chapter 10: construction of trusts: future interests
TRANSCRIPT
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Chapter 10: Construction of Trusts: Future Interests
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Classification of Future Interests
RemaindersExecutory interests
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Definition of a Remainder
A remainder is a future interest A remainder is a future interest in a transferee capable of in a transferee capable of becoming possessory becoming possessory immediately upon the immediately upon the termination of the preceding termination of the preceding preceding freehold estate.preceding freehold estate.
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There are four kinds of remainders
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Indefeasibly vested remainder
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Contingent remainder
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Vested remainder subject to open(partial divestment)
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Vested remainder subject to complete divestment
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Indefeasibly Vested Remainder
Will become possessory immediately upon
termination of preceding estate
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Indefeasibly Vested Remainder
A for life, then to B
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Contingent Remainder
May become possessory if a
condition precedent occurs
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Contingent Remainder
To A for life, then to B if B survives A
To A for life, then to B’s first born child
To A for life, then to B’s heirs
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Vested Remainder Subject to Open
Limited in favor of class of persons collectively
described of which there is at least one living member
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Vested Remainder Subject to Open
A for life, then to B’s children
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Vested Remainder Subject to Complete Divestment
May fail to become possessory (or become indefeasibly vested) because of the happening of a
condition subsequent
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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
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There are two kinds of executory interests
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Executory Interests
Shifting executory interest
Springing executory interest
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Shifting Executory Interest
Future interest which in order to become possessory must divest the vested interest of another transferee
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Shifting Executory Interest
Future interest which in order to become possessory must divest the vested interest of another transferee
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The vested interest that is divested may be a present possessory interest such as a fee simple
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B but if B does not attain age 21, then to C
B as a fee simple C has a shifting executory interest
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The vested interest that is divested may be a vested remainder
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A for life, then to B but ifB predeceases A, then to C
A has a life estateB as a vested remainder subject divestment C has a shifting executory interest
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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
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Springing Executory Interests
To B 20 years from nowTo A for life, then 1 day after A dies, to B
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Contingent remainder compared to vested remainder subject to complete divestment
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The Right Eye Test
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Contingent remainder –Subject to a condition precedent
Vested Remainder subject to complete divestment–Subject to a condition subsequent
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To A for life, then if B reaches the age of 21, to B but if B dies under age 21,then to C
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To A for life, then if B reaches the age of 21, to B but if B dies under age 21,then to C
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A for life, then to B but if B does not reach the age of 21, then to C
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A for life, then to B but if B does not reach the age of 21, then to C
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•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
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•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
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Problems
Page 716, Problem2 Page 717, Problem 1 Page 717, Problem 2 Page 717, Problem 3
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In re Estate of Gilbert
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)
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Some Rules of ConstructionGive effect to grantor’s intentClassify interests in the order in which they are set forth in the governing instrument
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More rules of Construction
Give effect to all the words used
Rundundancy
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First National Bank v. Anthony
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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
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Security Trust Company v. Irvine
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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
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SECURITY TRUST CO. V. IRVINE
PARENTS
BAT C D E
GF
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DEATH WITHOUT ISSUE
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T wills property to B but if B dies without issue to C
Scenario 1-- B dies in T’s lifetime without issue
Scenario 2-- B survives T then dies without issue
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• Substitutional vs. Successive construction
–Which makes property more readily marketable
–Which preserves C’s interest for the longest period of time
Death without issue
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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
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Who takes:
–B’s issue
–B’s estate (heirs or legatees under B’s will, i.e, B’s interest is transmissible)
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LAWSON vs. LAWSON
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T by will to A for life, then to B, but if B dies without issue surviving A, then to C
T wills to Daughter, Opal, for life, then to her children in fee simple, or if none, to Opal’s brothers and sisters.
Opal later dies without children. Opal survived by 4 of her six siblings. Two predeceased
leaving descendants who claim their parent’s share.
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CLOBBERIE’S CASE
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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
T wills $10,000 to A at 21-Dicta (“at” means “if”)
T wills $10,000 to A to be paid (or payable) at 21-Dicta
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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?
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Gift to Children or IssueGift to Children or IssueA
HG
F ED
B C
I
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Gift to Children or IssueGift to Children or IssueA
HG
F ED
B C
I
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Gift to Children or IssueGift to Children or IssueA
HG
F ED
B C
I
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Gift to Children or IssueGift to Children or IssueA
HG
F ED
B C
I
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Dewire v. Haveles 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.
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. Options:
– Surviving grandchildren– Implied gift of income to issue of deceased grandchild– Accumulate for distribution to ultimate remaindermen
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MINARY vs.
CITIZENS FIDELITY BANK AND TRUST
COMPANY
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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?
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I was wrong
A for life, then to A’s issue who reach age 21, remainder is VOID
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Stranger to the adoption rule
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ESTATE OF WOODWORTH
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T by will to wife for life, then sister, Elizabeth if living, or if not living, to Elizabeth’s heirs
Elizabeth dies before T’s wife. Her husband survives.
Husband dies and leaves his estate to charity
T’s wife then dies and trust terminates When are her heirs determined?
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Determine Elizabeth’s heirs at Elizabeth’s death
Determine Elizabeth’s heirs at death of wife
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• 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
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DOCTRINE OF WORTHIER TITLE
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First BranchFirst 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
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Second BranchSecond 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
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Rule in Shelley’s Case
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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)
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CLASS GIFTS--The Class Closing Rules
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CLASS OPENCLASS 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
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If a class closed, no new members may join the class
Even if class closed, members in the class may fall out of the class upon happening of some condition
CLASS CLOSEDCLASS CLOSED
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MINIMUM-MAXIMUMMINIMUM-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
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HOW DOES A CLASS CLOSE
Physiologically
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Rule of convenience
At least one class member is entitled to demand possession of
his/her share
HOW DOES A CLASS CLOSE
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When Can A Person Demand Possession of His/Her Share?
No outstanding present possessory estate
With respect to the person who might make a demand there is no outstanding condition precedent (not subsequent)
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T wills $50,000 to the children of B. At T’s death, B has three children. 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?
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T wills $50,000 in trust to pay the income to A for life, then to the children of B.
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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
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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
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Page 779 Problems 1-2 Page 780-81, Problems 1-3
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LUX LUX vs. vs.
LUXLUX
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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.
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What did T mean by the “youngest grandchild”
Options are:Youngest grandchild alive when
will was executedYoungest grandchild alive when
T diedYoungest grandchild alive is 21Youngest grandchild whenever
born reaches 21