Chapter 14
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FUTURE INTERESTS HELD BY THE TRANSFEREE
The common law principles governing future interests held by transferees are extraordinarily complex, reflecting the internal tensions of post-feudal English society. The maze of rules that resulted from centuries of legal struggle can be described as a compromise: future interests in transferees were permitted, but restricted.
The common law recognized only two broad categories of future interests that could be held by a transferee: the remainder and the executory interest. There are four types of remainders and two types of executory interests.
[A] Definition
A remainder is a future interest created in a transferee that is capable of becoming possessory upon the natural termination of a prior estate created by the same instrument. For example, if A conveys “to B for life, and then to C,” C’s interest is capable of becoming possessory when the prior estate (B’s life estate) naturally terminates; C holds a remainder.
[B] Types of Remainders
[1] Vested Remainders
The three types of vested remainders are: the indefeasibly vested remainder; the vested remainder subject to divestment; and the vested remainder subject to open. All three vested remainders are (a) created in a living, ascertainable person and (b) not subject to any condition precedent except the natural termination of the prior estate. The indefeasibly vested remainder is certain to become a possessory estate; for example, if A conveys “to B for life, and then to C,” C (or C’s successor) will clearly be entitled to possession upon B’s death. In contrast, the vested remainder subject to divestment is certain to become possessory unless some specified event occurs (e.g, “to B for life, then to C, but if C ever smokes a cigar, then to D). Finally, the vested remainder subject to open is held by one or more ascertainable members of a class that may be enlarged by the future addition of presently unascertainable persons.
[2] Contingent Remainders
The contingent remainder, in contrast, is either (a) created in an unascertainable person or (b) subject to a condition precedent. For example, suppose A conveys “to B for life, and then to C if C graduates from law school.” C’s remainder is contingent because she must first satisfy a condition precedent (graduating from law school) before she is eligible to take possession following B’s death.
[A] Definition
An executory interest is a future interest created in a transferee that must “cut short” or “divest” another estate or interest in order to become a possessory estate. For example, if A conveys property “to A, but if B returns from France, then to B,” A has a form of fee simple that may potentially endure forever; in order to become a possessory estate, B’s interest must cut short A’s fee simple, so B has an executory interest.
[B] Types of Executory Interests
It is traditional to distinguish between the shifting executory interest (one that divests the transferee) and the springing executory interest (one that divests the transferor). However, this distinction has no legal significance.
At common law, the distinction was important. For example, the Rule in Shelley’s Case applied to remainders, but not to executory interests. Today, however, there is little legal difference between the two interests in most jurisdictions.
The remainder or executory interest in real property can arise only through express language in a valid deed or will, not through implication.
Remainders and executory interests may be freely transferred in most states. However, some states still insist that contingent remainders and executory interests cannot be transferred by an inter vivos conveyance.
The holder of a vested remainder still has somewhat greater rights than the owner of a contingent remainder or executory interest in two areas: remedies for waste and shares in eminent domain proceeds.
The common law recognized four doctrines designed to restrict contingent future interests held by transferees: the Rule Against Perpetuities; the Doctrine of Worthier Title; the Rule in Shelley’s Case; and the destructibility of contingent remainders.
[A] The Rule in Context
The common law version of the Rule is: “No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest.” To comply with the Rule, it must be logically provable that within the specified period a covered contingent interest will either vest (that is, change into a vested interest or present estate) or forever fail to vest (that is, never vest after the period ends), based only on facts existing when the future interest becomes effective.
[B] Application of the Rule
For example, assume O conveys “to A for life, then to the first child of A to reach age 30.” Assume that A is alive when the conveyance takes effect, but that A has never had children. A potential unborn child (A’s first child to reach age 30) receives a contingent remainder under this language, which is a type of interest subject to the Rule. It cannot be logically proven that this interest is valid. For instance, A might have a child, B, one year after the conveyance; suppose O and A then die. Twenty-nine years later, if B survives, her contingent remainder will “vest” by becoming a present estate. B’s interest is deemed invalid under the Rule—at the time of O’s conveyance—because such vesting would come too late (more than 21 years after O and A, the lives in being, died).
Most states have modified the common law Rule by: (1) adopting a “wait and see” approach (that is, waiting until the end of the relevant period to see if the interest in fact vested or forever failed to vest); and/or (2) permitting reformation to validate the interest if consistent with the transferor’s intent.
Traditionally, if an owner transferred real property to one party, and by the same instrument transferred the following remainder or executory interest to the owner’s heirs, then, under this doctrine, the owner received a reversion and the “heirs” received nothing. Today the doctrine is virtually obsolete in the United States.
Under this rule, if a deed or will (1) created a life estate or fee tail in real property in one person and (2) also created a remainder in fee simple in that person’s heirs, and (3) the estate and remainder were both legal or both equitable, then the future interest belonged to that person, not the person’s “heirs.” This rule has been abolished in all but two states.
At common law, a legal contingent remainder in real property was extinguished if it failed to vest when the preceding freehold estate ended. Today almost all states have abandoned this doctrine.
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