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FUTURE INTERESTS

Future interests in wills, trusts, and deeds can give rise to contentious legal issues. Such problems form when drafters confuse or misunderstand the specific language needed for the interest they wish to create. While courts hold that the intent of the grantor is key to construing such a document, that intent is often difficult to discern at a later date, for example, after the grantor is deceased. It is important for attorneys to familiarize themselves with the types of interests and the language necessary to create them, not only for drafting purposes, but also to properly advise clients as to their ownership rights. In addition, certain Illinois statutes operate to change the nature of some future interests. Statutes of limitation serve to limit an adverse interest holder from claiming that interest after a certain period of time has elapsed and can operate to clear otherwise clouded title. Furthermore, several statutes in Illinois allow for an alternate disposition of trust, other than what is specified by the terms of the trust agreement. This article discusses the application and effect of future interest terminology, as well as how statutes control various future interests in Illinois.

The Freehold Estate

There are two types of freehold estates: (1) the fee simple; and (2) the life estate. The owner of property in fee simple can convey that same interest or any lesser interest to another, or the interest, at the death of the owner, will pass according to inheritance statute or probate. Historically, the language "to A and her heirs" conveyed property in fee simple, but now a conveyance "to A" is sufficient. See, e.g., Wolfer v Hemmer, 144 Ill 554, 33 NE 751 (Ill 1893); 765 ILCS 5/9, 10 & 13.

An owner of property in fee simple may convey a life estate interest in that property, meaning that the grantee obtains the full use, possession, and enjoyment of the property for the length of a "measuring" life, most often that of the grantee. The words "to A for life" convey a life estate, but the grantor can choose to retain a reversionary interest or convey a remainder interest in the property. For example, upon the grantee's death, the property can revert back to the grantor, or vest in fee simple in some third-party. The interest the grantor has in property after a life estate is called a reversion, and in the absence of a provision designating what happens to the property after the termination of the life estate, the property reverts to the grantor. If, instead of creating a reversion, the grantor gives a third-party the property after a life estate terminates, the interest the third-party takes is called a remainder. A remainder can be created by using the words, "to A for life, and then to B."

There are two types of remainder interests: contingent and vested. A contingent remainder is "one limited to take effect either to a dubious and uncertain person or upon a dubious or uncertain event," and a vested remainder is "a present interest which passes to a party to be enjoyed in the future, so that the estate is immediately fixed in a determinate person after a particular estate terminates." Pingrey v Rulon, 246 Ill 109, 118, 92 NE 592, 596 (Ill 1910).

A grantor retains a reversionary interest when conveying a life estate with a contingent remainder interest to a third-party. Such a contingent remainder interest could be created, for example, by the words, "to A for life, and then B, provided that B outlives A." See Biwer v Martin, 294 Ill 488, 128 NE 518 (Ill 1920). B's remainder interest is contingent upon B being alive at the time of A's death. In contrast, a vested remainder is not contingent upon the happening of any event and the remainderman receives the legal estate upon execution of the granting document. See Pingrey v Rulon, 246 Ill 109, 120, 92 NE 592, 596 (Ill 1910).

A reversionary interest retained by a grantor may be conveyed and is indestructible, such that when a reversion merges with all other interests in the land in one person, then that person is the owner in fee simple. The following examples of this concept illustrate the future interests created by the conveyance of a life estate and its qualities.

(1) A owns blackacre in fee simple and decides to convey a life estate to B. Absent any contrary provision, A automatically retains a reversionary interest such that upon B's death, A receives the life estate interest from B. A life estate interest combined with a reversion amounts to ownership in fee simple. Therefore, A, the grantor, would own blackacre in fee simple after the termination of the life estate. See, e.g., Fuller v Fuller, 315 Ill 214, 146 NE 174 (Ill 1925).

