Property
Class Notes
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
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.