Future Interests
- A future interest gives its holder the right/possibility of future possession of an estate.
- Despite the fact that possession is in the future, a future interest is a present, legally protected right in property.
- 6 categories of future interests, & we classify them based on whether they are retained by the transferor/grantor or instead, by a transferee.
- If a future interest is held by a transferor, it must be (1) a possibility of reverter; (2) a right of entry; or (3) a reversion.
- If a future interest is held by someone other than the transferor, it must be (1) a contingent remainder; (2) a vested remainder (3 types); or (3) an executory interest (2 types).
Future Interests in Transferor - Reversionary Interests
- There are only 3 future interests capable of creation in the grantor: the possibility of reverter, the right of entry, & the reversion.
Possibilities of Reverter and Rights of Entry
- These interests were discussed in Module 2 in connection w/ defeasible fees.
- Remember that the possibility of reverter accompanies the fee simple determinable & the right of entry (also known as the power of termination) accompanies the fee simple subject to condition subsequent.
Reversions
- A reversion is the estate left in a grantor who conveys less than they own (Ex. O conveys “to A for life”; O has a reversion).
- Whenever a grantor transfers an estate of lesser
duration than what they started with–other than instances giving rise to a possibility of reverter/right of entry– the future interest that arises is a reversion - The reversion arises by operation of law; it does not have to be expressly reserved.
- A reversion is transferable, devisable by will, & inheritable.
- Its holder can sue for waste & for tortious damage to the reversionary interest.
Tip
- All reversionary interests are vested and, thus, not subject to the Rule Against Perpetuities (discussed later).
Future Interests in Transferees Overview
- If a future interest is held by someone other than the grantor, it has to be either:
(1) contingent remainder, OR
(2) vested remainder (of which there are three types): (1) the indefeasibly vested remainder,
(2) the vested remainder subject to complete defeasance (also known as the vested remainder subject to total divestment), and
(3) the vested remainder subject to open, OR - An executory interest (of which there are two types: (1) the shifting executory interest, and
(2) the springing executory interest).
Future Interests in Transferees - Remainders
- A remainder is a future interest in a 3rd person that can become possessory on the natural expiration of the preceding estate.
- It cannot divest a prior estate, & it cannot follow a time gap after the preceding estate.
- A remainder must be expressly created in the instrument creating the preceding possessory estate. - Remainders are either vested/contingent.
- Ex: 1) O conveys “to A for life, then to B and his heirs.” B has a remainder.
2) O conveys “to A for life, then to B & his heirs one day after A’s death.” B does not have a remainder (b/c there is a gap).
Tip
To remember the remainder, think of it as:
* Sociable. Remainders never travel alone. In other words, remainders always accompany a preceding estate of known, fixed duration (such as a life estate/ term of years).
* Patient & polite. A remainder never cuts short/ divests the prior taker. Instead, it patiently waits its turn & won’t take until the present life estate/term of years comes to its conclusion. Because a remainder cannot “cut short” a preceding estate, it can never follow a fee simple estate, which is of potentially infinite duration. (Executory interests are the future interests that cut short preceding estates or follow a gap after them.)
Contingent Remainder
- A remainder is contingent if:
(1) it’s created in unborn/unascertained persons, or (2) it’s subject to a condition precedent, or both. - In other words, a remainder may be contingent as to person or as to event.
Contingent Remainder: Unborn or Unascertained Persons
- A remainder created in unborn/unascertained persons is contingent b/c until remainderman is ascertained, no one is ready to take possession if the preceding estate ends.
- Ex. 1) O conveys “to A for life, then to B’s first child.” A is alive. B, as yet, has no children.
2) O conveys “to A for life, then to B’s heirs.” A is alive. B is alive. Because a living person has no heirs, while B is alive, his heirs are unknown. Thus, the remainder is contingent.
3) O conveys “to A for life, then to those children of B who survive A.” A is alive, as is B. But we don’t yet know which, if any, of B’s children will survive A. Thus, the remainder in B’s children is contingent.
Contingent Remainder:
Subject to Condition Precedent
- Condition is precedent if it must be satisfied before remainderman has a right to possession.
- Look for condition to appear before language creating remainder/or for it to be woven into the grant to remainderman.
- Think of it as a prerequisite to remainderman’s admission, that
is, it’s something they must do in order to succeed in taking possession. - Ex. 1) O conveys “to A for life, then to B and his heirs if B marries C.” B’s remainder is contingent b/c he must marry C before he can take possession.
2) O conveys “to A for life, then to B and his heirs if B marries C,
otherwise to D and his heirs.” B and D have alternative contingent
remainders - Compare: O conveys “to A for life, then to B and his heirs; but if B marries C, then to D and his heirs.” B has a vested remainder (because there’s no condition precedent) subject to divestment by D’s executory interest.
