Property Rights and Finance Estate - Essay Example

DEFINITION OF E E is a term commonly used to describe a person’s total assets at a particular time, usually upon his death, which is prior to distribution through a trust or will. It is the sum of all types of property, real and personal, owned by an individual or an entity. In legalese, real property is real estate that denotes a piece of land, including the air above it and the ground below it, and things permanently affixed to the land, such as trees, fences, and any buildings or structures on it. In civil law systems, real property is termed as immovable property or immovables that signify item of property that cannot be moved or inherently permanent structures located on land. On the other hand, anything that is not real property is termed personal property that includes everything else. It is made up of two general classes: tangible and intangible. Examples of tangible personal property are cars, household items and furniture, clothing, jewelry, even pets and season baseball tickets. Intangible properties or assets cannot be seen but is represented by paper, such as securities, bank accounts, wages, insurance policies, trade secrets, copyrights, patents, trademarks, and goodwill. Personal property may also be called in modern civil law systems as personal effects, personalty, and chattel. It is also called temporary, moveable property or movables that indicate any property that can be moved from one location to another. Generally, an estate describes the degree, quantity, nature, and extent of the interest that a person has in real property. It is an ownership interest in real estate and denotes the quantity of rights in property. The process by which an individual or family arranges the transfer of assets in anticipation of death is called estate planning. It aims to preserve the amount of wealth possible for the intended beneficiaries and flexibility for the individual prior to death. TYPES / CLASSIFICATION OF ESTATES There are further divisions within the real property classification. Traditionally, there are two types of estates: freehold and non-freehold. However, concurrent estate is also considered in the real property category. Others are future interests, specialty estates, and incorporeal interests). (Figure 1 shows the outline of the real property classification) FREEHOLD ESTATES are those in which an individual has ownership that continues for an indefinite period of time or until the occurrence of some event. An individual who is in possession of a freehold estate has seisin, which means the right to immediate possession of the land. Freehold estate is characterized by two essential elements: immobility—that is, the subject matter or property involved is either land or an interest affixed or issuing out of land; and sufficient legal indeterminate duration (If the maximum period of time to which an estate can last is set and determined, it is not an estate of freehold). Freehold estates are of inheritance or not of inheritance. There are three basic types of freehold estates at common law: fee simple, fee tail and life estate. In law, the word “fee” is an inheritable freehold estate in real property or the estate passed to one’s heirs on death. Fee simple, also called fee simple absolute, is the greatest estate that can exist in land and is of potentially perpetual duration. It is the most common kind of ownership and the most unrestricted and largest estate permitted by law. Fee simple ownership represents absolute ownership of real property. The holder of this estate has full possessory rights now and in the future for an infinite duration. Fee simple is inheritable and lasts as long as the individual and his heirs want to keep it. Meaning, it exists as long as there is a successor or someone to inherit it. Aside from free simple absolute, there are three other types of fee simple which are determinable fees, conditional fees and base fees. Like the fee simple, the fee tail is an estate of inheritance. However, it can only be inherited by specified descendants of the original grantee. It ensures that the property stays in the family of the grantee indefinitely. It describes an estate of inheritance which cannot be sold, devised by will, or alienated by the owner. Unlike the fee simple which can be left to anyone, fee tail is an estate subject to limitations concerning who may inherit the property, which is ordinarily created by a deed or a will. Fee Tail is an estate that can endure forever but can only be passed to lineal descendants and will end if and when the first fee tail tenant has no lineal descendants to succeed him or her in possession. Life estate is an interest which lasts for the lifetime of a person. The individual retains possession and is entitled to the use and benefit of the property for the duration of his life, but that right ceases upon death. It does not amount to ownership since it is limited by a term of life. Life estate is not an estate of inheritance. Since it ends at death, the owner of the life estate cannot leave it to his heirs NON-FREEHOLD ESTATES, also called leasehold estate, are property interest of a determinate period of time, without seisin and are not inheritable. They end on a particular date. They are lawfully acquired for a temporary period of time but retained after a period of lawful possession has expired. It is a legal interest that entitles the tenant to immediate possession of designated land for either a fixed period of time or for so long as the landlord desire. Non-freehold estates include estate for years, periodic estate, estate at will, and estate at sufferance. Estate for years (tenancy for years) is a lease that will expire at a definite period of time or date that is fixed or agreed upon in advance. It is required to have