Future interests can get pretty complex. The topic can only be understood by working on problems that test all of its nuances. This future interest series isn’t meant to be a comprehensive overview of future interests. What I want to do here is break down future interests into easy to understand blocks. Below is an example of a supposed transfer in interest.

“O devises Blackacre to A for life, then to B.”

It can be tempting to go ahead and start shouting out what type of interest belongs to who. But that can lead to mistakes. One should think about future interests as an assembly line. Before you can come to a decision, you have to break down each aspect of the transfer language into blocks.

1. The Document

We have to know what type of document we’re working with. The type of document determines who has what. For example, a will does not transfer any interest until the death of the testator. If we apply this to the example, O, the testator, will have a present interest in fee simple absolute. A and B will have no interest whatsoever until O dies.

A deed or trust or any other document that conveys interest immediately allows those named in the document to have interests.

To recap:

A will only creates interests upon the death of the testator. If a question including a will does not indicate that the testator has died or that a transfer has occurred(implying the death of the testator), then there are no future interests. The keywords to look out for is devise, will, beneficiaries, and testator.

2. The Players

To play any game, you have to know who the players are. Though this habit of getting to know whether someone has been named or not applies more to the Rule Against Perpetuities, it’s best to build up the habit of identifying whether a party has been named or not.

Generally, you have a named party, an unnamed party, and a class. Here’s an example showing the three ways parties can be introduced.

“O conveys Blackacre to A for life, then to O’s grandchildren.”

Did you catch the unnamed party? Before we get there, we should know that A counts as a named party(A is an abbreviation for a full name). O is also a named party. You shouldn’t forget the grantor/testator because they can also have a future interest. Everyone is a player in the game of future interests.

The grandchildren are a class; they cannot be identified because we don’t even know if they exist or will ever exist. Even if they do exist, we don’t know how many more will exist in the future.

Now for the unnamed party. The unnamed party is O’s children. Though they don’t receive anything, they are important because without their existence, the class will not gain possession of their future interest.

It helps to lay out all the parties on a blank sheet so that you can start writing who has what.

3. Present or future interests

The next thing you want to decide is which party has the present interest and which one has the future interest. This analysis differs depending on the document.

In a trust, or any other instrument besides a will, the present interest will usually go to the first party named unless there is a condition that allows the grantor to hold the property for a certain period of time. Here’s an example:

“O to A if a dam is built within the next 21 years.” At the moment, O has a present interest and A has a future interest.

On the other hand, “O to A and his heirs” gives A a present interest and O gets nothing; this is the everyday thing we’re used to.

But you can have a scenario where “O conveys to A for life, then to B.” A gets a present interest, B gets a future interest, and O gets nothing because B owns the property in fee simple absolute(the next part of this series will cover estates).

However, you can imagine a scenario where “O conveys to A for life, then to B for life.” O will actually have a future interest because the life estate must terminate, reverting back to O. A has a present interest. B has a future interest.

In a will, if the testator is not dead, then the testator has a present interest. There are no future interests. If the testator is dead, then you can read the language as you would any other instrument of conveyance. It’s important to remember that death doesn’t change any of the players on the board. The estate can still have a future interest. Death only removes players who have life estates because that estate is tied to their life. But we’re getting ahead of ourselves.

Now for the remainders:

Before we get into the nuance, it’s best to know how to spot a remainder in the first place. On an elementary level, any interest received by a third party may be a remainder. In other words,an interest received by a third party is a remainder unless the previous party’s interest may be cut short or if there is a gap of time before the third party’s interest can vest. Let’s keep this stupid simple with examples:

“O to A for life as long as the property is used for skiing within the next 21 years, then to B.” B is a third party, but B does not have a remainder because A’s life estate may end unnaturally due to the stipulation in the deed, so B has an executory interest. More specifically, B has a shifting executory interest because it’s the non grantor’s action or inaction that will shift the interest to B.

“O to A for life, then to B three years after A’s death.” In this case, due to the gap, B will have an executory interest. When A dies, O(or O’s estate), will have a present interest for three years. After three years, the interest will spring to B no matter what O does. So B has a springing executory interest.

A more subtle way to create the springing executory interest problem is to say “O to A for life, then to B when B is 30.” If A dies early and B is not 30 by A’s death, someone has to have possession of the property. So, O will hold the property and B will not have a remainder; he’ll have a springing executory interest.

Note: If read without the scenario of A dying early, B actually has a remainder. But the moment an event creates a gap, the interest can no longer be a remainder.

1. What interest gets to vest, what interest might not vest, who gets the leftovers?

Now that we can spot remainders, we have to know how to label them. Remainders are either vested or contingent.

Let’s imagine there’s a line of 6 kids and only one magical ice cream. The ice cream only diminishes in size after a kid has had his fill. You’re Willy Wonka.

