Best if printed in landscape.
understand the concept of property as "the rights one has in the property,"
we need to discuss specific property rights. To aid in this discussion
and understanding, property rights are sometimes described as a "bundle
of sticks" with each stick in the bundle representing a property right. Using
this analogy, the question becomes "which sticks in the bundle (which
rights) do I have with respect to this item and which sticks (which rights)
do you have with respect to this item?" We will use this analogy frequently.
will primarily use real property examples to illustrate these legal principles.
Estates in Property
Simple Absolute -- considered the highest form of ownership;
to be considered as having a fee simple absolute, the owner(s) must have
these three rights in the property.
-- potentially infinite duration (could own it forever if the owner(s)
could live that long)
-- no limits on inheritability (the owner(s), upon their death, can
bequeath (will) the property to whomever they wish)
-- not subject to a condition that will terminate the owner's interest (there
is no limitation or qualification that will take away the owner(s)'
interest -- this concept is discussed subsequently and will be clearer
at that time)
Dakota statute -- "Every estate of inheritance is a fee, and every such
estate, when not defeasible or conditional, is a fee simple or an absolute
fee." N.D.C.C. §47-04-04
are situations where an owner does not have a fee simple absolute. The
next three examples illustrate a few of these situations.
See illustration of the idea that the bundle of rights is divided between two "onwers."
Simple Determinable -- note that this type of ownership is not "absolute"
- A fee simple determinable can be described as a qualification on the owner's interest; that is, the owner's interest will terminate if the
qualification or condition is met; see N.D.C.C. § 47-02-03.
- As part of the sale of
property, a landowner has the right to impose restrictions on its future
use as long as the restrictions are not contrary to public policy. 263
- Example based on a Missouri
case; 1998 court case interpreting a 1925 deed.
- The "qualification" in this case was that the buyer of the land would sell electricity to the seller of the land.
- Also see a Minnesota case
- The "qualification" in this case was that the land must be used for a railroad.
- A fee simple determinable is followed by Possibility
of Reverter; that is, someone has to have the right (a "stick in the bundle")
to take this propery (e.g., land) if the current owner violates or fails
to fulfill the qualification or condition. The right to seize the property
if the qualification or condition is not met (that "stick in the bundle")
is called a possibility of reverter.
Simple Subject to Condition Subsequent -- another type of ownership
that is not "absolute;" similar to (but not identical to) a fee simple
- Again, a qualification
on the owner's interest; see N.D.C.C. §47-02-03.
- Followed by a Right
of Entry for Condition Broken or a Power of Termination; remainderperson
must act to terminate the owner's interest.
these two types of estates ( Fee Simple Determinable and Fee Simple Subject
to Condition Subsequent ) may not be common, they do exist, they are legal,
and they can lead to unexpected results if the owner is unaware that such
a limitation had been imposed by a previous owner. As discussed in later
sections, these estates are examples of why it is critical that anyone
who owns land (or is in the process of acquiring ownership) take steps
to determine which "sticks in the bundle" (what property rights) they
own or are acquiring.
A property owner cannot impose unreasonable limits that would prohibit future owners from transferring property rights to others. For example, the Rule Against Unreasonable Restraints on Alienation illustrates this concept. As a Missouri court explained, this rule "is designed, 'to prevent the inalienability of present or future vested interests.' ... Although not every restraint is declared a violation, this rule is based, among other reasons, upon the desirability of keeping real property responsive to the current exigencies of its current beneficial owner and the 'desirability of avoiding the retardation of the natural development of a community by removing property from the ordinary channels of trade and commerce.' excerpt from Cole v. Peters, Missouri Court of Appeals Western District, case number 56013 (search for 56013). Also see N.D.C.C. §47-02-26.
Estate -- type of ownership that does not include the "simple"
right; that is, the current "owner" (life tenant) is not able to specify
who will receive the property at the time of his or her death.
- Ownership of the property,
when the life tenant dies, will transfer to the person or persons holding
the future interest.
- Simple example of a life estate: Person A owns a fee simple absolute in a tract of land. Person A wants to own the property until their death; Person A also wants, after their death, to have their spouse own (use/receive the income from) the property until the spouse dies, and then have the property owned by Person A's children. In this situation, Person A may prepare a will that leaves a life estate to the spouse, and the remainder interest to the children. This arrangement assures 1) the surviving spouse has the benefit of the land for the remainder of the spouse's life and 2) that the children will get the land after the spouse dies.
- Life tenant has possession
during existence of the life estate; the person with the future interest will acquire possession at the death of the life tenant.
interest: future interest held by grantor (person who
set up the life estate) (N.D.C.C. §47-04-09); Remainder interest: future interest
held by someone other than grantor (N.D.C.C. §47-04-10); in most cases, the future interest is a remainder
of Hitz, 319 N.W.2d 137 (N.D. 1982) -- a father established a life estate with his spouse holding the life estate and a son holding the future interest.
