#11269 - Future Interests - Property

Steps to identify future interest:

• (1) Classify the present estate (determinable? Subject to condition subsequent? Life estate?)

• (2) Identify who has the future interest (grantor? Third party?)

• (3) Identify conditions for the interest to become possessory.

• (4) Identify the type of estate in which it will be held.

• (5) Identify whether the interest is vested or contingent.

• (6) Apply the relevant rules (Destructibility of Contingent Remainders, Rule in Shelley’s Case, Doctrine of Worthier Title, and RAP)

A future interest is a non-possessory estate which is capable of becoming possessory.

Like possessory estates, future interests fall into a limited number of categories. (Numerus clausus).

1. Reversion

A reversion is a future interest in the grantor, which follows after the grantor conveys a vested estate of a lesser quantum than he has.

Reversions follow life estates and leaseholds.

Reversions are considered vested even though they will not necessarily become possessory.

Reversions are not subject to the RAP.

Reversions have always been fully transferrable inter vivos.

1. Possibility of Reverter

A POR is created in the grantor and follows a determinable estate.

A POR automatically returns title to the grantor.

A POR was not transferrable at common law (except by descent), but is generally transferrable today.

A POR need not be expressly retained to be created. It is implied provided that the estate returns to the grantor upon the expiration of a stated condition.

1. Right of Entry

A ROE is created in the grantor and follows an estate subject to condition subsequent.

A ROE creates an option in the grantor to retake the premises if he chooses, once a stated condition is met.

A ROE was inalienable at common law (except by descent), but today it is alienable in some jurisdictions.

• The ROE could always be released by the holder.

• A particularly harsh minority rule destroys the ROE if the holder attempts to convey it.

At common law, the ROE survived forever and was not subject to the RAP. This is the

1. Remainder

A remainder is a future interest in a grantee which cannot divest the prior estates. It waits patiently for the preceding estate to expire. A remainder can only become possessory on the natural expiration of the prior estate.

A remainder only exists when there is a preceding freehold estate and when it is expressly created in the original grant. A remainder can only follow a fee tail, life estate, or term of years.

A remainder never divests a fee simple. If an interest divests a fee simple, it is an executory interest.

Remainders are either vested or contingent. A vested remainder is one which is not subject to any condition precedent which must be satisfied before it becomes possessory. A contingent remainder only becomes possessory if a condition precedent is satisfied.

1. Vested Remainder

A remainder is vested when it is created in an ascertained person and is not subject to a condition precedent.

A condition precedent is an express condition attached to the remainder.

There are three subtypes of vested remainder:

• Indefeasibly Vested: The remainder is certain to become possessory by X or his heirs.

• Vested Subject to Open: The remainder is vested in a class, at least one of whom is already entitled to take possession, but which may gain new members diluting the shares of the others before it becomes possessory.

• Vested Subject to Divestment: The remainder is vested but may be divested by a condition subsequent, or else the remainder contains an inherent limitation. (e.g.: To A for life, then to B, then to C. If B does not outlive A, her remainder is inherently limited and is subject to divestment).

Vested remainders are alienable inter vivos and devisable, and descends to heirs upon death, unless the grant makes it divest upon death.

A vested remainder in fee simple never creates a reversion in O.

The law prefers vested remainders where the grant is ambiguous.

1. Contingent Remainder

A remainder is contingent if it is limited to an unascertained person or if it is subject to a condition precedent.

An “unascertained person” is not yet born or cannot be determined until some event happens.

• (e.g.: To A for life, then to B’s heirs. A living person has no heirs; so B’s heirs are unascertained until B dies).

A remainder is subject to a condition precedent when it is subject to an express condition in the grant.

• (e.g.: To A for life, then to B if B marries C).

• Termination of the preceding estate is not considered a condition precedent. Any such language is surplusage.

If survivorship is not an express condition of the grant, it is implied that the remainderman’s interest will survive even if the remainderman does not survive the holder of the prior estate.