Bob is first in line. Sally is second. George is third. Mary is fourth. Jill is fifth. Ron is sixth. You know that your magical ice cream only has five uses. Ron may be out of luck. But to be nice, you say that Bob can eat to his fill, then Sally to her fill, then George to his fill, then Mary to her fill, then Jill to her fill, then Ron if the ice cream survives.

Do you know which kid is definitely going to get to taste that delicious ice cream? Yes. The interest in the ice cream will vest in five kids. But that’s not all. Bob got first dibs. The rest got…remainders. Sally, George, Mary, and Jill got vested remainders. Vesting is not the same as possessing. The fact that Jill will definitely get to taste that ice cream means her interest has already vested even though she doesn’t have possession yet.

This interest is called a future interest. If Jill is feeling really kind, she can give her future interest to Ron. A future interest imagined in that way becomes a valuable spot in line that can be given away. Imagine how much someone would pay to be the second spot in line to get the newest iPhone. That’s what a future interest is.

Ron, unfortunately, gets a contingent remainder. That’s because there’s a condition precedent preventing him from a 100% chance of attaining the interest. Before Ron can get the ice cream, something has to happen: the ice cream has to stay alive!

2. Reversions

But what if, in an alternate universe, Jill and Ron didn’t exist? Then we’d have four kids and five uses. Who gets the last use of the magical ice cream? Well, it should revert back to Willy Wonka right? So if there were only four children, Willy Wonka would have a future interest, a reversion. Original owners don’t get any remainders, they get reversions.

3. Alternative contingent remainders

Let’s continue to explore our Willy Wonka example. Let’s imagine that, in order to solve the ice cream problem, you decide to create a condition for Jill to fulfill. If she doesn’t fulfill it, then the ice cream goes to Ron.

So the new deed will say:Bob can eat to his fill, then Sally to her fill, then George to his fill, then Mary to her fill, then Jill to her fill if she can recite the alphabet backwards. If not, then to Ron to his fill.

Jill has a contingent remainder now because of the condition precedent. She has to be able to recite the alphabet backwards before she can get the ice cream. But Ron also has a contingent remainder. Why? Because Jill’s interest can be severed if she doesn’t meet the condition, or it may not be. We’re not 100% percent sure whether Ron’s interest will vest; so, Ron’s interest must be contingent.

Can you see how both interests hang on a balance? One condition controls who gets the interest. As a result, we can say that Jill and Ron have alternative contingent remainders. The best way to spot the existence of an alternative contingent remainder is to create a diagram of players. When you realize that the fulfillment of a condition excludes the other party, you have an alternative contingent remainder. In the example below, a vested interest is abbreviated by v.

W -> B(v)S (v) G(v) M(v) J (contingent) R(contingent) meets condition?

Yes. Interest vests -> R gets nothing

No. Gets nothing-> R's interest vests

4. Vested remainders subject to open versus contingent remainders

What if you saw all those kids and you didn’t really take the time to get to know them. So instead of naming them, you decided to say, “I’ll give this ice cream to Bob to his fill, then to the kids in this park.”

What interest has been created here? If you follow the steps outlined above, you will conclude that this is a conveyance to a class. “Kids in this park” is a class that cannot be ascertained immediately; the number of kids in the park can increase or decrease. For that reason, the “kids in this park” have a contingent remainder. For the most part, when there is any uncertainty, contingent remainders come into play.

But we already know the names of the children with Bob so why don’t they have vested remainders, you might be asking yourself. And you would be right. Those specific children will have vested remainders subject to open. If a problem includes information about individuals within a class, those individuals will have vested remainders subject to open. It’s subject to open because more kids may join the class, meaning they may have to share the interest with even more people. But if you’re judging a document without any additional information about the class, the default is a contingent remainder. You have to wait for more information before you can start handing out vested remainders.

5. Going from Contingent to Vesting

So, what if you decided to make things interesting for those rowdy kids in the park? What if you said, “I’ll give this ice cream to Bob to his fill, then to the kids in this park who line up.”

Now there are two reasons why this remainder is a contingent remainder: the class and the condition precedent. So, even if a kid is named in a problem, that kid will still have a contingent remainder. It’s not until the the kid is named and lines up that his interest becomes a vested remainder subject to open(more kids may line up, thus adding to the class). Just with this example, you can see how remainders can transition from being contingent to vested within the same problem. This doesn’t only apply to contingent remainders involving a class. Any contingent remainder can become a vested remainder if the conditions are met.

In the real world, vested remainders subject to open usually apply to children. In that case a class can finally close when the parent dies. Morbid, I know. But that’s the nature of future interests.

Conclusion

Let’s translate the fun Willy Wonka example into a wacky future interests and estates problem:

W conveys Blackacre to B for life, then S for life, then G for life if G can stand on his hands for ten seconds. If not, then M for life, then J for life, then R for life if R survives J.

Can you spot all of the interests?