Final Examination in Property
The conveyance is an estate for a term of years to Fund Manager determinable on one condition and subject to an executory limitation upon another condition. Because the Fund Manager’s interest is possessory is not subject to the Rule Against Perpetuities and thus is valid.
The grantor has a possibility of reverter if the Fund Manager is convicted of an economic crime. Grantor interests are not subject to the Rule Against Perpetuities so that interest is valid. The grantor also may have other future interests in the event that certain other interests in other transferees are invalidated, but those also are not subject to the Rule Against Perpetuities because they are held by the grantor.
The relationship between the Fund Manager and the grantor after the conveyance clearly involves a determinable interest rather than a condition subsequent, because the language is so clearly that of an automatic reverter.
Failure Trust has a shifting executory interest which would vest and become possessory in the event that the mandated rate of return is not satisfied. Executory interests are subject to the Rule Against Perpetuities and it is therefore necessary to see if this interest violates the Rule because it is not certain to vest or to be defeated within a life in being plus 21 years. The only plausible lives in being are those of the grantor and the Fund Manager. It is surely possible that both could die and that the fund would continue to earn a good rate of return for more than 21 years thereafter. Accordingly, the interest of Failure Trust is invalid under the Rule Against Perpetuities. One must also, however, think about the RAP exception for interests that run from charities to charities. That exception is not applicable because the fund is rather clearly not a charity inasmuch as it pays dividends to the grantor.
Once the interest in Failure Trust is invalidated, the question arises whether that means that the Fund Manager should simply be relieved of this condition or whether the condition should continue to operate and the interest go back to the grantor if the condition is triggered. It probably best comports with the grantor’s intent to keep the condition and change the destination if the condition is satisfied. Accordingly the effect of invalidating Failure Trust’s interest is to create another possibility of reverter in the grantor.
The remaining interest to be considered is that of the charity to be named by the Fund Manager. Initially, it might seem that this is a vested remainder rather than a contingent remainder because it comes into existence naturally at the termination of the fund, in 2175. But the identity of the grantee cannot be identified, which makes it contingent. It therefore is subject to the Rule Against Perpetuities. Nor is it valid under the Rule Against Perpetuities because the Fund Manager might not designate the charity to receive the remainder until outside the RAP period. This assumes that “the Fund Manager” refers to succession of natural persons serving as Fund Managers, some of whom may not be born yet. Alternatively, the interest in the Fund Manager as a particular individual might be inherited by his heirs. I would have to do further research to determine whether trustee responsibilities are inheritable. If the conveyance contemplates a series of fund managers or the inheritance of fund-manager responsibility then my conclusion about designation of a charity outside the RAP period holds.
If this interpretation is wrong and the Fund Manager refers to a particular person, then the Fund Manager either would or would not designate the charity remainder man during his lifetime, in which case the identity of the remainderman, which is the only thing that makes this interest contingent, would either be resolved or not within a life in being. Under that interpretation, however, it is not at all clear to me what happens to the basic grant once the Fund Manager dies. The only thing I can think of is that maybe this really is a life estate and that the period of years is meant to operate even in the unlikely event that the Fund Manager lives for 170 years. That seems ridiculous and so the best construction is the Fund Manager refers to a series of Fund Managers.
Again, the invalidation of the contingent remainder to operate in 2175 raises a question whether the termination condition simply is erased from the grant or whether it operates as a reversion in the grantor. Because the grantor so clearly intended that the grant not be perpetual, the best construction—the one that best fulfills the apparent intent of the grantor is to create a reversion that becomes operative in 2175.
Therefore, after the Rule Against Perpetuities is applied, the Fund Manager has an estate for a term of years subject to one limitation—a determinable limitation which creates the possibility of reverter in the grantor, a second limitation also in the form of a determinable condition which operates in favor of a possibility of reverter in the grantor, and the grantor has a reversionary interest which already is vested and becomes possessory when the term of years expires.