Property Class Notes 3/2/04

 

Let’s do some problems!

 

Problems on the Rule in Shelley’s Case

 

1.     “To A for life, and then to the heirs of A”: Initially, it looks like a life estate for A and then a contingent remainder to the heirs of A.  But the Rule in Shelley’s Case kicks in because, in the same instrument: (1) a life estate is granted to A, (2) the remainder is granted to A’s heirs, and (3) the two estates are legal estates.  That means that A simply gets a fee simple absolute and A’s heirs get nothing (but they might get something when A dies).

2.     “To A for life and then to the children of A”: This purports to give a remainder to A’s children rather than A’s “heirs”.  If A has children, then the children get a vested remainder subject to open in fee simple absolute and if A has no children, then A’s children get a contingent remainder in fee simple absolute and O gets a reversion.

3.     “To A for life, then to B for life, then to A’s heirs”: This purports to give a life estate to A, then a vested remainder for life to B, then a contingent remainder in fee simple absolute to A’s heirs.  After the operation of the rule, the contingent remainder is defeated and A gets a vested remainder in fee simple absolute.  Note that the Rule doesn’t operate on vested remainders.

4.     “To A for life, then to A’s heirs, if A survives B”: Here, A is granted a life estate, A’s heirs are purported to get a contingent remainder in fee simple absolute, and O has a reversion.  Does it matter that this remainder is doubly contingent?  Yes. A must outlive B.  So A still has a life estate, A (also) gets the contingent remainder in fee simple absolute, and O still has a reversion.  Note that we can’t merge A’s interests because A doesn’t have the whole bundle of sticks.

5.     O conveys “To A for life” and subsequently devises his reversion to the heirs of A: No problem here because there’s more than one instrument.  A has a life estate and A’s heirs have the reversion.  Braunstein says: “It’s a stupid rule.”  Note how this is exactly the same as the first problem!  You could even make a grant “To A for life, then to T in trust for the benefit of A’s heirs.”  Then you would have one legal estate and one equitable estate and the Rule wouldn’t apply.

 

Note that the Rule in Shelley’s Case has been abolished almost everywhere because it’s so easy to get around.

 

The only way you have an equitable interest is if there are trustees involved.

 

Don’t forget that we never cut off vested estates or remainders with this Rule.

 

A devise is a gift of real property in a will.  A legacy is a gift of personal property in a will.  No devise, legacy, or bequest is of any legal consequence until the testator dies.  (He says that he’s exaggerating a little bit.)

 

When the time comes to distribute the money and you’re not sure who to give it to, you close the class and just distribute the money.  This is the Rule of Convenience.

 

Doctrine of Worthier Title

 

This doctrine is very similar to the Rule in Shelley’s Case.  But instead of cutting off contingent remainders created in heirs of the transferee, it cuts off contingent remainders in the heirs of the transferor.

 

The doctrine applies only to inter vivos transfers, not to wills.  The Rule in Shelley’s Case, on the other hand, applies both to wills and to inter vivos transfers.  How come?  Well, once you’re dead, we know exactly who your heirs are, and then the remainder is vested.  There’s nothing contingent about it anymore!

 

For example: “To A for life and then to the heirs of O”: This purports to give a life estate to A followed by a contingent remainder in fee simple absolute to the heirs of O, plus a reversion in fee simple absolute to O.  After the operation of the Doctrine of Worthier Title, this would simply become a life estate to A followed by a reversion in fee simple absolute to O.  So let’s say that O devises all of his property to the Red Cross.  The Red Cross gets the reversion, and O’s heirs get nothing.

 

Don’t forget: (1) classify, (2) apply the rule, and finally (3) reclassify.

 

How about this?  “To T, to be held in trust for O for life and then to O’s heirs”: It turns out that the trust income wasn’t enough to support O, and O wanted to know if she could terminate the trust.  So let’s classify: T has a legal fee simple absolute, O has an equitable life estate, and O’s heirs have an equitable contingent remainder in fee simple absolute.  Under the Doctrine of Worthier Title, T would have the legal fee simple absolute and O would have an equitable fee simple absolute.  That means that O will be able to terminate the trust because she is the sole beneficiary.

 

If O hadn’t been able to use the Doctrine, there would have been no way to terminate the trust, because some of the trustees are unascertained.  If all the beneficiaries agree, then the trust can be terminated.

 

The first three rules we looked at were not all that important.  This one is important for drafting purposes and for the bar exam.

 

The Rule Against Perpetuities

 

We have seen this rule before.  It can be found in Ohio in O.R.C. 2131.08.

 

This is a Rule that kills contingent remainder that vest too remotely.  The remainders that it kills must be contingent and must have the possibility of staying contingent for too long.

 

The most famous statement of the rule is:

 

          No interest in real or personal property shall be good unless it must vest, if at all, not later than twenty-one years (plus nine or ten months) after a life or lives in being at the creation of the interest.

 

We’re happy to either have the contingent remainder vest or fail in a timely way.  We just want contingent remainders to go away!  They have to stop being contingent remainder either because they become vested or because they become impossible to occur.

 

The part that will drive us batty is the part about “life or lives in being”.  The people have to be alive at the time of the creation of the interest!

 

As a matter of public policy, we will let the older generation tie property up for one generation plus the (former) age of minority in the next generation.  Then that’s it!  Anything that stays contingent longer than that offends the rule and will be invalidated.

 

We don’t like remote vesting!  That’s what we want to get rid of!  We will kill any possibility of remote vesting!  We’ll kill contingent remainders that are very unlikely to stick around too long, just as long as it’s possible for them to stick around too long.  If it could happen, it’s void.  But it’s only the interests that vest remotely that are void.  The other interests will still be good.

 

The tendency lately is to relax the Rule Against Perpetuities which favors “dead hand control” more and more.  But the Rule Against Perpetuities is very technical and gets more so as it gets reformed (unfortunately).

 

Problems on the Rule Against Perpetuities

 

Do any of these interests violate the Rule Against Perpetuities?

 

“To A for life, and then to B if B attains the age of 30 years”: This doesn’t violate the Rule.  Why not???  A has a life estate and B has a contingent remainder in fee simple absolute.  Let’s say that B is two years old.  B has a contingent remainder that could last for 28 years.  That doesn’t violate the Rule Against Perpetuities.  But why not?  Who is the life in being?  When does B’s interest vest?  Or under what circumstances does B’s interest fail?  The interest could fail within B’s lifetime.  If B dies before he reaches the age of 30, then the contingent remainder fails.  If B stays alive until the age of 30, then the remainder vests.  But the thing is that either thing happens within B’s lifetime.  B will work as the “measuring life”.  A doesn’t work.  If you just look at A, it’s possible that the gift would vest too remotely.  The only person who will work as the measuring life in this problem is B.  But B does work.

 

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