The Executory Interest

In this article I will discuss The Executory Interest and its effect on present possessory estates.

Before I begin, let me summarize the road we've travelled throughout these estate articles. As you know, I have constantly and consistently referred to a doctrine known as The Calculus of Estates. The calculus of estates is a formula used in estate analysis that answers one question: Do we have an accurate and complete state of title? In title speak, the state of title is also known as the vesting line.

A state of title will always consist of a present possessory interest, and may or may not consist of a future possessory interest. Following is a handy chart that depicts the various present possessory interests and their correlative future possessory interests - - -

Present Interest: Fee Simple Absolute
Future Interest: None

Present Interest: Life Estate
Future Interest: Reversion

Present Interest: Life Estate
Future Interest: Vested Remainder

Present Interest: Life Estate
Future Interest: Contingent Remainder & *Reversion

Present Interest: Fee Simple Determinable
Future Interest: Possibility of Reverter

Present Interest: Fee Simple Upon Condition Subsequent
Future Interest: Right of Re-entry

Present Interest: Fee Simple Subject to Executory Limitation
Future Interest: Executory Interest

Present Interest: Life Estate Subject to Executory Limitation
Future Interest: Executory Interest

*Reversion always follows a contingent remainder, unless and until the contingency is satisfied.

Following the identification of the present possessory interest, simply use this chart to identify the correlative future interest, if any. When all interests are properly set forth in the state of title, the parties to a transaction can then determine how to handle these various interests.

Now, I present to you The Executory Interest. Folks, it simply doesn't get more exciting than this! Some of you may think I'm kidding, some of you may think I'm not kidding. Such is the importance of individual opinion!

My definition of The Executory Interest: The executory interest is a contingent interest, created in a third party grantee, which contingency, once fulfilled, will operate to terminate the preceding estate. It differs from the contingent remainder in that the contingent remainder waits for the natural expiration of the preceding life estate.

Example: Let's say that Bill Smith, as owner of Blackacre in fee simple absolute, conveys to Shirley Thomas, for life, then to Mike Thomas, if and only if Mike Thomas attains the age of 21. The state of title would be: Life estate held by Shirley Thomas, contingent remainder held by Mike Thomas, reversion held by Bill Smith. Wow!! Now, what happens if Shirley Thomas dies and Mike Thomas has NOT attained the age of 21. Well, prior to 1536, the interest of Mike Thomas would have been destroyed because his interest had to be vested at the moment the preceding estate terminated. If Shirley died before Mike attained the age of 21, the doctrine of Destructibility of Contingent Remainders was applied to destroy the interest of Mike.

This result changed in 1536. Using the same example, if Shirley were to die before Mike attained the age of 21, Bill Smith's reversion would activate and the state of title would be reconfigured as follows: Fee Simple Subject to Executory Limitation held by Bill Smith, with an executory interest held by Mike Thomas. The executory limitation is Mike attaining the age of 21. When Mike Thomas attains the age of 21, Bill Smith's interest would be destroyed and a shift to Mike Thomas in fee simple absolute would occur. Conversely, if Mike Thomas dies before reaching the age of 21, the executory interest would be destroyed and Bill Smith would once again hold in fee simple absolute.

The executory interest was not recognized at the beginning of common law. In fact, it was not until the year 1536 that the executory interest was recognized as a viable estate. There is history surrounding the executory interest. I will discuss this history in two sections; pre 1536 and post 1536.

Let me use the following example, which will be applicable to our pre 1536, as well as our post 1536 discussion. EXAMPLE: Bill Smith, as owner of Blackacre in fee simple absolute, conveys to Shirley Thomas and her heirs, but if Mike Thomas returns from Rome, then to Mike Thomas and his heirs.

What do we have? Well, our example creates a fee simple held by Shirley Thomas, with a condition attached that the property shall vest in Mike Thomas should he return from Rome. This creates what is known as a shifting interest in favor of Mike Thomas. Do you see why? If Mike returns from Rome, the fee simple interest would shift from Shirley to Mike.

Some of you may be thinking that Mike holds a contingent remainder interest. Well, let me distinguish between a contingent remainder and an executory interest. A contingent remainder waits for the termination of the preceding estate; the life estate. A contingent remainder is patient through time. Conversely, the executory interest can act to cut short the preceding estate, whether that be an estate for life or in fee simple.

Prior to 1536, a shifting interest was forbidden, as the law did not recognize the cutting short of a previous estate. Prior to 1536, using our example, the conveyance would have been determined a fee simple absolute in favor of Shirley Thomas; Mike Thomas's interest would have been void upon its face.

Now, our example would have a completely different result post 1536. Using our example, Shirley Thomas would hold in fee simple, subject to executory limitation. Mike Thomas would hold an executory interest. So, the state of title post 1536 would read: Shirley Thomas in fee simple subject to executory limitation with an executory interest in fee simple held by Mike Thomas.

The executory interest is very similar to the contingent remainder. Both contain a contingency; both convey land to a third party grantee upon fulfillment of the contingency. However, as discussed, the executory interest may act to cut short the preceding estate, while the contingent remainder waits for the natural expiration of the preceding estate.

I would suggest the following analysis when you are facing a remainder issue in your chain of title. If you can't determine whether the interest is a contingent remainder or an executory interest, ask yourself the following question: If the contingency is fulfilled, will the preceding estate be immediately terminated. If the answer is yes, you have an executory interest. Obviously, if the answer is no, you have a contingent remainder.

See you next week - los lonely boy