Ownership of real property - Future interests

Learning Outcomes

After studying this article, you will be able to classify and distinguish the main types of future interests in real property, including reversions, possibilities of reverter, rights of entry, remainders, and executory interests. You will understand the difference between vested and contingent remainders, identify executory interests, and apply the Rule Against Perpetuities to typical MBE scenarios. You will also be able to analyze how these interests arise, transfer, and terminate, and avoid common exam pitfalls.

MBE Syllabus

For the MBE, you are required to understand the legal rules governing future interests in real property. This article covers:

• Define and distinguish the main types of future interests: reversion, possibility of reverter, right of entry, remainder, and executory interest.
• Differentiate between vested and contingent remainders, including class gifts and subject-to-open remainders.
• Recognize and apply the Rule Against Perpetuities (RAP) to future interests.
• Identify how future interests are created, transferred, and terminated.
• Analyze the effect of future interests on marketability and common exam scenarios.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which future interest can only be retained by a grantor?
   1. Contingent remainder
   2. Executory interest
   3. Possibility of reverter
   4. Shifting executory interest
2. O conveys "to A for life, then to B if B survives A." What interests are created?
   1. Vested remainder in B and reversion in O
   2. Contingent remainder in B and reversion in O
   3. Executory interest in B and reversion in O
   4. Vested remainder subject to open in B
3. Which of the following is subject to the Rule Against Perpetuities?
   1. Reversion
   2. Possibility of reverter
   3. Contingent remainder
   4. Right of entry
4. O conveys "to A for life, then to B, but if B marries before A dies, then to C." What interest does C hold?
   1. Vested remainder
   2. Contingent remainder
   3. Springing executory interest
   4. Shifting executory interest

Introduction

Future interests are nonpossessory rights to property that may become possessory in the future. They arise when a grantor conveys less than a full fee simple or attaches conditions to a conveyance. Understanding the types, creation, and limitations of future interests is essential for MBE success, as these concepts are frequently tested and often involve subtle distinctions.

Key Term: Future Interest A legal right to property ownership that will or may become possessory in the future, following the termination of a prior estate.

Types of Future Interests

Future interests are classified by who holds them (grantor or grantee) and by the conditions attached to their vesting.

Future Interests Retained by the Grantor

1. Reversion

A reversion arises when a grantor conveys a lesser estate than she owns and does not specify who takes the remaining interest. The property automatically returns to the grantor or her heirs when the prior estate ends.

Key Term: Reversion The future interest left in a grantor who conveys an estate of lesser duration than her own, which becomes possessory when the prior estate ends.

2. Possibility of Reverter

A possibility of reverter follows a fee simple determinable. If the stated condition occurs, the property automatically reverts to the grantor.

Key Term: Possibility of Reverter The future interest retained by a grantor after conveying a fee simple determinable, allowing automatic reversion upon breach of a condition.

3. Right of Entry (Power of Termination)

A right of entry (also called power of termination) follows a fee simple subject to condition subsequent. The grantor must take affirmative action to reclaim the property if the condition is breached.

Key Term: Right of Entry The future interest retained by a grantor after conveying a fee simple subject to condition subsequent, allowing re-entry if a condition is breached.

Key Term: Fee Simple Determinable An estate that automatically ends and reverts to the grantor upon the occurrence of a specified event or condition.

Key Term: Fee Simple Subject to Condition Subsequent An estate that may be cut short at the grantor’s election if a specified condition occurs, but does not end automatically.

Future Interests Created in a Grantee

1. Remainders

A remainder is a future interest created in a transferee that is capable of becoming possessory upon the natural expiration of the prior estate (usually a life estate).

Key Term: Remainder A future interest in a grantee that becomes possessory when a prior estate (typically a life estate) ends naturally.

Remainders are either vested or contingent:

• Vested remainder: Given to an ascertained person and not subject to a condition precedent.
• Contingent remainder: Given to an unascertained person or subject to a condition precedent.