specified beginning and termination dates, and hence a known and definite duration. This tenancy endures for a designated time and automatically expires at the end of the period, without any notice of termination by either party. The most common example of this is the arrangement existing between a landlord and tenant. Periodic estate (periodic tenancy) continues for successive or initial fixed periods. The essential distinguishing characteristic is that it is of indefinite duration. There is no definite termination date and continues until terminated by either party by proper advance notice. The classic example is the “month-to-month” residential lease. Estate at will (tenancy at will) has no fixed duration and endures as long as both the landlord and the tenant desire. One or both parties have the right to terminate the tenancy at will. The parties must have an agreement or understanding that either party can terminate at any time. Estate at sufferance (tenancy at sufferance) is an estate that ordinarily arises when a tenant continues to occupy a property without the landlord’s permission, without paying rent or after the lease rights have expired. Tenancy at sufferance may be transformed into periodic tenancy upon consent and acceptance of rent of landlord. FUTURE INTEREST is an estate that does not include right to present possession or enjoyment until a future time. It is a nonpossesory interest that may become a possessory estate in the future. They are most commonly encountered in family gifts. In the 19th century, future interests were sometimes created for charitable or economic reasons. There are six kinds of future interest recognize at common law: three types that may be held by the transferor (reversion, possibility of reverter and right of entry) and another three that may be held by the transferee (vested remainder, contingent remainder and executory interest.) FUTURE INTERESTS IN THE TRANSFEROR Reversion – Occurs when a granted estate is absolutely vested in the grantor. Possibility of reverter - Grantor will automatically regain title to the land if the possessor violates the associated condition. Right of entry (or power of termination) - A grantor has the power of termination when an estate will return to the grantor if a condition is violated and the grantor decides to reclaim the estate. This type of grant may occur when the grantor wants the option of deciding the severity of the violation. FUTURE INTERESTS IN THE TRANSFEREE Vested remainder - created when property is granted to both a direct grantee and a named third party, and is not subject to a condition precedent to the third party taking possession. Contingent remainder - created when a remainder cannot fully vest at the time of granting. Executory interest - a future interest in a third party that vests upon any condition subsequent except the natural termination of the original grantees rights. (Wikipedia) ISSUES AND PERSPECTIVES A property right is the exclusive authority to determine how a resource is used, whether that resource is owned by government or by individuals. The definition, allocation, and protection of property rights is one of the most complex and difficult set of issues that any society has to resolve (Alchian). Ethical - Real estate consumers are losing millions of dollars due to the lack of ethics in real estate. Most consumers are not informed of the dangers involved with selling or buying real estate. For example, is that it is unethical to sell an investment which is unsuitable for the purchaser. Further, consumers are being deliberately and massively misinformed (Jenman). Real estate agents should be compelled to use ethical systems which protect and benefit consumers rather than being engaged in the motive of self-interest. One reason for this is the short-term relationship that exists between agents and clients. Global - The analysis of the International Commercial Property Associates (ICPA) data reveals some interesting features of the world real estate returns, and provides some guidance to global investors in the office market. The ICPA data clearly indicates that the U.S. real estate crash was part of a global trend. This is useful information for policy makers, but disappointing for investors seeking international diversification (Goetzman and Watcher). Technological - 2003 marked a milestone in the technological evolution of the real estate industry. Increasing number of buyers use the Internet as an information source than newspapers. This technological innovation has influenced real estate marketing. Prospective clients can browse online real estate agencies, know the necessary information about real estate, and seek assistance from professionals in official government websites. Business - Demand for housing within walking distance of transit will more than double by 2025, according to another nonprofit, the Center for Transit-Oriented Development. Even now, properties within a 5- or 10-minute walk to a train stop are selling for 20 to 25 percent more than comparable properties further away - a price premium thats likely to increase as traffic jams worsen (Taylor). WORKS CITED Alchian, Armen A. “Property Rights.” The Library of Economics and Liberty. Liberty Fund, Inc., 2002. 19 July 2006. . Goetzmann William N. and Susan M. Wachter. “The Global Real Estate Crash: Evidence From an International Database.” 19 July 2006. International Counselor. “Overview of Real Property in the United States.” International Counselor, October 1997. 19 July 2006. Jenman. “Ethical concerns in the Real Estate Industry.” Jenman Group, 2006. 19 July 2006. < http://www.jenman.com.au/Ethics_Concerns.php>. Taylor, Chris. “The Next Real Estate Boom.” CNN Money, 2006. 21 July 2006. Wikipedia. “Future Interest.” Wikimedia Foundation Inc., 2006. 19 July 2006. Read More