rule in Shelley's case

(redirected from Shelley's rule)
Also found in: Legal, Wikipedia.

rule in Shelley's case

An ancient rule of law designed to plug a loophole used in the fourteenth century to avoid paying the historic equivalent of estate taxes.The rule involved a transfer of land to A for life and then to A's heirs.Worded in that way,A's heirs did not take by inheritance; they took by virtue of the original deed.As a result,no inheritance tax was due.This is common estate planning stuff today,but it was fairly revolutionary in the 1300s in England.The word “heirs”could not be defined until A died, so no one had any real rights in the property until A died. As a result, A could do whatever he or she wanted with the property and no one could complain. The rule in Shelley's case said that,in such an instance,the transfer to A for life was really completely to A, not just for his or her life.A had all rights to the property,and there were no remainder interests. When A died, the heirs had to pay the inheritance tax. Virtually all states have abolished the rule in Shelley's case.Some have abolished its application in all instruments, some only in wills, and some only in deeds. An understanding of the rule in Shelley's case is the hallmark of one knowledgeable
about obscure points of real estate law.