What Is Future Interests?
Future interests are legal rights to property ownership that do not include the right to present possession or enjoyment of the property, but rather confer a right to possession or enjoyment at some point in the future.59 They are a fundamental concept within Property law and are commonly created through instruments such as wills, trusts, and deeds.56, 57, 58 These interests allow property owners to control the disposition of their assets beyond their lifetime, serving as crucial tools in estate planning.55 While a present interest grants immediate rights to use and possess property, a future interest defers these rights until a specified event occurs or a certain period passes.52, 53, 54 This ability to split property ownership across time is a cornerstone of advanced financial and legal planning, influencing how wealth is transferred and managed across generations.
History and Origin
The concept of future interests has deep roots in the common law of medieval England, emerging from the feudal system of land ownership.50, 51 Initially, these interests were developed to address the rigid rules of feudal tenure and to enable landowners to create complex family settlements and maintain control over land across generations.49 As English property law evolved, various forms of future interests, such as reversions and remainders, became formalized.48 Significant developments in the 17th and 18th centuries, including the eventual establishment of the Rule Against Perpetuities, further shaped the modern understanding and limitations of these interests.47 The evolution of future interests has allowed for sophisticated long-term arrangements, balancing the desire for control over property with the need to prevent perpetual restrictions on alienation. The Legal Information Institute at Cornell Law School provides a comprehensive overview of future interests and their common law origins.45, 46
Key Takeaways
- Future interests grant a right to property possession or enjoyment at a future date, not immediately.44
- They are established through legal instruments like deeds, wills, and trusts to manage wealth transfer across generations.42, 43
- Key types include reversions, remainder interests, and executory interests, each with distinct characteristics regarding who holds the interest and when it takes effect.40, 41
- Future interests can be either vested interests (certain to take effect) or contingent interests (dependent on a condition).38, 39
- Despite their future nature, future interests can often be transferred or sold before they become possessory.37
Interpreting the Future Interests
Understanding future interests involves analyzing the precise language of the legal document (deed, will, or trust) that creates them, as subtle differences in wording can significantly alter their nature and enforceability. Interpreting these interests requires identifying the grantor (the person conveying the property), the current possessor (if any, often holding a life estate or other limited interest), and the beneficiary of the future interest. It also necessitates determining whether the interest is vested or contingent. A vested future interest is one where the identity of the holder is certain and there are no conditions precedent to its taking effect other than the natural termination of the preceding estate.34, 35, 36 Conversely, a contingent future interest depends on an uncertain event occurring or the identification of a specific person, making its eventual possession less certain.32, 33 The practical interpretation often centers on when and if the future interest holder will gain control of the property.
Hypothetical Example
Consider Sarah, who owns a beachfront property. She wants to ensure her mother, Eleanor, can live there for the rest of her life, and then the property passes to Sarah's son, David. To achieve this, Sarah executes a deed that grants a life estate to Eleanor. This means Eleanor has the right to possess and use the property for the duration of her life. The deed then specifies that upon Eleanor's death, the property will automatically transfer to David.
In this scenario:
- Eleanor holds a present possessory interest, specifically a life estate.
- David holds a future interest, known as a remainder interest. His right to possess the property is deferred until Eleanor's death, at which point his interest will become a present possessory one. This arrangement effectively divides the ownership rights across a timeline, with Eleanor having immediate enjoyment and David having the certain right to future enjoyment.
Practical Applications
Future interests are extensively used in various financial and legal contexts, particularly in estate planning and sophisticated wealth transfer strategies. They allow individuals to dictate the long-term disposition of their assets, ensuring that property passes according to their wishes over multiple generations. For instance, creating a trusts with specified future interests can provide for a spouse for their lifetime, then allocate the remainder to children or grandchildren, potentially minimizing probate complexities.31
In charitable giving, future interests are instrumental in establishing arrangements like charitable remainder trusts. These trusts allow a donor to receive income from assets for a period (often their lifetime), with the remaining assets passing to a charity at the end of the term.28, 29, 30 This structure provides both current income for the donor and a future benefit for the chosen charitable organization. The University of Michigan's Planned Giving program offers examples of how charitable remainder trusts utilize future interests to achieve philanthropic and financial goals.25, 26, 27
Additionally, future interests play a role in complex real estate transactions, where ownership might be fragmented over time or contingent on specific conditions. This can include situations involving conservation easements or development rights that are held separately from current property possession.
