In property, we have discussed the several freehold estates. Many of these estates come with a future interest attached. These were mentioned previously but there is merit to stating each estate and the associated future interests.
- Fee Simple – None
- Life Estate – Reversion or Remainder
- Fee Tail – Reversion
- Fee Simple Determinable – Possibility of reverter
- Fee Simple Subject to a Condition Subsequent – Right of entry
- Fee Simple Subject to an executory – Executory Interest
A future interest is simply a person’s right to possess a fee simple estate at a future time. There is typically a high value of interest. Individuals who hold this interest can stop the current possessor from committing waste, borrow against it, sell it, and even devise it if they die before obtaining possession. There are two main groups of future interests:
- Retained by the transferor (Grantor’s Future Interest)
- Possibility of reverter
- Right of entry
- Created in a transferee (Transferee’s Future Interest)
- Indefeasibly vested remainder
- Vested remainder subject to divestment
- Vested remainder subject to open
- Contingent remainder
- Executory interest – Shifting or Springing
Future Interests Retained by the Transferor
These are interests when the transferor gives the right of possession to less land than they already have (e.g. A gives a portion of his land to B).
A reversion is typically created when A conveys a live estate that does not create a fee simple in a third party (e.g. A conveys to B for life). So A would have a possessory interest to have the estate revert back after the life estate expires.
A possibility of reverter occurs when the transferor gives a fee simple determinable. Ultimately, there is a possibility that a condition could occur and if so, the possessory interest would automatically revert back to the transferor.
A right of entry is created when the transferor gives a fee simple subject to a condition subsequent. When the condition occurrence does not automatically return to the transferor, the transferor has the right to reenter and reclaim the property. However, they must exercise that right to retain possession.
Each of these future interests are alienable, devisable, and descendable.
Future Interests Created in a Transferee
The purpose of these interests are to provide resources to a family. When you consider estate planning, these are some of the most important tools in determining who gets what.
These interests are either a remainder or executory interest.
There are two elements to establish a remainder. 1) the interest must be capable of becoming possessory (guaranteed or possible possession at the expiration of another’s interest). 2) the current interest does not divest interest from a prior transferee (e.g. If “A transfers a life estate to B, then to C,” C must wait for B’s life estate to expire before taking possession).
There are two categories of remainders, vested or contingent. However, there are three types of vested remainders. In sum, there are four types of remainders:
First, an indefeasibly vested remainder is vested if it is giver to an ascertainable person (both alive and identifiable) and if there is no condition to obtain the estate (other than the expiration of a life estate). In other words, if a person is not ascertainable or there is a condition, then there is no indefeasibly vested remainder.
Second, a vested remainder subject to divestment is vested if there is an ascertainable person but it is subject on a condition. If the condition occurs, that persons remainder is divested to another.
Third, a vested remainder subject to open is held by several living members of a group who share a possessory interest but may be subject to share with more who enter the group. For example, children’s interest in the estate may be subject to partial divestment if more children are born into the estate.
Finally, a contingent remainder is a remainder given to either an unascertainable person or is subject to a condition.
A remainder is sociable, always accompanying a preceding estate or fixed duration. Typically a life estate or term of years. Additionally, a remainder is patient and polite, waiting for the expiration of the estate.
Step 1: What kind of remainder is this? Is it Vested or Contingent?
Only remainders can be vested. If a remainder is vested, the party needs to be an ascertained person (alive and identifiable at the time of transfer) and is not subject to any condition precedent. Unborn children and assumed heirs are not ascertainable. So, if there is not an ascertained person or if there is a condition present, then there is not a vested remainder, instead it is contingent.
Step 2: If vested, which kind of vested remainder?
- Indefeasibly vested remainder: The holder of this remainder is certain to acquire an estate in the future with no conditions attached. To A for life then to B. B holds indefeasibly vested remainder in fee simple.
- Vested Remainder Subject to Divestment: This is a remainder that is vested but right to possession could be cut short because of a condition subsequent (not precedent, which makes it a contingent). To A for life, then to B, but if B does not survive A, then to C. B holds a vested remainder subject to divestment (in fee simple subject to an executory limitation).
- Vested Remainder Subject to Open. Vested remainder held by one or more living members of a group or class that may be enlarged in the future. To A for life, then to B’s children. B’s children hold a vested remainder subject to open (in fee simple subject to an executory limitation).
Understanding the difference between contingent and vested remainder subject to divestment:
The default should be a contingent remainder.
Subject to Divestment
An executory interest is the exact opposite of a remainder. That is, the executor must divest (take possession from) either the estate from the transferor (springing) or the interest of another transferee (shifting) to take possession. For example, if A gives to B for life, then one year later gives to C, C has an executory interest because it divests the interest of A a year after B dies.
An executory interest is a future interest in a transferee (third party) that must divest another estate or interest to become possessory. In other words, it cuts short another person’s interest in the property.
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.