Property Class Notes 2/11/04


More on Black


What’s the difference between the first agreement that they made and the wills?  The joint will talks about the nieces and nephews while the first agreement does not.  Also, the will addresses personal property whereas the agreement does not.


What’s the issue in the case?  What rights do the nieces and nephews have?  Jessie seems to have the right to dispose of or consume some of the property that is subject to the will.  What does the language “then remaining” mean?


What’s the West Virginia statute and what’s the common law rule of how you deal with a case of a life estate with a power in the life tenant to dispose of some or all of the property that is the subject of the life estate?  What does the statute say?  What was the common law rule?  Under the common law rule, the nieces and nephews would get nothing because if you give a life estate the absolute power of disposal then they actually get a fee simple and the purported gift to the nieces and nephews simply fails.


But under the statute, the life tenant has the power to dispose, but if there’s anything left it goes to the folks who hold the remainder.  The common law rule has been changed by the statute!  The purpose is to give increased flexibility to the life estate.


Frequently, the support of the life tenant is the principal goal of the testator.  For example: “To my spouse for life, and then to my children.”  The goal is to provide for the spouse, but there is a secondary goal of providing for the children.  So you can provide the life estate plus the added power to dispose.  At common law, that just mutates into a fee simple absolute, but by statute, you can have this new category that’s kind of halfway in-between the two.


What rule does the court use?  The court uses the statute.  The result by statute is that Jessie gets a life estate, and then the nieces and nephews get a remainder in fee simple absolute.  Braunstein suggests that because there was no power of disposal, it works out the same way under either rule.


So, what does “then remaining” mean in this court’s opinion?  Doesn’t it necessarily imply a right to dispose?  Does the court give it a different meaning?  They give it the meaning of “ordinary use” or “wear and tear”.  What would you have to add to make it clear that Jessie has the power to dispose?  Would the words “if any” added after “then remaining” be sufficient?  Do these words show a clear intent?  It may be stronger than just what’s there, but it may still fail.  A court might still interpret this as the ordinary depreciation of the property.


This agreement may not have been drafted as well as it could have been.


Say you convey “to A for life with power to dispose, then to B and her heirs”.  Under the common law, we say that the gift to B fails and A gets a fee simple absolute.  At common law, the idea of the power to dispose is repugnant to the idea of a life estate.  On the other hand, under the statute, the second gift does not fail.  The statute says that we’ll enforce the clear intent of the testator.


What’s dangerous about putting in (or leaving out) the power to dispose?  There’s a risk either way.  Land values go up.  The cost of living goes up.  The rents from owning a farm may be sufficient to live on at one point, but later not be enough.  If the life tenant can’t sell any of the property, they may be left destitute.  But on the other hand, the life tenant could turn out to be a spendthrift who gambles away the estate.  So there is a danger either way that can only be resolved through careful drafting.


The legal life estate is a pretty inflexible way to accomplish the purpose it’s usually used for.  The best way to accomplish the purpose of providing for the successive generations after the property owner’s death is a trust.


The trust


The purpose of a trust is to separate management of wealth from enjoyment of wealth.  You create a manager, called the trustee, whose function is to make the property productive through investment and then dispose of the property according to the terms of the trust.  So you have a trusted person who is responsible for management and enforcing the trust.  But the trustee is not supposed to enjoy the money.  The trustee has a high standard of care and a fiduciary duty to the beneficiary.


The person that starts out with the money is called the trustor, settlor, or grantor.  The trustor transfers the property to the trustee, but not for the trustee’s benefit.  Then the trustee manages the property for the benefit of the beneficiary.  Sometimes, these three roles can be held by three different people.  You might set up a trust in anticipation that you might become incompetent in the future, and set yourself up as trustor, trustee, and beneficiary.  But then you provide that if you become incompetent, another trustee will be appointed.


The courts of law did not originally recognize and enforce this transaction.  Instead, they would say that the trustee had a fee simple absolute.  But the courts of equity would enforce trusts.  So not only do we divide title between estates and future interest, but also between legal title and equitable title.  That simply depends on which court you would go to in order to enforce the title.


So there are two kinds of title: legal and equitable.  Both the beneficiary and the trustee could have a fee simple absolute.  The trustee would have a legal fee simple absolute, while the beneficiary would have an equitable fee simple absolute.  For our purposes, all the classifications remain the same, except when we talk about trusts.  We say that the beneficiary has an equitable fee simple absolute and the trustee has a legal fee simple absolute.  Both of them can have fee simple absolutes.


In a sense, this doesn’t make sense.  We already defined fee simple absolute as the whole bundle of sticks, but now we’re saying that a legal fee simple absolute is not the whole bundle of sticks.


Trusts are private and secret, which is a plus for many people.  You won’t have to go to court to show that you’re not crazy, for example.


But trusts are expensive!  It costs money to set one up, plus you probably have to pay the trustee.


Trusts are good for their purpose, but they’re expensive.


Creation of the trust


You would say “to T in trust for B for life and then to C and his heirs”.  Then T has a legal fee simple absolute, B has an equitable life estate, and C has an equitable remainder in fee simple absolute.  T’s legal fee simple absolute gives the trustee the power to sell the property and invest the proceeds.  Even though T’s legal estate is going to end, we call it a legal fee simple absolute because T has to be able to sell the property.  T can’t enjoy the trust property.  B is entitled to the income from the trust, and B may be able to invade the “corpus” of the trust, too.  C gets whatever’s left when B dies.


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