Week 3 - Future Interests Flashcards
Future Interest
existing, nonpossessory property right that may become possessory in the future
Rights of holder of future interest
Sell or transfer future interest (alienable, devisable, descendable)
Use future interest as security for a loan
Prevent current possessor from committing waste
Be entitled to payment if property is taken by condemnation
Future interests that transferor may hold
o Reverter
– e.g., If O holds fee simple absolute and conveys to B for life, O holds reverter
—reverter in this case = when life estate ends, property reverts to O
– e.g., “O conveys to G for 75 years”
o Possibility of reverter
– If O holds fee simple absolute and conveys fee simple determinable, O holds possibility of reverter
— E.g., “O conveys to G and her heirs so long as alcohol is not sold on the land”
o Right of entry
– If O holds fee simple absolute but conveys a fee simple subject to a condition subsequent
— E.g,. “O conveys to G and her heirs, but if alcohol is ever sold on the land, then O shall have the right to re-enter and retake the estate”
Future interest that a transferee may hold
– executory interest
– remainder
Remainder
A future interest in a transferee that:
(1) is capable of becoming possessory immediately upon the expiration of the prior estate, and
(2) does not divest (or cut short) any interest in a prior transferee
– e.g., “to B for life, but if D becomes president then to D” is not a remainder because it can impinge on length of time of prior estate)
– NOTE: remainders convey the POSSIBILITY of possession
Four types of remainders
(1) Indefeasibly vested remainder
(2) vested remainder subject to a divestment
(3) vested remainder subject to open
(4) contingent remainder
NOTE: Historically, only vested remainders were freely transferable. Now, both vested and contingent remainders are alienable, devisable, and defeasible
Indefeasibly vested remainder
– Must be (1) created in an ascertainable person and (2) not subject to a condition precedent other than the natural termination of the prior estate
—E.g., “O conveys to A for life, then to B”
—Ascertainable person = alive and identifiable
—-Unborn children are not ascertainable
—-A person’s heirs cannot be ascertainable until their death
—Condition precedent = condition that must be met before the remainder can become possessory other than the natural termination of the prior estate
Vested remainder subject to divestment
A remainder that is vested, but is subject to a condition subsequent
– e.g., “O conveys to B for life, then to D, but if D does not survive B, then to E”
Vested remainder subject to open (or vested remainder subject to partial divestment)
A vested remainder held by one or more living members of a group or class that may be enlarged in the future
– E.g., “O conveys to B for life, then to D’s children.” If E and F are D’s current children (both vested because both ascertainable and there is no condition precedent), but may have to share E and F may have to share property with later-born children of D, who are not presently ascertainable
Contingent Remainder
A remainder that is not vested is contingent
– Either given to an unascertainable person or subject to a condition precedent
– NOTE: grantor often retains reverter (e.g., “O conveys to D for life, then to M if M is married” means that if M does not marry, property reverts to O)
Term of Years
Estate conveyed for defined length of time (e.g., “O conveys to G for ten years”)
Executory Interest
Exact opposite of remainder
Springing executor interest follows interest in transferor
Shifting executory interest follows interest in transferee
NOTE: no substantive legal difference between springing and shifting executory interests
E.g., “O conveys to B for life, then one year after B’s death, to D and his heirs.” In this hypothetical, Once B’s life ends, O regains a fee simple that has a duration of one year. D has a springing executory interest, not a remainder
A future interest in a transferee following a defeasible fee simple can only be an executory interest
– E.g., “O conveys to B and his heirs until humans land on Mars, and then to D and his heirs.”
— B has fee simple subject to an executory limitation
— D has a shifting executory interest
Executory interests are alienable, devisable, and descendible
Future interests in Restatement of Property
Future interests are either remainder (created in a transferee) or reversion (retained by transferor)
– Executory interest = remainder
– Right of entry and possibility of reverter are classified as reversions
Future Interest for fee simple determinable
future interest retained by transferor: possibility of reverter
Future Interest for fee simple subject to a condition subsequent
future interest retained by transferor: right of entry
Future interest for fee simple subject to an executory limitation
future interest created in transferee:
executory interest
Future interest for fee tail
future interest retained by transferor: reversion
Future interest for life estate and term of years
future interest retained by transferor : reversion
future interest created in transferee: remainder/executory interest
Four doctrines limiting executory interests and contingent remainders
Rule in Shelley’s Case
Doctrine of Worthier Title
Doctrine of Destructibility
Rule Against Perpetuities
Rule in Shelley’s Case
If a freehold estate is given to a person and, in the same instrument , a remainder is given to the heirs (or the heirs of the body) of that person, he takes both the freehold estate and the remainder
–e.g., “O conveys a life estate to B, then to B’s heirs” creates fee simple absolute for B
Four requirements
– One instrument
– Creates a freehold estate in a transferee
– Creates a remainder in that transferee’s heirs, and
– Both interests are legal or both equitable
No longer applicable in most jurisdictions
Doctrine of Worthier Title
If a grantor creates a remainder or an executory interest in his own heirs, the grantor retains a future interest in himself rather than creating a future interest for those heirs
– E.g., “O conveys to B for life, then to O’s heirs” becomes “O conveys to B for life, then to O and his heirs”
Merely applied as a rule of construction in the few states that still follow this rule
Doctrine of Destructibility of Contingent Remainders
A contingent remainder is valid when created, but if it has not vested by the time the prior estate ends, the contingent remainder is destroyed
E.g., “O conveys to B for life, then to C if C becomes a lawyer.” In this case, C’s contingent remainder is destroyed upon B’s death, and O’s reversion becomes possessory
Abolished in every jurisdiction (modern approach converts contingent remainder to executory interest if it does not vest before prior estate ends)
Rule Against Perpetuities
No interest is good unless it must vest, if at all, no later than 21 years after some life in being at the creation of the interest
– Perpetuities period is measured by adding 21 years to the date of death of the last individual who was alive when the interest was created.
— If you can conceive of just one situation where the interest vests outside of the perpetuities period, then the interest is void
– E.g., “O conveys to C if anyone finds a cure for cancer” is void when created because there is no certainty that C’s interest will vest or fail to vest within 21 years of the last life in being to die (O or C). However, “O conveys to C if C finds a cure for cancer” is valid because there are only two possibilities when C dies (they cured cancer or did not cure cancer).
– Only three interests are subject to the rule against perpetuities:
* Contingent remainders
* Executory interests
* Vested remainders subject to open
Rule of Convenience
Modification to Rule Against Perpetuities: a limitation is not void based on possibility that class could change after 21 year period
a class (e.g., ‘all of Jee’s daughters’) closes when the prior estate ends and identified class members are entitled to possession
Wait and See
some jurisdictions assess validity of interest by events that actually happen (e.g., if a class is closed during 21 year period allowed by Rule Against Perpetuities
Uniform Statutory Rule Against Perpetuities (USRAP)
some jurisdictions assess interest as valid if it vests within 90 years of its creation
Cy Press
some jurisdictions rewrite language of conveyance to not violate common law rule for the purpose of honoring the transferor’s presumed original intent
Modern legislative trends in transferee future interest legislation
States have increasingly adopted legislation that allows perpetual trust (undoing Rule Against Perpetuities)
Savings Clause
avoids violation of Rule Against Perpetuities, requires all interests to vest within applicable period