Contingent Remainder: Technical Rules of the Common Law
There are a few technical rules under common law that
address specific situations involving remainders. Be aware
that these rules exist, but as they’ve been abolished in most
jurisdictions, you’re unlikely to be asked to apply them.
Contingent Remainder: Technical Rules of the Common Law - Destructibility of Contingent Remainders
Destructibility of Contingent Remainders
At common law, a contingent remainder was destroyed
if it failed to vest before or upon the termination of the
preceding freehold estate.
EXAMPLE
O conveys “to A for life, then to B if she reaches age 21.” If A dies
before B reaches age 21, B’s remainder is destroyed.
Most states have abolished the destructibility rule. In
those states, B’s interest in the above example would
be converted to an executory interest upon A’s death
because it will divest O’s reversionary estate when B
turns 21.
Contingent Remainder: Technical Rules of the Common Law -Rule in Shelley’s Case (Rule Against Remainders in
Grantee’s Heirs)
At common law, if the same instrument created a life
estate in A and gave the remainder only to A’s heirs, the
remainder was not recognized, and A took the life estate
and the remainder.
EXAMPLE
O conveys “to A for life, then to B for life, then to the heirs of A.”
The Rule transforms the remainder in A’s heirs into a remainder
in A. (No merger, however, because the remainder for life in B is
vested.)
The Rule in Shelley’s Case has been abolished in most
states.
Tip
Since most jurisdictions have abolished the Rule in
Shelley’s Case, you will most likely encounter it on
the MBE as a wrong answer choice that can be
quickly eliminated.
Contingent Remainder: Technical Rules of the Common Law - Doctrine of Worthier Title (Rule Against Remainders
in Grantor’s Heirs)
Under the Doctrine of Worthier Title (“DOWT”), a
remainder in the grantor’s heirs is invalid and becomes a
reversion in the grantor.
EXAMPLE
O grants Blackacre “to A for life, then to the heirs of O.” Under
DOWT, A has a life estate, and O has a reversion.
DOWT is generally treated as a rule of construction (that
is, it does not apply if an intent to create a remainder in
heirs has been clearly manifested). DOWT applies only
to inter vivos transfers (not wills), and only if the word
“heirs” is used.
Vested Remainders
- Vested remainder: created in an existing & ascertained person, & not subject to a condition precedent.
- 3 types: (1) indefeasibly vested remainder; (2) vested remainder subject to total divestment (also known as vested remainder subject to complete defeasance); and (3) vested remainder subject to open.
Vested Remainders:
Indefeasibly Vested Remainder
- Indefeasibly vested remainder: vested remainder that is not subject to divestment/diminution.
- Holder of this remainder is certain to acquire an estate in the future, w/ no strings/conditions attached.
Vested Remainders:
Vested Remainder Subject to Total Divestment
- Vested remainder that is subject to a condition subsequent. It is also known as a vested remainder subject to complete defeasance.
- Here, remainderman exists. His taking is not subject to any condition precedent.
- However, his right to possession could be cut short b/c of a condition subsequent.
EXAMPLE
O conveys “to A for life, then to B and his heirs; but if B dies unmarried, then to C and his heirs.” B is alive & unmarried. B has a vested remainder subject to total divestment by C’s executory interest.
Distinguishing Conditions Subsequent and Precedent
It’s important to know the difference between a condition
precedent, which creates a contingent remainder,
and a condition subsequent, which creates a vested
remainder subject to total divestment. To tell the
difference, apply the Comma Rule. When conditional
language in a transfer follows language that, taken
alone and set off by commas, would create a vested
remainder, the condition is a condition subsequent,
and you have a vested remainder subject to complete
defeasance.
Tip
Where language is ambiguous, the preference is
for vested remainders subject to divestment rather
than contingent remainders or executory interests
Vested Remainders:
Vested Remainder Subject to Open
- Vested remainder created in class of persons (ex. “children”) that is certain to become possessory, but is subject to diminution—ex. by the birth of additional persons who will share in the remainder as a class.
- In other words, we have a group of persons, at least one of whom is qualified to take possession, but each group member’s share could get smaller b/c additional takers, not yet ascertained, may still join the class.
Class Gifts
“Class”: group of persons having a common characteristic
(ex. children, nephews).
The share of each member is determined by # of persons in the class.
- A class gift of a remainder may be vested subject to open (where at least one group member exists) or contingent (where all group members are unascertained).
When the Class Closes—The Rule of
Convenience
- A class is open when it’s still possible for others to join in.
- A class is closed when no others can join in.
- To figure out whether a given class has closed, we apply the **rule of convenience. **
- Rule of convenience: in absence of express contrary intent, a class closes (that is, no one born after that time may share in the gift) when a class member can call for distribution of their share of class gift.
- So, a class closes when any member of the class can demand possession.
