What Is Remainder Interest?

Remainder Interest is a future interest granted to a different party than the original owner upon the termination of a prior estate.

Remainder interest is a specific type of future interest in property law where a third party—known as the remainderman—receives the right to possess and use the property after the termination of a prior estate. This prior estate is typically a life estate or a term of years. Remainder interest plays a crucial role in estate planning, wealth transfer, and ensuring the continuity of property ownership across generations.

Definition and Explanation

Legal Formula Representation

In legal terms, remainder interest can be expressed through the formula:

$$ R = P - E $$

where:

• \( R \) represents the remainder interest.
• \( P \) denotes the principal estate.
• \( E \) is the existing estate or the preceding interest.

Types of Remainder Interests

Remainder interests are primarily divided into two categories:

Vested Remainder

A vested remainder is an interest that is granted without any condition precedent and is certain to become possessory in the future. This type is further subdivided into:

• Vested Remainder Subject to Open: Interests that could be shared among a fluctuating class of beneficiaries (e.g., to children of a living person).
• Vested Remainder Subject to Divestment: Could be forfeited under specific conditions.

Contingent Remainder

A contingent remainder depends on the occurrence of a specified event or prerequisite that has not yet been satisfied. This type includes:

• Remainders based on conditions (e.g., “to Alice if she graduates from college”).
• Remainders to unborn beneficiaries or those under a specific legal incapacity.

Historical Context of Remainder Interest

Remainder interests have a long lineage tracing back to feudal England, where the distinction between different types of estates became vital for maintaining hereditary land rights and estate structuring. Over centuries, the concept evolved to fit modern legal practices, accommodating both common and civil law systems worldwide.

Application and Examples

Remainder interests are often employed in wealth management and legal strategies such as:

• Estate Planning: A parent may grant a life estate to a surviving spouse with the remainder to pass on to the children.
• Charitable Trusts: Establishing a remainder interest in property donations to ensure income to heirs followed by principal contributions to a charitable organization.

Related Terms

• Life Estate: The ownership of property limited to a person’s lifetime, after which it passes to remaindermen.
• Reversion: An interest remaining with the grantor or their heir post-termination of the current estate.
• Fee Simple: An absolute ownership interest in real property without limitations or conditions.

FAQs

What happens if the remainderman dies before the life tenant?

If specified in the deed, remainder interests might pass to the remainderman’s heirs or a new beneficiary can be appointed.

Can remainder interest be sold or transferred?

Yes, a remainderman can typically sell or transfer their interest unless restricted by the terms of the grant.

Difference between reversion and remainder interest?

Reversion refers to the future interest remaining with the original grantor, whereas remainder interest is granted to a third party.

References

1. Dukeminier, J., Sitkoff, R. H., & Lindgren, J. (2014). Wills, Trusts, and Estates. Wolters Kluwer Law & Business.
2. Sprankling, J. G. (2014). Understanding Property Law. LexisNexis.

Summary

Remainder interest is a vital concept in property and estate law, detailing the future interest transferred to a third party upon the termination of a prior estate. Its understanding is pivotal for proper estate planning, ensuring legal clarity, and continuity of property rights.