This chapter presents an overview of the system of present and future interests.  It assumes both that you have seen most of these terms and concepts before, and that a new look may be helpful. 

 

In the main text, this chapter offers is a new set of diagrams to represent graphically how various interests act.

 

§ 32 Why Bother?  [185-186]

 

Many students, confronted with a seemingly impenetrable mass of concepts developed in the Middle Ages, reasonably ask why they should bother to learn this stuff.  From the narrow view of a course in trusts and estates, the strongest is that these concepts are the basic building blocks for estate plans.  A broader reason for studying this material stems from law schools’ mission of training people to analyze legal problems, irrespective of the particular subject matter.  Learning how to handle densely tangled topics takes practice.  The law of present and future interests provides an excellent opportunity for getting that practice: this law is complicated; it presents unfamiliar terminology; and it requires attention to detail.   Consider this topic as affording a chance to develop skills useful for your professional lifetime.

 

§ 33 Present v. Future Interests: Dividing Time  [186-187]

 

Here are some basic principles:

 

·        The law separates the notion of ownership from the thing owned.  We own “interests” in land, rather than the dirt itself.

·        We can divide our interests among different people, according to when they have the right to use the land.

·        We treat these individual interests as if they were things in themselves.  We give them characteristics.

 

§ 34 Present Interests  [187-196]

 

         A.  Fee Simple Absolute

 

In terms of dividing ownership according to time, the fee simple absolute is everything. (See Figure 9-1.)  At common law, deed drafters seeking to create this interest had to use words like, “To Suzanne and her heirs.”  The “and her heirs” (or “and his heirs”) language was critical. Courts interpreted those words not as words of purchase indicating who got the property—Suzanne’s heirs got nothing from such a grant; rather, courts treated the magic words as words of limitation describing the estate granted.  The words "and her heirs" came to indicate a grantor’s intention to give an estate that would extend beyond the grantee’s lifetime and go on forever.  The requirement of including “and her heirs” language is almost dead, and this text will not include it in future examples.

 

         B.  Defeasible Fees

 

Defeasible fee simple estates get their name because they could go on forever, but also can be lost. (See Figures 9-2 to 9-5.) 

              

               1.   Expiration v. Divestment

 

A Defeasible fee can end by expiring, if the grantor has placed a limit on the grant.  For example, Shannon might give property “to the School Board so long as the land is used as a school.”  The school board might keep the property forever, but if they stopped using it as a school, their ownership would end. Language like “so long as,” “while,” and “until” is called “limitational” language because of the notion that it limits the estate from the start.  When used in conjunction with a fee simple’s potential for infinite duration, limitational language creates a fee simple determinable.

 

The other way for a defeasible fee simple to end is by being divested, or cut short.  This result is possible if the grantor has used “conditional” language like “but if,” “provided, however,” or “on the condition that.”  The law recognizes two types of defeasible fees subject to being divested.  Which label we use depends upon who holds the future interest that follows.

 

·        If the grantor retains the future interest, we call the present interest a fee simple subject to a condition subsequent. 

·        If someone other than the grantor has the future interest following a defeasible fee created by conditional language, we call the present interest a fee simple subject to an executory limitation.

 

         C.  Life Estate

 

The life estate is both easy to recognize and easy to understand.  (See Figure 9-6.)   If Cletus gives property “to Helen for life,” Helen has a life estate. If the property is realty, Helen has the right to possession during her lifetime.  If the gift is in trust, Helen usually will have a right to trust income during her life.

 

1.      Defeasible Life Estates

 

Grantors can also create life estates that may end before the death of the life tenant.  Like defeasible fees, these life estates can either expire or be divested.  If Cletus says “to Helen for life or until she remarries,” he would create a life estate determinable, sometimes called a life estate subject to a special limitation. (See Figure 9-7.)  Helen’s interest can now expire either of two ways, her remarriage or her death.  Life estates can also be subject to divestment, either by a right of entry or by an executory interest.

 

2.      Life Estate for the Life of Another

 

If Cletus gives property “to Helen for the life of Menelaus,” Helen has a life estate for the life of another (a/k/a a “life estate pur autre vie.”)   (See Figure 9-8.)  When Menelaus dies, Helen’s estate ends.

 

         D.  Fee Tail

 

At common law, if a grantor gave land “to Kelly and the heirs of her body,” Kelly would have a fee tail.  That interest would then pass to her children, their children, and so on, until the death of Kelly’s last descendant.  At that point, ownership would either come back to the grantor (who retained a reversion) or move on to someone else identified in the original document (who would have a remainder).

 

Because the fee tail promoted family dynasties and interfered with the marketability of land, virtually all states have abolished it.  Sometimes old wills or lay-drafted wills use the “heirs of the body” language.  You need to know to check the applicable local statute to see what interests those words create under modern law.

 

§ 35 Future Interests  [196-211]

 

         A.  In the Grantor

 

Interests which a grantor retains are called “reversionary” interests.  There are three:

 

·        A possibility of reverter follows a fee simple determinable.

·        A right of entry (a/k/a a power of termination) follows a fee simple subject to condition subsequent.

·        A reversion is the interest a grantor retains if he creates only a life estate, or a life estate and contingent remainders.

