Chapter 10: Construction of Trusts: Future Interests

1. Chapter 10: Construction of Trusts: Future Interests

2. Classification of Future Interests • Remainders • Executory interests

3. Definition of a Remainder A remainder is a future interest in a transferee capable of becoming possessory immediately upon the termination of the preceding preceding freehold estate.

4. There are four kinds of remainders

5. Indefeasibly vested remainder

6. Contingent remainder

7. Vested remainder subject to open(partial divestment)

8. Vested remainder subject to complete divestment

9. Indefeasibly Vested Remainder Will become possessory immediately upon termination of preceding estate

10. Indefeasibly Vested Remainder A for life, then to B

11. Contingent Remainder May become possessory if a condition precedent occurs

12. 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

13. Vested Remainder Subject to Open Limited in favor of class of persons collectively described of which there is at least one living member

14. Vested Remainder Subject to Open A for life, then to B’s children

15. Vested Remainder Subject to Complete Divestment May fail to become possessory (or become indefeasibly vested) because of the happening of a condition subsequent

16. 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

17. There are two kinds of executory interests

18. Executory Interests • Shifting executory interest • Springing executory interest

19. Shifting Executory Interest Future interest which in order to become possessory must divest the vested interest of another transferee

20. Shifting Executory Interest Future interest which in order to become possessory must divest the vested interest of another transferee

21. The vested interest that is divested may be a present possessory interest such as a fee simple

22. B but if B does not attain age 21, then to C B as a fee simple C has a shifting executory interest

23. The vested interest that is divested may be a vested remainder

24. A for life, then to B but ifB predeceases A, then to C A has a life estate B as a vested remainder subject divestment C has a shifting executory interest

25. 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

26. Springing Executory Interests • To B 20 years from now • To A for life, then 1 day after A dies, to B

27. Contingent remainder compared to vested remainder subject to complete divestment

28. The Right Eye Test

29. Contingent remainder Subject to a condition precedent Vested Remainder subject to complete divestment Subject to a condition subsequent

30. To A for life, then if B reaches the age of 21, to B but if B dies under age 21,then to C

31. To A for life, then if B reaches the age of 21, to B but if B dies under age 21,then to C

32. A for life, then to B but if B does notreach the age of 21, then to C

33. A for life, then to Bbut if B does not reach the age of 21, then to C

34. A FOR LIFE, THEN IF B REACHES AGE 21 TO BBUT IF B DOES NOT REACH AGE 21 THEN TO C B and C have alternative contingent remainders A FOR LIFE, THEN TOBIF 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

35. Avoid Confusion A FOR LIFE, THEN IF B REACHES AGE 21, TO B A FOR LIFE, THEN TO BIF B REACHES AGE 21 B HAS A CONTINGENT REMAINDER IN BOTH CASES-Do you see why?

36. Problems • Page 716, Problem2 • Page 717, Problem 1 • Page 717, Problem 2 • Page 717, Problem 3

37. 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)

38. Some Rules of Construction • Give effect to grantor’s intent • Classify interests in the order in which they are set forth in the governing instrument

39. More rules of Construction • Give effect to all the words used • Rundundancy

40. First National Bank v. Anthony

41. 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

42. Security Trust Company v. Irvine

43. 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

44. SECURITY TRUST CO. V. IRVINE PARENTS E T A B C D F G

45. DEATH WITHOUT ISSUE

46. Scenario 1-- B dies in T’s lifetime without issue Scenario 2-- B survives T then dies without issue T wills property to B but if B dies without issue to C

47. Death without issue • Substitutional vs. Successive construction • Which makes property more readily marketable • Which preserves C’s interest for the longest period of time

48. 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

49. Who takes: • B’s issue • B’s estate (heirs or legatees under B’s will, i.e, B’s interest is transmissible)

50. LAWSON vs. LAWSON