(2) B, after receiving a life estate from A, decides to convey that life estate to C. C's interest in the property terminates when B dies, because the "measuring life" of the conveyance is that of the original grantee. See, e.g., Spartz v Paulus, 285 Ill 82, 120 NE 503 (Ill 1918).

(3) If A, the grantor, were to convey A's reversion to B before the death of B, the reversion and the life estate merge such that B would then own the property in fee simple. See Gray v Shinn, 293 Ill 573, 127 NE 755 (Ill 1920).

(4) If the grantor conveys a life estate to B, with a contingent remainder interest to C, meaning that when B dies, C could end up with the property depending on whether a particular condition is met, the contingent remainder is destructible if the grantor conveys the reversion to B before the termination of B's life estate. See Biwer v Martin, 294 Ill 488, 128 NE 518 (Ill 1920). However, such a contingent remainder is not destructible when the grantor conveys the life estate and contingent remainder by a warranty deed, because the grantor is, in effect, covenanting that the remainderman is to receive the property upon the happening of the contingency. See Marvin v Donaldson, 329 Ill 30, 160 NE 179 (Ill 1928).

The Defeasible Estate

Defeasible estates generally come in two types: (1) fee simple determinable; and (2) fee simple subject to condition subsequent. The main difference between them is how they terminate and the language used to create them. A fee simple determinable interest in property gives the grantee ownership "so long as" a condition is met, and upon the condition being broken, the property automatically reverts to the grantor. The interest a grantor retains who conveys a fee simple determinable is called a possibility of reverter. In contrast, a fee simple subject to a condition subsequent gives the grantee ownership "provided that" some condition exists, and when that condition terminates the grantor is required to take some affirmative step to regain possession of the property. The interest a grantor retains who conveys a fee simple subject to a condition subsequent is called a right of re-entry.

As courts have noted, the distinction between a fee simple determinable and a fee simple subject to a condition subsequent is "solely a matter of judicial interpretation of the words of a grant."Mahrenholz v County Bd. of School Trustees of Lawrence County, 93 Ill App 3d 366, 368, 417 NE2d 138, 141, 48 Ill Dec 736, 739 (5th D 1981). However, it is easiest to think of a fee simple determinable as a "limited grant," while a fee simple subject to a condition subsequent is an "absolute grant" to which a condition is appended.Id.In fact, sometimes courts refer to the operative condition of a fee simple determinable as a "conditional limitation," as opposed to a "condition subsequent," to keep the two concepts separate. SeePure Oil Co. v Miller-McFarland Drilling Co., 376 Ill 486, 34 NE2d 854 (Ill 1941).

The following examples of conveyances of defeasible estates illustrate the construction of those interests:

(1) A grants blackacre to B for only so long as or while the property is used for school purposes, or until it is ceased to be so used. The document expressly provides that upon the breach of condition, the property is to return to the grantor. The language creates a limited grant or fee simple determinable because, by its terms, the property is to return to the grantor upon the breach of the condition. The grant of exclusive use followed by an express provision for reverter when that use ceases creates a fee simple determinable with a possibility of reverter. Id.

(2) A grants blackacre to B providing that the tract of land is to "revert" to the grantor "whenever it ceases to be used or occupied for a meetinghouse or church." See North v Graham, 235 Ill 178, 180, 85 NE 267, 268 (Ill 1908). The court held the language to create a fee simple determinable with a possibility of reverter. Id.

(3) A grants blackacre to B "provided it be used for" railroad purposes only. The deed is made to the grantee, "their successors and assigns forever, for the uses and purposes hereinafter mentioned and for none other." This language creates a fee simple subject to a condition subsequent and not a fee simple determinable because the word "forever" denotes that the grant is permanent subject to both the condition and the grantor taking some active step to re-claim the property. See Latham v Illinois Central Railroad Co., 253 Ill 93, 97 NE 254 (Ill 1912).

