Copyright

Future Interests: Remainder & Executory Interest

Instructor: Shawn Grimsley
Property rights aren't always about the present, sometimes they involve the future. In this lesson, you'll learn about two kinds of future interests in real property: remainders and executory interests.

Future Interest Defined

An important distinction in property rights is whether you have a right to possession and use of a piece of real property now or in the future. A present possessory estate in land is an interest where you have the current right to possess and use the real property. A future interest is an estate in land where you have a present interest in real property but you don't currently have the right to possess the property. Two future interests we'll be discussing in this lesson are remainders and executory interests. Let's take a look.

Remainder

A remainder is a future interest where its holder only obtains possession of the property when a prior possessory interest expires. Importantly, to be a remainder, the future interest must have been created at the same time with the same instrument as the prior possessory interest. This pretty much means that the holder of the present possessory interest and the holder of the remainder interest received their interests at the same time on the same deed. An example will help clarify.

Let's say you own a piece of property and decide to grant a life estate to Allan and also state in the deed that the property will go to Beth after Allan dies. Beth has a remainder interest; she doesn't have a right to possession until Allan dies. Note that the life estate and the remainder interest were given at the same time with the same deed.

Importantly, a remainder interest is never held by the original grantor or devisor (a grantor transfers property during life while a devisor does so through a will). If the grantor is entitled to possession at the termination of the life estate, the grantor has a reversion, not a remainder.

Vested & Contingent Remainders

You should also know that remainders may be vested or contingent. A remainder is vested if there are no further conditions (called conditions precedent) required before the right attaches and the person that has it is already born and his identity as been ascertained (i.e., definitely known). All other remainders are contingent.

What's a condition precedent? It's an event or contingency that must occur before the right vests. For example, let's say you deed a life estate to Charlie and provide that Deb will get the property in fee simple after Charlie's death should she survive Charlie, but if Deb doesn't survive Charlie, then Elaine will receive the property in fee simple. Elaine doesn't have a vested interest unless, and until, Deb dies before Charlie. Deb, of course, has a contingent interest as well - she must outlive Charlie.

Contingent interests can become vested. In our example, if Deb dies before Charlie, Elaine's contingent remainder becomes vested.

Beware of Old Common Law Rules

Two common law rules may invalidate a person's remainder interest. The Doctrine of Worthier Title holds that you cannot grant or devise (i.e., transfer by will) a remainder to your heirs. Instead, you will keep a reversion in the property, which means you, not your heirs, will get possession of the property back. This doctrine is still followed by some states so you will need to check your state law to avoid this pitfall. From a practical standpoint, unless your will provides otherwise, the heirs will merely get the property through your will rather than through a deed.

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