Limitations and Criticisms
Despite their utility, future interests are subject to significant limitations and have faced criticisms, primarily due to their inherent complexity and potential to unduly tie up property for extended periods. The most notable limitation is the Rule Against Perpetuities (RAP), a common law doctrine designed to prevent property from being rendered inalienable (unable to be freely bought or sold) indefinitely.22, 23, 24 The RAP generally dictates that an interest must vest, if at all, within 21 years after the death of someone alive when the interest was created.20, 21 Failure to comply with this rule can result in the invalidation of the future interest, leading to unintended consequences and challenges in estate planning.
Critics argue that the Rule Against Perpetuities is notoriously difficult to apply and often leads to the unintended defeat of a grantor's intentions due to highly technical interpretations.18, 19 This complexity frequently necessitates specialized legal counsel to ensure compliance and avoid costly litigation. In response to these challenges, many U.S. states have adopted the Uniform Statutory Rule Against Perpetuities (USRAP), which introduces a "wait-and-see" approach or a fixed 90-year period to validate interests that would otherwise fail under the common law rule.14, 15, 16, 17 This reform aims to make the rule more practical while still upholding the policy against perpetual property restrictions. Even with reforms, complexities surrounding tax implications and the precise wording of documents creating future interests remain significant considerations.
Future Interests vs. Present Interests
The distinction between future interests and present interests lies fundamentally in the timing of possession and enjoyment of property. A present interest, also known as a possessory estate, grants the holder immediate rights to use, occupy, and control the property.11, 12, 13 For example, an individual who owns a home in "fee simple" (absolute ownership) holds a present interest because they can live in it, sell it, or rent it out right now.
In contrast, a future interest grants a right to property that will only become possessory at a later time, upon the occurrence or non-occurrence of a specific event, or after the termination of a prior estate.8, 9, 10 The holder of a future interest has a current legal right to the property, but the actual physical possession or enjoyment is deferred. This creates a temporal separation of ownership, allowing different individuals or entities to have rights to the same property at different points in time. The confusion often arises because while a future interest isn't immediately possessory, it is still a current, legally recognized property right that can often be transferred or sold.7
FAQs
What are the main types of future interests?
The main types of future interests are reversions, remainder interests, and executory interests. A reversion occurs when the property returns to the original grantor or their heirs after a limited estate (like a life estate) ends. A remainder interest is created in a third party and takes effect after a prior estate naturally terminates. An executory interest is also in a third party but takes effect by cutting short a prior estate or by springing up after a gap in possession.4, 5, 6
Can a future interest be sold or transferred?
Yes, in many jurisdictions, a future interest can be sold, gifted, or inherited even before it becomes a present possessory interest.3 The ability to transfer depends on whether the interest is vested interest or contingent interest, with vested interests generally being more readily transferable due to their certainty.
What is the Rule Against Perpetuities?
The Rule Against Perpetuities (RAP) is a legal rule that limits how long a future interest can remain uncertain or unvested. Its purpose is to prevent property from being tied up indefinitely in complex arrangements, promoting the free transferability of land. Generally, it requires that an interest must vest (become certain) within 21 years after the death of someone who was alive when the interest was created.1, 2
How do future interests relate to estate planning?
Future interests are crucial in estate planning as they allow individuals to control the long-term distribution of their assets beyond their lifetime. By creating future interests through wills or trusts, a grantor can specify who will own or benefit from property at different times or upon the occurrence of certain events, thereby providing for multiple generations or charitable causes.