V. Estates System and Future Interests

V. Estates System and Future Interests:

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  Present and future interests may be created by sale, lease, will or trust
  
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  Future interests exist in the moment they are created
  
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  Two most pressing problems with future interests are the problem of dead hand control and the problem of social hierarchy
  

A. FEE SIMPLE ABSOLUTE

Property ownership without an associated future interest. Owner has the right to possess and use the property, the right to sell it or give it away and the right to devise it by will or leave it to her heirs.

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  Conveyance (technical term for transfer of an interest in real property) of fee simple accomplished by the following language:
  

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  O to A
  
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  O to A and her heirs
  
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  O to A in fee simple
  
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  Owners presumed to convey all interests they own in property they convey unless the conveyance states otherwise
  
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  Language “A and her heirs” indicates fee simple, does NOT give A’s heirs any interests in property
  

Present interests that terminate at the happening of a specified event, other than the death of the current owner.

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  Categories create two crucial distinctions: (1) whether the future interest is in the grantor or in a third party, (2) whether the future interest becomes possessory AUTOMATICALLY when the stated event occurs or becomes possessory only if the future interest holder CHOOSES to assert his property rights.
  

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  Fee simple determinable: future interest reverts AUTOMATICALLY to the grantor on the happening of the stated event. The future interest is a possibility of reverter. Can be established by the following language:
  

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  O to A so long as used for residential purposes
  
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  O to A while used for residential purposes
  
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  O to A during residential use
  
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  O to A unless used for nonresidential purposes
  
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  O to A so long as used for residential purposes; if used for a nonresidential purpose, the property shall automatically revert to O
  

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  In all of above, A has the fee simple determinable and O has the possibility of reverter
  
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  Any language denoting that the ownership is limited to a time period during which certain conditions are met will generally be interpreted as evidence of the grantors intent to cut off ownership rights automatically when the condition is violated or met
  

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  Fee simple subject to a condition subsequent: when the grantor chooses to retain for herself or her heirs the right to decide at the time the condition is violated whether to retake the property. The future interest is a right of entry (or “power of termination”) Can be established by the following language:
  

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  O to A on condition that the property be used for residential purposes; in the event it is not so used, O shall have a right of entry
  
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  O to A, but if used for nonresidential purposes, O shall have a right of entry
  
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  O to A, provided that the property is used for residential purposes; if this condition is violated, O shall have a right of entry
  

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  The vast majority of states now hold that future interests are alienable, devisable, and inheritable
  
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  Modern approach is to treat possibilities or reverter and rights of entry the same, though traditionally there was a major difference for statute of limitation purposes
  

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  Fee simple subject to executory limitation: conveyance of future interest in a defeasible fee to someone other than grantor. The future interest is called an executory interest. Identical to fee simple determinable, with ownership shifting automatically on the occurrence of the contingent event, except ownership shifts to third party rather than grantor. Can be established with the following language:
  

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  O to A so long as used for residential purposes, then to B.
  

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  #Singer – if executor interest observed on exam, just say “executor interest may be void as it is subject to the rule against perpetuities”
  

Present ownership rights held during the life of a designated individual

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  Reversion: future interest if the property reverts to the grantor when A dies. Can be established with the following language:
  

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  O to A for life
  

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  Remainder: future interest if the property interest goes to a third party when A dies. Can be established with the following language:
  

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  O to A for life, then to B
  

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  If a life estate holder, A, sells that interest to B, then B gets the property interest for the length of A’s life and then the property will shift to grantor or remainder holder. B’s interest in this case is a life estate for the life of another or a life estate per autre vie
  

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  Contingent Remainders: remainders are contingent if one or both of two conditions are met: (1) if the remainder will take effect only upon the happening of an event that is not certain to happen or (2) if the remainder will go to a person who cannot be ascertained at the time of the initial conveyance
  

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  For example, “O to A for life, then to B if B has graduated from law school,” creates a contingent remainder because at the time of the original conveyance from O to A it is not certain that B will graduate from law school. If B does not graduate from law school, the property will revert to O on A’s death, BUT if B later graduates from law school, the property will then SPRING to B. (modern approach views them as “indestructible”)
  

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  Vested Remainders: include any remainders that are not contingent remainders, meaning they are remainders to persons who are identifiable at the time of the initial conveyance and for whom there are no conditions precedent (conditions that must occur before they will have the right to control the property). Three kinds of vested remainders:
  

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  Absolutely vested remainders: remainder not subject to change
  

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  Vested remainder subject to open: remainder that may be divided among persons who will be born in the future such as “O to A for life, then to the children of B.”
  
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  Vested remainders subject to divestment: a vested remainder that may be destroyed by an event that occurs after the original conveyance, such as “O to A for life, then to B, but if B has flunked out of law school, the property shall then revert to O.” They can be functionally equivalent to some contingent remainders
  

Abolished in all but 4 states (Delaware, Maine, Massachusetts and Rhode Island). The purpose is to keep the property in a family dynasty, traditionally created by language:

A. INTERPRETATION OF AMBIGUOUS CONVEYANCES

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  Facts: Land conveyed to Fremont County for purpose of building a hospital. County eventually sells to private company that closes hospital and puts premises up for sale.
  
