Consider the following language that appears in a deed (but could also appear in a will): “The following conveyance is made on the condition that the property always be used as a community center. If it ever comes to pass that the property is used for something other than a community center, then title to the property will revert to the grantor’s heirs.”
“This deed/will creates the “possibility of a reverter.” In other words, there is a possibility that title to the property will revert to the heirs of the grantor, even if decades go by. Sixty years goes by and the owners of the property are concerned that their current use of the property might not be in line with a community center. They worry that they may lose their investment if someone challenges the use. To solve the problem, they make an effort to find the grantor’s heirs.
They are amazed to find out that even though 60 years has transpired, there are only 5 heirs remaining. The heirs are contacted and for a sum of money, the reversionary interest is purchased and retired. Future interests can be purchased and retired but it isn’t always that easy. In the above example, the heirs had a future interest as opposed to a present right. The future interest was conditioned upon a certain event occurring (property being used for something other than a community center). The owners of the future interest were able to cash it in by conveying it to the current owner.
Lawyers frequently create life estates. A life estate is the right to possess and enjoy property for the remainder of someone’s life. Upon the death of the “life tenant,” the property goes to someone else. For example: “I give and devise my beach house property to my daughter for her life. At the conclusion of her life, I give and devise the property to my grandson, Dexter.”
In this example, my daughter is the life tenant and my grandson has the “remainder.” Dexter’s remainder interest is contingent upon his surviving his mother. Through the use of future interests, people have been able to rule from the grave. They direct ownership of property by establishing one or more conditions of ownership. When these conditions are breached, they steer title and enjoyment in a different direction.
The use of future interests can be very important in estate planning as owning all of something is sometimes worth less than owning part of something. For example, after a Medicaid recipient dies, the state must attempt to recoup from his or her estate whatever benefits it paid for the recipient’s care. For most Medicaid recipients, their house is the only asset available. When the Medicaid recipient had only a life estate, then upon their death, there is nothing for Medicaid to recover. This is because the remainder interest went to someone else.