In property law and real estate, a future interest is a legal right to property ownership that does not include the right to present possession or enjoyment of the property. Future interests are created on the formation of a defeasible estate; that is, an estate with a condition or event triggering transfer of possessory ownership. A common example is the landlord-tenant relationship. The landlord may own a house, but has no general right to enter it while it is being rented. The conditions triggering the transfer of possession, first to the tenant then back to the landlord, are usually detailed in a lease. As a slightly more complicated example, suppose O is the owner of Blackacre. Consider what happens when O transfers the property, "to A for life, then to B". Person A acquires possession of Blackacre. Person B does not receive any right to possess Blackacre immediately; however, once person A dies, possession will fall to person B (or his estate, if he died before person A). Person B has a future interest in the property. In this example, the event triggering the transfer is person A's death. Because they convey ownership rights, future interests can usually be sold, gifted, willed, or otherwise disposed of by the beneficiary (but see Vesting below). Because the rights vest in the future, any such disposition will occur before the beneficiary actually takes possession of the property. There are five kinds of future interests recognized at common law: three in the transferor and two in the transferee.
Vesting
Vesting means granting a person an immediate right to present or future enjoyment of property. In plain English, one has a right to a vested asset that cannot be taken away by any third party, even though one may not yet possess the asset. When the right, interest or title to the present or future possession of a legal estate can be transferred by its holder to any other party, it is termed a vested interest with respect to that holder. A vested interest may be one of three types:
A future interest is absolutely (or indefeasibly) vested if its beneficiary must (legally) eventually take possessory ownership. A future interest is vested subject to divestment if something could occur that would divest the remainder of an interest. For example, "From O to A for life, then to B, but if A stops growing corn, then to C": B would have a vested remainder subject to divestment because he could be divested of his interest by an act of A before the interest becomes possessory. A future interest is vested subject to open if it belongs to a class of beneficiaries, where that class can expand. A common example is a grant from O "to A's children", where A is a man: the class of A's children can't be closed until approximately thirty eight weeks after A dies, so any children alive at the time of the grant are vested subject to open. This interest is also sometimes referred to as being vested subject to partial divestment. A person may divest themselves of, or alienate, only those interests that are guaranteed to vest. This rule aligns with the policy that a person should not be allowed to sell a thing that he or she does not own outright. Interests that are not guaranteed to vest are subject to the rule against perpetuities.
Future interests in the transferor
Reversion
A reversion occurs when a granted estate is absolutely vested in the grantor.
Example: "O grants Blackacre to A for life." Analysis (O): A is guaranteed to die (eventually), at which point Blackacre returns to O. This future interest is absolutely (indefeasibly) vested in O. Analysis (A): A has a life estate. Alienation: O can alienate her future interest. A can alienate his rights in the property, but only to the extent that those rights were granted him (i.e., as a life estate). So A can sell Blackacre to B, but once A dies it returns to O. Notice that B has no control over this kind of vesting. Reversion is not subject to the rule against perpetuities, because O's future interest is absolutely vested.
Possibility of reverter There is a possibility of reverter when an estate will return to the grantor if a condition is violated. The possibility of reverter can only follow a fee simple determinable.
Example: "O grants Blackacre to A as long as A refrains from drinking alcohol." Analysis: If A never drinks after the grant (and never sells the property), then Blackacre will belong to A at O's death, and be distributed according to the rules of probate. If A does drink after the grant, then the property returns to O. Language used: Durational. Examples include "for as long as", "while", and "during". Alienation: O's interest is freely transferable. This type of future interest can only follow the fee simple determinable. The vesting of the future interest is determinable at the time of the grant, because reverter is automatic if the condition is broken—a possibility of reverter, therefore, is not subject to the Rule Against Perpetuities.
Right of entry (or power of termination) This type of future interest follows a fee simple subject to a condition subsequent. A grantor has the power of termination when an estate may return to the grantor if a condition is violated and the grantor decides to reclaim the estate. This type of grant may occur when the grantor wants the option of deciding the severity of the violation.
Example: "O grants Blackacre to A, on condition that A refrains from drinking alcohol." Analysis: If A never drinks after the grant (and never sells the property), then Blackacre will belong to A at O's death, and be distributed according to the rules of probate. If A does drink after the grant, then A's rights in Blackacre end, although A is still in possession of Blackacre. Language used: Conditional. Examples include "on condition", "if used for", and "provided that". Alienation: O's interest is vested. This interest is never subject to the rule against perpetuities. O's interest cannot be transferred inter vivos ("between living people"); can only be transferred by will or by intestate succession upon death of the grantor. This type of future interest follows a fee simple subject to a condition subsequent. To see why, consider that in order to retain Blackacre, A must continue to perform under the terms of the grant (by not drinking). If A fails to "not drink", that condition will trigger the subsequent loss of A's rights in Blackacre.
Future interests in a transferee
Remainders
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