• (e.g.: To A for life, then to A’s issue, and if A dies without issue, to B and her heirs. If B dies before A, and A subsequently dies without issue, B’s heirs take the estate).

A contingent remainder in fee simple always gives rise to a reversion in O.

An alternative contingent remainder is created when a contingent remainder is subject to the condition precedent that another contingent remainder fails.

• (e.g.: To A for life, then to B if B survives A, but if B does not survive A, to C.)

Unlike vested remainders, contingent remainders were not alienable inter vivos at common law and were only devisable when they were not destroyed upon the death of the holder. Under modern law, contingent remainders are freely alienable provided they are not subject to survivorship and provided that they are held by an ascertained person (majority).

1. Executory Interests

An executory interest is a future interest in a grantee which must divest or cut short the prior estate, or else spring out of the grantor.

Shifting executory interests divest a prior estate in another grantee.

Springing executory interests divest the grantor at some future time.

At common law, a grantor could not create springing or shifting executory interests. The Statute of Uses made these interests legal.

1. Uses

At common law, a use was an equitable estate in land. The feoffee to uses was seised of the land, but was obligated by a covenant with the grantor to hold the land for the benefit of a third party, the cestui que use. The law would not enforce the covenant, but equity would.

The cestui que use was entitled to take possession and the profits of the land; the feoffee was required to dispose of the land as the cestui ordered and to protect the land.

The Statute of Uses (1536) “executed” the outstanding uses, converting all uses held for the use of beneficiaries into fee simple estates for the beneficiaries.

1. Trust

After the Statute of Uses, the trust was developed to replace it. The courts held the Statute of Uses did not execute a use where the feoffee had active duties.

The modern trustee holds title to the property and actively manages it for the beneficiary. The beneficiaries may sue the trustee in equity to compel him to fulfill his duties.

1. Rules Restricting Contingent Remainders

   1. Destructibility of Contingent Remainders

This rule has been abolished in most states.

The rule states that a legal contingent remainder in land is destroyed if it does not vest at or before the termination of the preceding freehold estate.

Rationale: the common law abhorred an abeyance of seisin. Thus if X’s remainder was still contingent after the preceding estate terminated, then X’s interest was destroyed. This made land alienable earlier.

The DCR rule does not apply to vested remainders and executory interests, personal property, or interests in trust.

The rule could be avoided by creating a term of years instead of a life estate or by creating a trust to preserve the contingent remainders.

1. Rule in Shelley’s Case

This rule has been abolished in most states.

The rule states: 1) If one instrument 2) creates a freehold in land in A, and 3) purports to create a legal remainder in A’s heirs (or the heirs of A’s body), and 4) the estates are both legal or equitable, then the remainder becomes a remainder in fee simple or fee tail in A. This is called merger.

The rule was written to prevent tax evasion. Feudal incidents were only due when a new tenant acquired his interest by descent from the former tenant, which could be dodged by creating a life estate in the next tenant.

The rule also applied to life estates determinable.

• (e.g.: To my wife W for her widowhood or until she remarries, then to W’s heirs. W’s interest converts from a life estate determinable into a fee simple absolute.)

The rule merged a life estate in remainder into a life estate in fee simple.

• (e.g.: To A for life, then to B for life, then to B’s heirs. B’s interest becomes a remainder in fee simple.)

The rule did not merge a life estate and contingent remainder.

• (e.g.: To A for life, then to A’s heirs if A survives B. A has both a life estate and a contingent remainder.)

Rationale: the rule made land alienable one generation earlier by permitting A to convey fee simple even though he only received a “life estate, remainder to A’s heirs.”

The rule does not apply to a grant conveying an interest to A and “to A’s children” or “A’s issue.” However, it does apply to a grant to A and “to A’s heirs of the body.”

The rule could be dodged by conveying a leasehold instead of a freehold.

• (e.g.: To A for 100 years if A so long lives, then to A’s heirs.)

Where the rule has been abolished, a conveyance “To A for life, then to A’s heirs” creates a life estate in A and a...