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  Rule: Language of conveyance that grants a fee simple estate in land for a special purpose, without stating the special circumstances (using words such as “so long as,” “until,” or “during”) that could trigger expiration of the estate, is not sufficient to create a fee simple determinable
  
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  Rule: No provision will be interpreted to create a condition destroying an estate, such as a condition subsequent (using words such as “upon express condition that,” “upon condition that,” “provided that,” or “if”), if the language will bear any other reasonable interpretation
  
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  Holding: Plain language of deed does not state intent of grantors to retain discretionary power of reentry (not a “fee simple subject to a condition subsequent”)
  

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  Facts: Premises conveyed for use of church, but restricted alienability and further restricted use to religious or educational purposes. Church is later in financial distress, files for bankruptcy, and seeks to sell property free of restrictions.
  
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  Rule: State statutes may empower charities to bring suits to remove restrictions where they impede organization in achievement of its purpose
  
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  Holding: Absent language in deed providing for automatic termination, no power of reverte (court does interpret use limitation to create right of entry without analysis)
  

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  Facts: Woman establishes conditions precedent in gift to daughter to prevent sale or settlement of debts with creditors. Daughter seeks to have children and spouses execute agreement consenting to her sale of farm and one granddaughter refuses. Daughter dies and directs farm be sold and proceeds distributed equally among her other children. Non-consenting daughter objects.
  
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  Rule: conditional limitation imposed upon a life estate is valid
  
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  Rule: life estate may be created by implication as well as by express language, provided will shows requisite intent
  
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  Holding: Affirmed; court finds (despite lack of express language) a creation of a life estate to daughter, with remainders at death in fee simple to grandchildren
  

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  Future interest vs. non-binding precatory language? Fee simple absolute with no future interest
  
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  Covenant vs. future interest? Enforceable covenant (keep title with current owner
  
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  Fee simple determinable vs. fee simple subject to condition subsequent? Condition subsequent (current interest not automatically forfeited)
  
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  Life estate vs. fee simple? Fee simple
  

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  Majority of courts, like Wood, hold language in conveyances explaining purpose of transfer to be precatory – nonbinding
  
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  Minority of courts hold purposive language to create fee simple subject to condition subsequent
  

B. TRUSTS AND THE CY PRES DOCTRINE

C. REGULATORY RULES

1. 
   Rule prohibiting creation of new estates
   
2. 
   Rule against unreasonable restraints on alienation
   
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   Rule against perpetuities
   
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   The interpretive rule prohibiting “waste” of the present estate
   
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   The prohibition on invalid racial conditions
   
6. 
   Rule against unreasonable restraints on marriage
   

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  Limits number of packages of ownership bundles that can be created, facilitating exchange both by making it easier to determine what one is buying and by ensuring that owners have certain basic rights when they acquire those standard bundles
  

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  Facts: Will devises property to granddaughter and her “heirs on her father’s side.”
  
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  Rule: Cannot create a new kind of inheritance
  
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  Holding: Judgment for defendant; contrary to public policy
  

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  3 steps to applying the rule:
  

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   Determine what future interests have been created, the rule applies only to NONVESTED interests (so possibility of reverter, right of entry, reversion or vested remainders do not apply) but executory interests, contingent remainders or vested remainders subject to open are subject to the rule
   
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   If there is a possibility of vesting more than 21 years after the death of all those alive at the creation then its invalid. Look for a “validating life” which is a person within whose lifetime or 21 yrs after death the interest is certain to vest if it ever does vest, if you can’t find a validating life, the future interest is void.
   
3. 
   The solution for violating the rule is to strike out the offending language. For example, “O to A for residential purposes, then to B” violates the rule so we strike out the “then to B” part to be left with a fee simple determinable.
   

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  Some states do a “wait and see” or “second look” test, letting the perpetuities period pass to see if the right has vested or not
  
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  Court may also use Cy Pres to adjust a conveyance to fit within the rule, such as changing “O to A for life, then to the first child of B to attain 25 years of age” and change the 25 to 21
  
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  Uniform Statutory Rule Against Perpetuities (USRAP) applies “wait and see” doctrine and limits perpetuities period to 90 years rather than “lives in being at creation + 21”
  
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  15 states have abolished or significantly altered the rule
  

DePeyster v. Michael, N.Y. (1852)

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  Facts: Lessee covenanted that when they sold premises or any part of it, they would first offer it to the lessor and if lessor declined, lessor would permit lessee to sell or assign the premises in exchange for payment of ¼ of the purchase money. Lessor alleges lessee sold or assigned premises without paying ¼ of sale money.
  
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  Rule: Where no reversionary interest remains in the lessor, there are no restraints upon alienation
  
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  Holding: Affirmed; restrictive covenant invalid