2/22/2014
Trusts
• John could/should have placed the land in a trust
– “To First Bank & Trust, as trustee, for the benefit of my wife Anna for her life, then for the benefit of her surviving children, if any, and if not, for the benefit of my grandchildren”
• What would be the “state of the title” to the land?
• Assume John had placed title to the farm in trust, for the benefit of Anna for her life, then for the benefit of his grandchildren
– Q1: Could Anna keep living on the farm?
– Q2: Trustee contracts to sell the farm to Wal‐Mart for $175K. Grandkids sue to get injunction against sale, arguing (a) “Granddad hated Wal‐Mart and never would’ve sold to them” and (b) “the price is too low.” Are they entitled to relief?
• Bank = legal title (as trustee) in fee simple absolute
• Bank would hold trust assets in trust, for benefit of Anna (for life), Anna’s kids (at her death), or John’s grandchildren (if Anna dies w/out issue)
– Anna = equitable life estate (right to income from trust property during her life)
– Anna’s kids and John’s grandkids would have alternate equitable contingent remainders (the right to income, after Anna dies, until trust terminated)
Defeasible Estates
• Any present or future estate can be made subject to a divesting condition or limitation
– The condition or limitation, if triggered, would result in either the automatic or optional termination of the estate
1
2/22/2014
• Determinable estate
– E.g., O → “To X and her heirs so long as the land is used for residential purposes”; words of limitation indicate durational limit on estate being granted to X
– As soon as land ceases being used for residential purposes, X’s estate is divested (terminates)
– O’s future interest is a possibility of reverter (retained by grantor)
• Estate subject to executory interest
– “To X and her heirs, but if the land ceases to be used for residential purposes, to Y and her heirs”
– Words of limitation indicate that X’s estate is subject to divesting condition subsequent
– If land ceases being used for residential purposes, Y becomes entitled to possession of land – Y’s future interest = executory interest
• Estate subject to condition subsequent
– E.g., O → “To X and her heirs, but if the land ceases to be used for residential purposes, X may re‐enter”; words of limitation indicate that X’s estate is subject to divesting condition subsequent
– If land ceases being used for residential purposes, grantor has option to terminate X’s estate (divestment is not automatic)
– O’s future interest is a right of entry
• Oscar → “to Arnold so long as the land is used for residential purposes only, provided that title shall revert if the land is ever used for nonresidential purposes, and grantor may re‐enter as of his former estate”
• If Arnold opens a restaurant, is his title forfeited automatically, or must Oscar re‐enter?
2
2/22/2014
• 1970: O conveyed “to First Baptist Church, for church purposes only”
• 1971: First Baptist builds church on the land
• 2010: First Baptist Church wants to sell and build new church on another parcel
• What happens? What estate did First Baptist Church take?
Possibilities?
• FSA estate (O was just stating why he made the transfer)
• Defeasible fee simple estate
• FSA estate, subject to a covenant (risk of lawsuit, but not a forfeiture/defeasance)
3