Chapter 10: Construction of Trusts: Future Interests

Classification of Future Interests n Remainders n Executory interests

Definition of a Remainder A remainder is a future interest in a transferee capable of becoming possessory immediately upon the termination of the preceding preceding freehold estate.

There are four kinds of remainders

Indefeasibly vested remainder

Contingent remainder

Vested remainder subject to open (partial divestment)

Vested remainder subject to complete divestment

Indefeasibly Vested Remainder Will become possessory immediately upon termination of preceding estate

Indefeasibly Vested Remainder A for life, then to B

Contingent Remainder May become possessory if a condition precedent occurs

Contingent Remainder n To A for life, then to B if B survives A n To A for life, then to B’s first born child n To A for life, then to B’s heirs

Vested Remainder Subject to Open Limited in favor of class of persons collectively described of which there is at least one living member

Vested Remainder Subject to Open A for life, then to B’s children

Vested Remainder Subject to Complete Divestment May fail to become possessory (or become indefeasibly vested) because of the happening of a condition subsequent

Vested Remainder Subject to Complete Divestment A for life, then to B but if B does not survive A, then to C A for life, then to B’s children but if none of them attain age 21, to C

There are two kinds of executory interests

Executory Interests n Shifting executory interest n Springing executory interest

Shifting Executory Interest Future interest which in order to become possessory must divest the vested interest of another transferee

Shifting Executory Interest Future interest which in order to become possessory must divest the vested interest of another transferee

The vested interest that is divested may be a present possessory interest such as a fee simple

B but if B does not attain age 21, then to C B as a fee simple C has a shifting executory interest

The vested interest that is divested may be a vested remainder

A for life, then to B but if B predeceases A, then to C A has a life estate B as a vested remainder subject divestment C has a shifting executory interest

Springing Executory Interest Future interest limited in favor of transferee that can become possessory only after some period of time when no other transferree was entitled to possession

Springing Executory Interests n To B 20 years from now n To A for life, then 1 day after A dies, to B

Contingent remainder compared to vested remainder subject to complete divestment

The Right Eye Test

n Contingent remainder –Subject to a condition precedent n Vested Remainder subject to complete divestment –Subject to a condition subsequent

To A for life, then if B reaches the age of 21, to B but if B dies under age 21,then to C

A for life, then to B but if B does not reach the age of 21, then to C

A FOR LIFE, THEN IF B REACHES AGE 21 TO B BUT IF B DOES NOT REACH AGE 21 THEN TO C –B and C have alternative contingent remainders A FOR LIFE, THEN TO B IF REACHES AGE 21 BUT IF B DOES NOT REACH AGE 21, THEN TO C –B has a vested remainder subject to divestment and C has a shifting executory interest

A FOR LIFE, THEN IF B REACHES AGE 21, TO B A FOR LIFE, THEN TO B IF B REACHES AGE 21 B HAS A CONTINGENT REMAINDER IN BOTH CASES-Do you see why? Avoid Confusion

Problems n Page 716, Problem2 n Page 717, Problem 1 n Page 717, Problem 2 n Page 717, Problem 3

In re Estate of Gilbert n Facts –Discretionary trust f/b/o Lester Gilbert –Remainder to Lester’s issue –Lester renounces interest –Acceleration of remainders –EPTL 2-1.1(d) (disclaimant deemed to predecease)

Some Rules of Construction n Give effect to grantor’s intent n Classify interests in the order in which they are set forth in the governing instrument

More rules of Construction n Give effect to all the words used n Rundundancy

Edwards v. Hammond

TO O FOR LIFE, THEN TO A IF A ATTAINS AGE BUT IF A DIES UNDER AGE 21 TO B TO O FOR LIFE, THEN TO A BUT IF A DOESN’T REACH AGE 21 THEN TO B

Festing v. Allen

TO A FOR LIFE THEN TO A’S CHILDREN WHO REACH 21 BUT IF NONE OF A’S CHILDREN REACH AGE 21, THEN TO B

First National Bank v. Anthony

Franklin creates REVOCABLE trust. Franklin reserves income Corpus “in equal shares to Franklin’s children, John, Peter and Dencie” John dies before Franklin survived by three children, Deborah, Christopher and Paul Franklin dies testate leaving estate to persons other than John’s children

Security Trust Company v. Irvine

To sisters, A and B, for their lives, then to brothers and sisters, issue of deceased parent to take the parent’s share

SECURITY TRUST CO. V. IRVINE PARENTS BATCD E GF

DEATH WITHOUT ISSUE

T wills property to B but if B dies without issue to C n Scenario 1-- B dies in T’s lifetime without issue n Scenario 2-- B survives T then dies without issue

Substitutional vs. Successive construction –Which makes property more readily marketable –Which preserves C’s interest for the longest period of time Death without issue

T wills property to A for life, then to B but if B dies without issue then to C –Survivorship Options: B could die before A without issue B could survive A and die without issue B could survive A and die with issue

n Who takes: –B’s issue –B’s estate (heirs or legatees under B’s will, i.e, B’s interest is transmissible)

LAWSON vs. LAWSON

n T by will to A for life, then to B, but if B dies without issue surviving A, then to C n T wills to Daughter, Opal, for life, then to her children in fee simple, or if none, to Opal’s brothers and sisters. n Opal later dies without children. n Opal survived by 4 of her six siblings. Two predeceased leaving descendants who claim their parent’s share.

