A future interest in property is a legal right to that property that will begin at some point in the future. If a person holds a future interest, then they do not currently have a right to possess or enjoy the property. Future interests are created when an estate has a condition or “triggering” event that transfers ownership of a property right. One of the most common examples is seen in a landlord-tenant relationship. While a person is renting a house, the landlord typically does not have the right to live in or enjoy the house. However, upon termination of the lease, the landlord will regain full rights to the property. In this case, the landlord has a future interest in the property. Future interests can typically be transferred by sale, gift, or will.
There are six basic types:
- Future Interest with Possibility of Reverter – “James gives property to his son, Tommy, as long as he refrains from drinking alcohol.” This type occurs when an estate will revert to the grantor if a specific condition is violated. Here, James has reserved a future interest in the property that only triggers if and when Tommy drinks alcohol. If Tommy violates the condition, the property automatically transfers back to James.
- Future Interest with Right of Re-Entry – “James gives property to Tommy, on condition that Tommy refrains from drinking alcohol.” This type of interest is a little different than a possibility of reverter in that the grantor (James) has the option to reclaim the property upon violation of the condition. Here, if Tommy drinks alcohol then Bob can elect to reclaim the property or not, it will not automatically transfer back to James if and when Tommy drinks.
- Future Interest in a Transferee – “James gives property to Tommy when he graduates college.” This option gives an interest in the future to the individual to whom the property is being transferred. In this example, Tommy will receive the property in the future, when he graduates from college.
- Future Interest with Vested Remainder – “To James for life, remainder to Tommy.” A vested remainder is one that becomes possessory at the termination of the prior life estate, but is not subject to any other conditions. Once the transferee’s interest has vested, he is entitled to possession upon the death of the grantor. Furthermore, in this example, there is no requirement that Tommy outlive James. If Tommy is already dead at the time James dies, the interest will fall to Tommy’s heirs.
- Future Interest with Contingent Remainder – “To James for life, remainder to Tommy if he outlives James.” A contingent remainder is one that becomes possessory at the termination of the prior life estate, and is subject to an additional condition. The transferee will only receive the interest after the death of the grantor if he has satisfied the additional requirement. In the example, Tommy will receive his interest in the property when James dies, but only if Tommy is still living at the time of James’ death.
- A Future Interest with Remainder is Subject to Open if it belongs to a class of beneficiaries, where that class can expand. “James gives property to Tommy for life, then to Tommy’s children.” In this example, any children alive before Tommy’s death have an interest subject to open because Tommy could potentially have more children.