Key Term: Vested Remainder A remainder given to an identified person with no condition precedent, certain to become possessory upon termination of the prior estate.

Key Term: Contingent Remainder A remainder given to an unascertained person or subject to a condition precedent, so it may never become possessory.

2. Executory Interests

An executory interest is a future interest in a transferee that cuts short a prior estate or follows a gap in possession.

• Shifting executory interest: Cuts short another transferee’s interest.
• Springing executory interest: Cuts short the grantor’s interest.

Key Term: Executory Interest A future interest in a transferee that divests or cuts short a prior estate or follows a gap in possession.

Key Term: Shifting Executory Interest An executory interest that divests the interest of another transferee.

Key Term: Springing Executory Interest An executory interest that divests the interest of the grantor.

Worked Example 1.1

O conveys "to A for life, then to B if B survives A." What interests are created?

Answer: A has a life estate. B has a contingent remainder (because B must survive A, a condition precedent). O has a reversion (if B does not survive A, the property reverts to O).

Worked Example 1.2

O conveys "to A for life, then to B, but if B marries before A dies, then to C." What interests do B and C have?

Answer: B has a vested remainder subject to divestment (because B is ascertained and will take unless divested by marrying before A dies). C has a shifting executory interest (because C will divest B if B marries before A dies).

The Rule Against Perpetuities (RAP)

The Rule Against Perpetuities limits the duration of certain future interests to prevent remote vesting. The classic rule is: "No interest is valid unless it must vest, if at all, not later than 21 years after some life in being at the creation of the interest."

Key Term: Rule Against Perpetuities A legal rule invalidating certain future interests that might vest too remotely—beyond 21 years after the death of a relevant life in being.

RAP applies to:

• Contingent remainders
• Executory interests
• Vested remainders subject to open (class gifts)

RAP does not apply to:

• Reversions
• Possibilities of reverter
• Rights of entry
• Indefeasibly vested remainders

Worked Example 1.3

O conveys "to A for life, then to A's grandchildren who reach age 25." At the time of the grant, A has one child, B (age 30), and no grandchildren.

Answer: The gift to A's grandchildren violates RAP. A could have another child, who could have a child (a grandchild) after the grant. That grandchild might not reach 25 until more than 21 years after all lives in being (A and B) have died. The interest is void.

Exam Warning

The most common MBE error is failing to recognize when RAP applies. Always check class gifts, contingent remainders, and executory interests for possible RAP violations, even if the scenario seems unlikely.

Creation, Transfer, and Termination

• Creation: Future interests arise by express language in the grant (e.g., "to A for life, then to B").
• Transfer: Most future interests are transferable during life and at death, except some possibilities of reverter and rights of entry in a minority of states.
• Termination: Future interests may be destroyed by merger, release, or by failing to vest within the RAP period.

Revision Tip

On the MBE, always classify the prior estate, then the future interest, and finally check for RAP issues. Use diagrams if needed.

Key Point Checklist

This article has covered the following key knowledge points:

• Future interests are nonpossessory rights to property that may become possessory in the future.
• Grantors may retain reversions, possibilities of reverter, or rights of entry.
• Grantees may hold remainders (vested or contingent) or executory interests (shifting or springing).
• The Rule Against Perpetuities applies to contingent remainders, executory interests, and class gifts.
• RAP does not apply to reversions, possibilities of reverter, rights of entry, or indefeasibly vested remainders.
• Most future interests are transferable, but some states restrict transfer of certain grantor interests.
• Always check for RAP violations in class gifts and executory interests.

Key Terms and Concepts

• Future Interest
• Reversion
• Possibility of Reverter
• Right of Entry
• Fee Simple Determinable
• Fee Simple Subject to Condition Subsequent
• Remainder
• Vested Remainder
• Contingent Remainder
• Executory Interest
• Shifting Executory Interest
• Springing Executory Interest
• Rule Against Perpetuities