- "Prior to John's
death in 1962, he and his son, Frank, farmed the 880 acres of
farmland owned by John. John's will provided that Frank was
to receive a remainder interest in fee to 560 acres of the farmland
subject to a life estate interest in John's wife, Magdalena
Hitz. John's will further provided under paragraph three that
Frank was to receive a remainder interest in another 160 acres,
subject to a life estate interest in Magdalena, "provided that
he shall pay" to John's son, Ludwig, the sum of $5,000. Paragraph
four of John's will, the disputed provision in this case, provided
that Frank was to receive a remainder interest in an additional
160 acres, subject to a life estate in Magdalena, "provided
that he shall pay" to John's daughter, Ann Pecora, the sum of
- "Magdalena died
on February 11, 1980, at which time the life estate interest
in the farmland which she received under John's will terminated.
- "We believe that
John's will, when considered as a whole, indicates John's intent
that his farmland, upon Magdalena's death, should go to his
son Frank, who had chosen to remain on the farm and pursue farming
as his avocation. John's will further indicates his intent that
his son, Ludwig, and his daughter, Ann, should receive legacies
of $5,000 and $4,000, respectively. The devise of farmland to
Frank under paragraph's three and four of John's will "provided
that" Frank pay such legacies to Ludwig and Ann can be construed,
consistent with John's intent that Frank receive all of the
farmland while Ludwig and Ann receive monetary legacies, by
interpreting the will as placing an equitable lien upon that
farmland for payment of the legacies."
owner (the life tenant) has the right to use the property during his/her lifetime
-- including leasing it to someone else (N.D.C.C. §47-02-33); but upon the life tenant's death, the property will
be owned by the remainderperson; that is, the person(s) holding the
- N.D.C.C. §47-02-33.
Rights of owner of life estate . The owner of a life estate may
use the land in the same manner as the owner of a fee simple, except
that the owner of a life estate must do no act to the injury of
- Life estate overrides the
life tenant's will or, if the life tenant does not have a will, the
succession statute (N.D.C.C.
chapter 30.1-04); that is, the life tenant does not have the "stick
in the bundle" (the legal right) to specify who will receive the property
upon his or her death.
- Even though the life
tenant's will may state "all my property goes to the church at the
time of my death," property in which the life tenant only has a
life estate will transfer to the remainderperson (regardless of
what the life tenant's will specifies).
- Life estate can be
an estate planning tool; e.g., a property owner (most likely with
a fee simple absolute) could specify in his or her will that a life
estate should transfer to the surviving spouse and that the future
interest should transfer to the children so that upon the death
of the surving spouse, the property will transfer to the children
(as a fee simple absolute) regardless of what the spouse's will
- The death of the life tenant
terminates the life estate and the remainderperson becomes the owner
of the property; the ownership of the remainderperson is usually a fee
- How long into the future
can a life estate (or series of life estates) be extended? Could
I create a life estate in my property for my surviving spouse, and
then for my children, and then for my grandchildren? Could I specify
a series of life estates so that the next person(s) to have a fee
simple absolute would be my great-grandchildren who are not yet
born (and who may never exist if my descendants do not have children)?
- A property owner cannot "string together an endless list of life estates," such as "to my surviving spouse for his lifetime, then to my children for their lifetime, and then to my grandchildren for their lifetime, and then to my great-grandchildren..." Instead, the law requires that at some point in time the ownership interests re-combine to the level of a fee simple absolute. This is generally known as the Rule Against Perpetuities. For example, see N.D.C.C. §47-02-27.1.
- Life estate and future
interest (N.D.C.C. §47-02-11) can be transferred (e.g., sold), but the market will
reflect the partial interest; transferring a life estate does not change
whose life will be used to measure the duration of the life estate.
- If I buy your life
estate today and you die tomorrow, the property will transfer to
the remainderperson, thus I may not be willing to pay much for your
life estate if I think there is a good possibility you may die soon.
- I may not pay much
for your future interest if I think the life tenant will live a
- Life estate and future
interest merge if owned by the same person (most likely
merge into a fee simple absolute).
It may also be helpful to review South Dakota statutes that address Present and Future Interests in Property (Chapter 43-3 of South Dakota Codified Laws).
- The type of estate a grantee
acquires is determined by the instrument/document (usually a deed) which
- YOU CANNOT TRANSFER MORE
THAN YOU OWN; you cannot transfer to someone else a property right that
you do not have; e.g., if I have a life estate, I cannot transfer a
fee simple absolute to you.
- No one ever has all "the
sticks in the bundle;" even the owner of a fee simple absolute is subject
to society's (the goverment's) right to impose a property tax on the
land, and to force you to sell the property for a public purpose (i.e.,
eminent domain, discussed in a subsequent section).
- Property owners are expected
to protect or assert their property rights (that is, to act like the
owner); failure to timely assert your rights may prevent you from being
able to assert them in the future; it may even lead to you losing those
rights to someone else (related concepts include statute of limitations,
laches, adverse possession).
- The law seeks to protect the right of property owners to sell or otherwise transfer all or a portion of their property rights.
Summary of Key Points
- A fee simple absolute is the highest form of ownership, but even a person who holds a fee simple absolute does not have all the "sticks in the bundle."
- A property owner can impose reasonable limitations on what future owners can do; the difficulty with this practice is keeping track of who owns which "sticks in the bundle."
- A life estate consists of a life tenant and a remainderperson.
- Part of the challenge of understanding property is understanding who owns which legal rights ("sticks in the bundle").
The next page introduces concurrent ownership.
February 14, 2010