gifts to living donors. Everyone has a gift tax credit of $15,000 per donor, per donee, per year. This is annually adjusted for inflation. It means that you can give $15,000 each to people, charities, etc. without having to pay taxes each year

Question 27

Under the gift tax, is gift splitting OK?

Answer 27

Yes, both you and your spouse can each make a $15,000 gift, plus you can gift $15,000 to one person and also $15,000 to their spouse.

Question 28

What happens if you want to make a gift that is in excess of the annual credit under the gift tax?

Answer 28

The extra amount above the $15,000 is what is taxed

Question 29

What are the two choices for how to pay the excess if you choose to give more than the annual $15,000 that is allowed tax bring me as a gift tax?

Answer 29

– you can file the gift tax return and pay the taxes on it according to the table of rates
– you can wait, and on your death your estate will have a gift tax credit and that will be reduced against this amount

Question 30

What is an estate tax?

Answer 30

This applies to transfers that are made from the estate of the deceased

Question 31

What is the marital exclusion to the estate tax?

Answer 31

Transfers between spouses are exempt from taxation, and any unused portion of the credit from the first spouse that dies can be added to the credit of the surviving spouse

Question 32

What is the estate tax credit?

Answer 32

If an estate value is a certain amount or less, the estate doesn’t have to pay any estate taxes.
– Federal estate tax: the credit is currently $11.4 million