Here is the Quill Tip of the month in a nutshell:
Include both the Grantor’s and the Grantee’s marital status on the Deed. If the parties are married, list them as spouses. If a party to the Deed is unmarried, indicate that they are single. Why is this important? Several reasons. The lack of marital status identification can create a marketability concern down the road. One of the things I am most asked to insure are deeds in the chain that fail to identify the Grantor’s marital status. Don’t be the law office that creates that marketability issue!
Secondly, as a wise man once told me, “Every time you open your file post-closing, you are costing yourself money.” (Thanks for that advice, Chris Burti!) When I first began practicing, I failed to include the marital status on some of my Deeds. In a couple of instances, I received a call from a curmudgeonly attorney (now retired) who would ask me, usually not very nicely either, for a copy of the Marital Status Affidavit from my file. (Those of us in Charlotte remember Woody Efird fondly. . . truly). The time that it took me to find the file – especially if it was in storage – copy the Affidavit, and send it to Woody cost me my time and, as they say, time is money.
Lastly, in today’s world, it may not be easy to discern marital status on the face of a Deed. In today’s age, we recognize same sex marriages. If, for example, we see Grantors listed as William Smith and James Washington, without any indication of their marital status, we don’t know whether to believe that conveyance involved two single men or two men married to each other. This can create – say it with me – a marketability issue.
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The answer to last month’s riddle was Nerds, DumDums, and Smarties.
Life Estates and Remainder Interests
I had so much fun with the quiz I put together a few months back that I thought I would try it again. This time, let’s talk about Life Estates and Remainder Interests. Let’s start with some definitions. I obtained these definitions from the Black’s Law Dictionary I purchased before my first semester of Law School (way back in 1990). I think I have opened that book less than ten times since then. [For some reason, I am reminded of a scene from The Simpsons where the lawyer character is sitting at his desk in front of his set of reported case books and says something like, “These books are not just pretty to look at, but they are filled with useful information.”
Life Estate: An estate whose duration is limited to the life of the party holding it, or some other person. A legal arrangement whereby the beneficiary (i.e. the life tenant) is entitled to the income from the property for his or her life. Upon the death of the life tenant, the property will go to the holder of the remainder interest or to the grantor by reversion.
Remainder: The remnant of an estate in land, depending on a particular prior estate created at the same time and by the same instrument, and limited to arise immediately on the determination of that estate, and not an abridgment to it. A future interest created on some person other than the grantor or transferor.
Merger: It is a general principle of law that where a greater estate and a less coincide and meet in one and the same person, without any intermediate estate, the less is immediately annihilated, or, in the law phrase, is said to be merged; that is sunk or drowned, in the greater. Thus, if there be a tenant for years, and the reversion in fee simple descends to or is purchased by him, the term is merged in the inheritance, and shall never exist anymore. Similarly, a lesser interest in real estate merges into a greater interest when lessee purchases leased property.
The first point I want to make about life estates and remainder interests is that it is a good example of
Present vs. Future Interests. The Life Estate is a present interest in real estate. The remainder is a future interest. The important thing to remember is that they are both INTERESTS IN REAL PROPERTY. Accordingly, they have to be accounted for in any closing in which there is a conveyance of the property that is subject to these interests. (Note: A deed of trust is a conveyance. While we tend to focus on a Deed as a conveyance, anything discussed here applies equally to Deeds of Trust.) The second point I want to make about these interests is that they demonstrate the difference between Possession and Ownership. In today’s day and age, we tend to view real property as possessory interests. We buy a house so that we can live there. . . at least typically. However, years ago, when these interests in real estate were created, land was looked upon very much as a means of income. Landowners often did not physically reside on the land, but rather the land was a way to generate income. While that may still be the case today, it is to a much lesser extent when you consider the fact that the common folk back then rarely owned the property where they resided. So, taking that into account, why create a life estate today? While there is still a reason to convey a life estate to a person to allow them to draw income from the land, the more likely scenario these days is two-fold: a) for Estate Planning purposes to avoid probate and b) to provide a place to live for a loved one.
There are several ways to create a Life Estate. The most common one is by Deed. So, for example: Allie Deeds the property to Bill, as Life Tenant with Remainder to Charlie. In this example, Bill has a Life Estate and Charlie has a Remainder interest. Bill’s interest is a present one, while Charlie’s is a future interest. Another example is a Reservation by Deed. So for example, Allie Deeds the property to Bill and Charlie, but reserves for herself a Life Estate. In that case, Allie would be the Life Tenant with Bill and Charlie having reminder interests. These same results can be accomplished by similar language contained in a devise in a last Will & Testament. The Life Estate is measured by the life of the Life Tenant. So, in the first example, where Bill receives a Life Estate, it is Bill’s lifetime that determines when the Life Estate will end and when Charlie’s remainder interest will begin. In the second example, it is Allie’s life that is determinative. There is also the ability to measure the Life Estate by the life of some third party. That looks like this: Allie conveys to Bill, for so long as Daphne shall live, with remainder to Charlie. In this case, it is Daphne’s life that is determinative. When she dies, Bill’s life estate will cease to exist and Charlie will be entitled to full ownership and possession of the land. This is called a Life Estate pur autre vie. (French for “The Life of Another.”) In each case, the triggering event is someone’s death.
Here is the biggest take away from this little talk: Regardless of whether the interest is present or future, possessory or non-possessory, the Life Estate and the Remainder are interests in land that have to be accounted for in any conveyance. Stated another way, both the life tenant and the remainderman have to sign the Deed or Deed of Trust. These interests are capable of being conveyed to third parties and/or inherited. So, a careful examination of the conveyance that created the interests and an assessment of the facts is necessary to determine how to dispose of the interests.
So, how about we flesh out some of these issues with a quiz? For each of these scenarios indicate which person or people must sign the Deed.
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