 

B.     In Grantees

 

Grantees can hold two kinds of future interests: executory interests and remainders.  Both are held by third party grantees.  One way to help distinguish between the two categories is by assigning each a personality characteristic.  Executory interests (with one exception) are aggressive; they go around cutting short other interests; they have hatchets.  In contrast, remainders are patient; they snuggle up against a present interest and wait for its natural expiration; they have pillows.

 

               1.   Executory Interests

 

Developed after the Statute of Uses in 1536, executory interests made possible the fee simple subject to an executory limitation.  They also allowed a third party to take following a fee simple determinable. (This latter situation is the one exception to the rule that executory interests take possession by divesting. Because a fee simple determinable expires on its own, the executory interest has nothing to divest.)

 

               2.   Remainders

 

                     a.   Vested Remainders

 

A remainder is “vested” if it satisfies three tests:

 

·        The holder of the remainder must be someone who has been born.

·        That person must be identified.

·        There can be no express or implied condition precedent to that person taking.

 

                           i.    Indefeasibly Vested

 

An indefeasibly vested remainder is just a fee simple absolute, pushed out into the future.  Suppose Joseph’s will gives property “to Rose for life, remainder to Barbara.”  Rose has a life estate, and Barbara has an indefeasibly vested remainder.  (See Figure 9-9.) 

 

ii.   Subject to Complete Defeasance

 

Many vested remainders subject to complete defeasance are just defeasible fees, pushed out into the future.  Others are life estates in future garb.  Like their present interest counterparts, these remainders can end either by expiration or by divestment. 

 

Suppose Jenn leaves the farm “to Pat for life, then to the School Board so long as they use the land for school purposes.”  Pat has a life estate, the Board has a vested remainder subject to complete defeasance, and Jenn has a possibility of reverter. (See Figure 9-10.) 

 

If Jenn had said, “to Pat for life, then to the School Board, but if the land is not used as a school, then to Beneth if she is then living,” the Board still would have a vested remainder subject to complete defeasance.  Beneth would have an executory interest. (See Figure 9-11.)

 

If Cletus gave property in trust, with the income “to Helen for her life, and then to Carol for her life, and after her death distribute the principal to Ryan, ” Helen has a life estate; Carol has a vested remainder for life; and Ryan has an indefeasibly vested remainder. (See Figure 9-12.)

 

                           iii. Subject to Open

 

Sheppe may give property “to my wife Mindel for life, and then to our children.”  Because later children could qualify as class members, we say the class is “open” during Mindel’s life.  If Sheppe and Mindel have one child, Frieda, her remainder is vested.  To account for that the chance that Frieda will have to share her remainder with a later-born sibling, we say her remainder is vested, subject to partial divestment.  Because this situation arises only when we have an open class, many lawyers use the shorter term “vested, subject to open.” (See Figure 9-13.)

 

Vested remainders can be subject to complete defeasance and subject

to open at the same time.  (See Figure 9-14.)

 

                     b.   Contingent Remainders

 

If remainders are not vested, they are contingent.  (See Figure 9-15.)   Recalling the definition of vested remainders, ask:

 

(1) Is the holder of the remainder someone who has not yet been born?

(2) Is the holder of the remainder unidentified?

(3) Is there any express or implied condition precedent to that person taking?

 

If the answer to any question is “yes,” the remainder is contingent.  When you identify a remainder as contingent, be sure you also identify why it is contingent.  That way you will know whether the remainder vests if facts change.  Also, remember that if you have a contingent remainder, you also have a reversion.

 

                           1.   Alternative Contingent Remainders

 

If Joanne grants property “to Scott for life, then to Taylor if he survives Scott, and if he does not, to Todd.” Scott has a life estate. Taylor has a contingent remainder, contingent on survival. Todd has a contingent remainder, contingent upon Taylor’s non-survival of Scott.  (See Figure 9-16.)  Joanne has a reversion.

 

                           2.   Contingent Remainders Subject to Open

 

If Joanne transfers land “to Scott for life, then to his children who graduate from college.” While Scott is alive and his children have not yet graduated, the children have contingent remainders, subject to open.  (See Figure 9-17.) 

 

                     c.   Vested or Contingent?

 

When drafters create alternative future interests following a life estate, it may be particularly difficult to classify those interests. Usually two possible constructions appear.  There may be a vested remainder and an executory interest, or two alternative contingent remainders and a reversion.  Most of the time, reading the words in order will tell you whether particular language creates a vested or a contingent remainder.

 

The key to classification in this context usually is the first remainder.  If it is contingent, then an alternative contingent remainder construction likely will follow.  If the first remainder is vested, then the second interest probably will be an executory interest.  See In re Krooss, 99 N.E.2d 222 (N.Y. 1951).

 

Classic doctrine says that the law favors vested interests.  The best argument for the rule may be that a vested construction will tend to avoid cutting off one line of a family.  Suppose Eva’s will creates a trust for Hope for life, with ambiguous remainders to her children, Carleton and Channey.  Suppose also that Channey survives Eva, but dies before Hope.  If a court construed Channey’s gift as contingent upon his surviving Hope, Channey’s family may lose out. If, as under the traditional rule, Channey need not survive, his family could be expected to take the remainder by his will or intestacy.

 

§ 36 Putting It Together  [211-212]

 

Use the chart on text page 212 as a guide, taking classification one step at a time.