CLOBBERIE’S CASE

n T wills $10,000 to A at 21, to be paid with interest and A dies under age 21, the gift is paid to A’s estate as the gift is VESTED---Holding n T wills $10,000 to A at 21-Dicta (“at” means “if”) n T wills $10,000 to A to be paid (or payable) at 21-Dicta

n T leaves $10,000 to A to be paid when A attains age 21. T leaves the residue of T’s estate to X –Who is entitled to the income on the $10,000 until A attains age 21 –If A dies prior to age 21, should the $10,000 be paid to A’s estate? –If the $10,000 should be paid to A’s estate, should it be paid when A dies or when A would have reached age 21?

Gift to Children or Issue A HG F ED BC I

A HG F ED BC I

A HG F ED BC I

A HG F ED BC I

Dewire v. Haveles n What are the facts of this case? –Widow for life, widow of Jr. for life and Jr’s children, then, 21 years after death of surviving child of Jr. trust terminates and becomes payable to the issue of T’s grandchidlren. n Questions: –As each grandchild dies who gets that grandchild’s share of income. –During the 21 year period following death of surviving grandchild, who gets the trust income. n Options: –Surviving grandchildren –Implied gift of income to issue of deceased grandchild –Accumulate for distribution to ultimate remaindermen

MINARY vs. CITIZENS FIDELITY BANK AND TRUST COMPANY

To son for life, then to my surviving heirs Son adopts wife Son dies leaving wife/child as his and T’s only heir Can wife take as T’s heir?

I was wrong A for life, then to A’s issue who reach age 21, remainder is VOID

Stranger to the adoption rule

ESTATE OF WOODWORTH

n T by will to wife for life, then sister, Elizabeth if living, or if not living, to Elizabeth’s heirs n Elizabeth dies before T’s wife. Her husband survives. n Husband dies and leaves his estate to charity n T’s wife then dies and trust terminates n When are her heirs determined?

n Determine Elizabeth’s heirs at Elizabeth’s death n Determine Elizabeth’s heirs at death of wife

A remainder limited in favor of the heirs of the life tenant is void and the remainder is deemed to be limited in favor of the life tenant Rule of Law Impact of the Doctrine of Merger if there is no intervening estate

DOCTRINE OF WORTHIER TITLE

First Branch A devise to a person who would be the testator’s heir if the testator died intestate is void if the devise is of the same size and quality that the heir would have taken if testator had died intestate No longer followed

Second Branch A remainder limited in favor of the heirs of the grantor is void and the grantor has a reversion Rule of Law Rule of Construction What difference does it make? E.g. O conveys property to A for life, then to O’s heirs

Rule in Shelley’s Case

T wills property to A for life, then to A’s heirs (Merger), but T wills property to A for life, then to A’s first born child if she survives A, but if she dies before A, then to A’s heirs (No Merger-A does not have the next vested estate)

CLASS GIFTS-- The Class Closing Rules

CLASS OPEN If a class is open, then new members may join the class until the class closes A for life, then to A’s children

n If a class closed, no new members may join the class n Even if class closed, members in the class may fall out of the class upon happening of some condition CLASS CLOSED

MINIMUM-MAXIMUM Once class closes we know maximum membership and minimum share of members Once all conditions fulfilled or failed, we know minimum number of members and maximum shares

HOW DOES A CLASS CLOSE Physiologically

Rule of convenience At least one class member is entitled to demand possession of his/her share HOW DOES A CLASS CLOSE

When Can A Person Demand Possession of His/Her Share? n No outstanding present possessory estate n With respect to the person who might make a demand there is no outstanding condition precedent (not subsequent)

n T wills $50,000 to the children of B. n At T’s death, B has three children. n Another child is born to B: –Two months after T dies. –One year after T dies –At T’s death B has no living children Who takes the gift?

n T wills $50,000 in trust to pay the income to A for life, then to the children of B.

At T’s death, B is deceased but has three children who survive T B survives T but dies in A’s lifetime survived by four children. B and three children of B survive both T and A. Another child is born to B: Two months after A dies One year after A dies

n T wills $50,000 in trust to pay the income to A for life, then to B’s children who attain age 21 –B dies in A’s lifetime. A dies survived by B’s three children, none of whom are 21 or over. –B and B’s three children survive A. None of B’s children are 21 or over One of B’s children is over age 21 –In either case, one year after A dies B has another child B but no child of B survives A

Page 779 Problems 1-2 Page , Problems 1-3

LUX vs. LUX

n T wills real property “to be maintained for the benefit” of T’s grandchildren and “shall not be sold until the youngest of said grandchildren has reached” the age of 21. –T survived by one son and five grandchildren.

What did T mean by the “youngest grandchild” Options are: Youngest grandchild alive when will was executed Youngest grandchild alive when T died Youngest grandchild alive is 21 Youngest grandchild whenever born reaches 21