Thursday, June 2, 2011

Real Property: The Rule Against Perpetuities

Question:

What's the best/easiest way to approach a Real Property question that deals with the RAP?


Response:

The first thing you'll want to do is memorize the rule: No interest is valid unless it must vest within 21 years of some life in being at the creation of the interest. What this means is that certain future interests are void if there is any possibility that the interest may vest more than 21 years after the death of a relevant life. If a future interest violates the rule, generally the life estate that was created at the same time remains valid but the future interest is voided. The interest that would have passed to the future interest holder instead is usually received as a future interest of the grantor in the form of a reversion (reversions are not subject to the rule against perpetuities).

On the MBE, take the following approach:

Determine the type of future interest that is being created. This is essential because the rule against perpetuities only applies to some interests. The rule applies to contingent remainders, executory interests, and certain vested remainders subject to open. Along with reversions, the rule does not apply to vested remainders other than those subject to open.

Once you've determined that you're dealing with an interest that is subject to the rule, find the measuring lives. The measuring lives are those who are alive at the time of conveyance whose life or death is relevant to the conditions occurring.

Finally, see if there is any possibility that the conditions will only be satisfied more than 21 years after the death of all the measuring lives. Remember, all that is necessary is a possibility.

As an example, assume a grant to A for life, then to the first child of A to reach 25 years old. Assume that at the time of the grant, A has a child who is 23 years old. A has a life estate, and the first child of A to reach 25 has a contingent remainder. Contingent remainders are subject to the rule, so you'll need to consider it. Is it possible that the first child of A to reach 25 might reach that age more than 21 years after the measuring lives?

The measuring lives here are A, and A's 23 year old child. What if the day after this grant, A's child dies. A has another child, and then A dies the day after that child is born. That child (let's call him B) will reach the age of 25 more than 21 years after any of the measuring lives (because B will reach age 25 more than 21 years of after the death of A, and A's child). Because it's possible for this to occur, the grant to A's child is voided by the rule against perpetuities, and instead A is given a life estate, and the grantor is given a future interest in the form of a reversion.



3 comments:

  1. Thank you so much, Sean. That's as clean of an explanation I've heard thus far.

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  2. Great, Mark. Glad to hear it helped!

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  3. Agreed! Great, clear and concise explanation!

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