(4) A grants blackacre to B "to be used for mill purposes, and if not used for mill purposes the title reverts back to the former owner." See McElvain v Dorris, 298 Ill 377, 378, 131 NE 608, 609 (Ill 1921). The court construed "mill purposes" to mean "the pursuit, following, prosecution, and carrying on of the business of a mill," and held that "the mere erection of a building that could be used for a mill…was not a compliance with the condition." Id. Here, the language created a fee simple subject to a condition subsequent because a condition subsequent was "annexed" to the grant. Id.
 

In contrast to the reversionary or remainder interest created by the conveyance of a life estate, which may be freely conveyed, a possibility of reverter or a right of re-entry is not devisable, but may be inherited. 765 ILCS 330/1.

Open Classes

Future interests may also be granted to classes. There are two types of classes: (1) open; and (2) closed. An open class exists at a time when new members can enter the class, while a class closes when no new members can enter. Commonly, a class is created when a grantor conveys a future interest "to the children of A," without naming each child specifically, which would otherwise create an interest in a closed class. The defining characteristic of members of the class is that they are the children of A. For example, if a gift is made to "to B for life, and then to the children of A," as long as B is alive and A is less than 65 years old, the class of A's children remains open because A can have more children, either through reproduction or through adoption.

The Fertile Octogenarian Rule, the common law doctrine that a person must be considered to be able to have more children, by birth or adoption up until death, has been altered by 765 ILCS 305/4(3), which states that when "the validity of any interest depends upon the possibility of the birth or adoption of a child . . . any person who has attained the age of 65 years shall be deemed incapable of having a child." Although this statute tries to ameliorate the effect of the Fertile Octogenarian Rule, it's not clear what effect it has, because it does not provide a procedure to handle a situation where a parent over the age of 65 does have another child. Furthermore, no cases have interpreted this statute, so practitioners may be reluctant to rely upon its uncertain meaning. In any event, the class would close at the time of B's death, even if A remained alive, because A's children would be entitled to possession and enjoyment at the termination of B's life estate. SeeHarris Trust and Savings Bank v Beach, 118 Ill 2d 1, 13, 513 NE2d 833, 840, 112 Ill Dec 224, 231 (Ill 1987). See alsoJones v Miller, 283 Ill 348, 357, 119 NE 324, 328 (Ill 1918) (stating that the general rule is that a devise or gift vests only in those of the class who survive the determination of the particular estate and answer to the description at that time.) In Jones, the grantor, by will, conveyed a life estate to his widow with a remainder interest in his "living children."Id.The court in Jones construed the word "living" to mean "surviving" such that the grantor effectively excluded not only his children not living at the termination of his widow's life estate, but also any heirs of those children.Id.

Statutes of Limitation and Future Interests

Statutes of limitation exist in Illinois that serve to dissolve certain interests after a length of time has elapsed. The length of time until a future interest becomes invalid varies depending on the applicability of the particular statute and the nature of the interest involved.

A holder of a reversion has seven years to enforce a condition subsequent once the condition is breached by bringing an action to reclaim the property. 735 ILCS 5/13-102; SeeStorke v Penn. Mut. Life Ins. Co., 390 Ill 619, 61 NE2d 552 (Ill 1945)(holding that the statute of limitations barred plaintiff's reclamation of property granted to defendant subject to a condition subsequent because suit to reclaim had not been filed within the seven years.

A possibility of reverter or a right of re-entry cannot be valid for longer than 40 years. 765 ILCS 330/4. If a condition is breached after 40 years from the time of the conveyance, the grantor's interest has since dissolved and left the estate holder with clear title. See e.g.,Blackert v Dugosh, 12 Ill 2d 171, 145 NE2d 606 (Ill 1957). Even if a condition is breached before the forty-year time period has expired, if the grantor does not file an action to recover possession within seven years of the first breach, the grantor's interest is invalidated. 735 ILCS 5/13-102. If the grantor does not take some affirmative step within 40 years, such as filing a suit for ejectment, to reclaim possession of the property, the grantor's interest dissolves.

