Reversionary interests are always vested

Charles E. Rounds, Jr.
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It has been a fundamental principle of American property law that reversionary interests, whether legal or equitable, are always vested. Such interests being vested ab initio, they cannot violate the rule against perpetuities. This is a topic that is taken up in §4.1.1.1 of Loring and Rounds: A Trustee’s Handbook [pages 262-280 of the 2018 Edition], which sub-section is reproduced in its entirety in the Appendix below. One Texas court, however, appears not to have gotten the message: “…[The terms of the trust provide that if]…K.K.W and his children and remote descendants die before the trust terminates, the trust’s principal and income shall be distributed to Father, if living, otherwise to Mother, if living. Mother, therefore, has a contingent remainder interest and contingent reversionary interest in trust property.” See In the interest of K.K.W., No. 05-16-00795-CV, 2018 Tex. App. LEXIS 6539 (Tex..App.—Dallas August 20, 2018). If Mother’s reversionary interest were truly contingent upon her surviving some event (such as a total wipe-out of a class of her relatives), then the equitable interest would be perpetually in limbo should she not to survive the event. This would be a clear violation of the Rule Against Perpetuities. We would be in uncharted waters, however, as to what the consequences of such a violation would be. Suffice it to say that if her reversionary interest had actually been vested ab initio, then such a violation would trigger a passage of the entrusted property itself upon a resulting trust from the trustee to her executor (personal representative). These waters have been well-charted, as we document below in the Appendix to this posting.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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