Future interest rates

A future interest in the property is a legal right to that property that will begin at some point in the future. If a person has a future interest, then they currently have no right to own or enjoy the property. Future interests are created when an estate has a “trigger” condition or event that transfers ownership of a property right. One of the most common examples is seen in a landlord-tenant relationship. While a person rents a house, the owner usually does not have the right to live or enjoy the house. However, at the end of the lease, the owner will regain all rights to the property. In this case, the owner has a future interest in the property. Generally, future interests can be transferred by sale, gift, or will.

There are six basic types:

• Future interest with the possibility of reversal – “James gives property to his son, Tommy, as long as he refrains from drinking alcohol.” This type occurs when an estate will return to the grantor if a specific condition is violated. Here, James has booked a future interest in the property that only kicks in if Tommy drinks alcohol. If Tommy violates the condition, ownership automatically transfers to James.
• Future interest with right of re-entry – “James gives properties to Tommy, on the condition that Tommy refrains from drinking alcohol.” This interest rate is slightly different from a reversal possibility in that the grantor (James) has the option to claim ownership in case of violation of the condition. Here if Tommy drinks alcohol Bob can choose to claim ownership or not, it will not automatically transfer to James if Tommy drinks.
• Future interest in an assignee – “James gives property to Tommy when he graduates from college.” This option gives interest in the future to the person to whom the ownership is transferred. In this example, Tommy will receive the property in the future when he graduates from college.
• Future interest with acquired remainder – “For James for life, the rest for Tommy.” An acquired remnant is one that becomes a possession at the end of the patrimony of the previous life, but is not subject to any other condition. Once the interests of the transferee have been acquired, the transferee has the right to possession after the death of the grantor. Also, in this example, there is no requirement that Tommy survive James. If Tommy is already dead by the time James dies, the interest will fall to Tommy’s heirs.
• Future interest with contingent remainder – “For James for life, the rest for Tommy if he survives James.” A contingent residue is one that becomes a possession at the end of the patrimony of the previous life, Y is subject to an additional condition. The transferee will only receive the interest after the death of the grantor if it has met 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’s death.
• A future interest with the rest is subject to opening 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 child alive before Tommy’s death has a topic of interest to open because Tommy could have more children.