Section 13-114 of the Code of Civil Procedure is a statute of limitation designed to prevent a party from asserting "possession of such real estate under claim or color of title," based on an interest recorded more than seventy-five years prior to the action asserting possession.Arclar Co. v Gates, 17 F. Supp. 2d 818, 821 (S.D. Ill 1998); 765 ILCS 5/13-114. This statute would not limit a cause of action to enforce a deed restriction because such an action does not involve a claim of possession, but rather involves enforcing restrictions on use. Section 13-118 is similar, but precludes any action to recover real estate based on a claim that arose more than 40 years before the action where there is a complete chain of title for the prior forty-year period unless the claimant recorded a statement of the claim within the forty-year period. 765 ILCS 5/13-118.

The Virtual Representation statute, 760 ILCS 5/16.1, allows the primary beneficiaries of a trust, if adult and not incapacitated, to come to an agreement with the trustee construing any provision of the trust without court approval. Such an agreement made pursuant to the statute would be binding on all beneficiaries only if the potential beneficiaries who merely have a contingent future interest in the property contained in the trust would become primary beneficiaries only through surviving a primary beneficiary signatory. See Robert E. Mauser, The Illinois Virtual Representation Statute, 82 Ill Bar J 331 (June 1994). The statute specifically provides that it does not operate to allow beneficiaries to expressly accelerate the termination of a trust. 760 ILCS 5/16.1(c). The court inEstate of Mayfield v Estate of Mayfield, 288 Ill App 3d 534, 539, 680 NE2d 784, 788, 223 Ill. Dec. 834, 838 (4th D 1997), stated that the purpose of the statute is to help resolve present-day disputes without waiting several years for interests to vest. In Estate of Mayfield, a father's children brought suit to contest his mother's will. Ordinarily, the children would have the right to do so, however, the court held that in this case they could not, because the father's agreement with his sister and mother to not contest the will was valid and bound his children, as well, despite the fact that the children did not sign such an agreement.Id.

If the life tenant and members of an open class of remaindermen wish to sell real estate before the termination of the life estate, then those parties may bring a court action to obtain authority to sell the property. The court can appoint a trustee to sell, or otherwise dispose of the property and establish a trust to hold part of the proceeds in case new members join the open class before it closes. 760 ILCS 5/17.1. Oftentimes this is the only procedure available to an open class to convey good title to the property.

A court may direct that any contingent future interest be "dealt with," sold for example, and the proceeds invested for the benefit of those future interest holders whenever it is "necessary for the conservation, preservation or protection of the property." 760 ILCS 5/17.1. SeeShamel v Shamel, 3 Ill 2d 425, 121 NE2d 819 (Ill 1954) (holding that the loss of mineability of land held in trust would be counter to grantor's intent to inure the full productive value of the land to the beneficiaries). However, courts have tended to use this power cautiously to give full effect to the grantor's intent as manifest in the instrument, not to "allow current beneficiaries to profit at the expense of future beneficiaries (or vice versa). E.g.,American State Bank v Kupfer, 114 Ill App 3d 760, 767, 449 NE2d 1024, 1029, 70 Ill Dec 677, 682 (4th D 1983).

Conclusion

The specific language used in a deed, will, or other document designed to create a future interest in someone else is crucial to know how courts would construe the grantor's intent through interpretation of that document, in the event a conflict ever arose. However, knowing how to read and use this language arms the lawyer for only half the battle. Illinois statutes affect the operation of future interests as well. Statutes of limitation can serve to clear title of claims of adverse interest not brought within the period specified. Other statutes allow beneficiaries to come to an agreement to change particular provisions in a trust or a trustee to effectuate an alternate disposition of the property, under certain circumstances. Understanding the applicability of these statutes gives the lawyer a greater variety of options to offer his or her client concerning future interests in Illinois.

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