When property is conveyed by will or by trust, the beneficiary receives either the possessory interest or a future interest in the property.
A possessory interest allows a beneficiary to possess the property when the interest is conveyed. However, a future interest only allows a beneficiary to possess the property at sometime in the future, after the interest has been conveyed.
Example 1: B, who has a fee simple title to property, conveys a life estate in the property to C, with remainder to D, if D survives C.
Both the grantor (aka transferor), who is the one that conveys the property interest, and the grantee (aka transferee), who receives the property interest, may have future interests in the property. In Example 1, C has a possessory interest, while D has a future interest. However, the grantor, B, also has a future interest that becomes possessory only if D does not survive C. Otherwise, the property becomes vested in D; in other words, D would have the fee simple title to the property if she survives C.
Future Interests Retained by the Grantor
If the grantor does not convey his entire interest in the property, then he retains a future interest. For instance, in Example 1, the grantor gives a life estate to C, and then the property goes to D, but only if D survives C. If D does not survive D, then the property reverts back to the grantor, or to the grantor's estate if he died, since someone must own the property.
There are 3 types of future interests that can be retained by the grantor:
- right of reverter,
- right of entry.
Reversion occurs when a finite estate ends, and there are no other grantees with a future interest in the property. If the grantor does not convey a fee simple title, but rather a finite estate, which will end at a particular time, then, if no other future interest had been conveyed, the property will revert back to the grantor.
Possibility of Reverter
The grantor retains a possibility of reverter if he conveys a fee simple determinable, which is a fee simple subject to some condition. For instance, if the grantor conveys land to be used to build a church, and the grantee does not build a church, then the land will revert back to the grantor automatically.
Right of Entry
A right of entry (aka right of reentry, power of termination) is similar to a possibility of reverter except that the right of entry gives the grantor a choice to reenter the property if a condition is not satisfied. To retain a right of entry, the grantor conveys a fee simple defeasible subject to a condition subsequent title. However, the grantor must obtain a court order to re-enter the property.
Future Interests Given to Grantees
There are 3 types of future interests given to grantees:
- vested remainders,
- contingent remainders,
- executory interests.
Vested and Contingent Remainders
A remainder is a future interest that may become possessory by the remainderman (aka remainderperson), but only after all previous interests have expired or terminated.
Example 2: B conveys a life estate to C, who has no children yet, with the remainder to C''s children. C''s children will receive a fee simple title to the property when C dies, if C has children.
A remainder can either be vested or contingent. A vested remainder is one where the grantee is an ascertainable person and the remainder is not subject to a condition precedent. In other words, the property is definitely going to be conveyed to the grantee, or the grantee's estate, if the grantee dies before the conveyance. The grantee is ascertainable, if she is living and known; otherwise the conveyance cannot be a certainty. For instance, in Example 2, if C does not have any children when the property is conveyed, then the remainder cannot be vested, since C may never have children. Hence, the remainder to C''s children is a contingent remainder because it depends on a condition—that they exist.
Contingent remainders come with 2 types of conditions. A condition precedent is a condition—not including the condition that all previous interests must expire before the remainderman takes—that must be true before the grantee gains a vested interest in the property. So, in Example 2, the requirement that C have children is a implicit condition precedent.
A condition subsequent is a condition that can occur after possession of the property that causes the remainderman to be divested of her property if the condition becomes true. Hence, this type of remainder is often called a vested remainder subject to divestment.
A remainder with a condition precedent differs from a remainder with a condition subsequent in that the condition precedent must be true before the remainderman can receive the property while the property is vested under the condition subsequent and will only be divested of the property if the condition subsequent becomes true. Note, however, that a condition subsequent can be true even before the remainderman takes possession of the property, thereby preventing his possession at all.
Destructibility of Contingent Remainders
Note that a remainder with a condition precedent could have the same result as having the condition as a subsequent. A contingent remainder will often mean the same thing and have the same effect, whether the condition is precedent or subsequent. However, a condition subsequent is a vested interest, and, hence, is not destructible, whereas a contingent remainder with a condition precedent can be destroyed if the previous property interest terminates prematurely.
Example 3: E's will devises property to his wife for life, with the remainder to F.
Example 4: E's will devises property to his wife for life, with the remainder to F, if F survives the wife.
If the wife disclaims her inheritance in Example 3, the property will go right to F, because a disclaimant is generally treated as having predeceased the testator. However, if the wife disclaims in Example 4, F gets nothing—ever! In Example 3, F has a vested remainder, whereas in Example 4, it is a contingent remainder, because the condition subsequent requires that F survive the wife. If a previous property interest terminates prematurely, and the contingent remainder cannot take because the condition was not satisfied at the time the previous property interest terminated, then the contingent remainder is destroyed.
The law requires that someone own the property, so if the wife disclaims and F cannot take the property because the condition is not yet true, the property reverts back to the testator to be distributed according to the intestate laws of the testator's domicile. Even if the wife would die a few days later, F still cannot take because his contingent remainder has been destroyed.
A vested remainder accelerates into possession if the previous property interest extinguishes for whatever reason, but a contingent remainder cannot accelerate into possession; hence it is destroyed if the previous property interest expires before the contingency becomes true, so the property reverts back to the grantor or his estate.
If a contingent remainder cannot take effect because its condition is not satisfied, then the instrument that created the future interests in the property may list an alternative contingent remainder, who will take if a previous contingent remainderman cannot take. Any number of alternative contingent remainders can be specified, but if none of their conditions are true at the termination of the previous property interest, all property rights will revert to the grantor.
A remainderman can never take property until all previous property interests have expired. A contingent remainder can never cause the previous property holder to lose the property before the holder's natural termination.
An executory interest is similar to the vested remainder subject to divestment in that the holder can only acquire possession if a condition subsequent becomes true, but if it does, the holder of the executory interest acquires possession right away. In other words, the property interest is transferred from the previous owner to the holder of the executory interest when the condition becomes true—the holder of the executory interest does not have to wait until the previous holder's interest expires. Because the condition of an executory interest causes the property interest to shift to the holder of the executory interest when the condition happens, it is often called a shifting executory interest, to distinguish it from a springing executory interest, which is a condition that transfers the property interest from the grantor to the grantee when the condition becomes true. A common use in centuries past of the springing executory interest was the conveyance of land by a father to a daughter, if she married a particular person or one of a certain faith or race or if she just got married. Hence, the daughter gets title to the land as soon as she satisfies the condition.