Definition
Remainder interest is a form of future interest in property law that entitles the holder, known as the remainderman, to an estate after the termination of a preceding estate, typically a life estate. This type of interest comes into effect automatically upon the expiration of the prior estate, without the need for any additional legal conveyance.
Examples
- Life Estate & Remainder: A person, Mr. Smith, conveys a life estate to Mrs. Johnson, meaning she has the right to live in the property for her lifetime. Mr. Smith stipulates that upon Mrs. Johnson’s death, the property will pass to his daughter, Ms. Anderson. Here, Ms. Anderson is the remainderman with a remainder interest.
- Testamentary Trust: In a testamentary trust, a parent leaves a property in trust to be managed for the benefit of their spouse during the spouse’s lifetime (life estate). Upon the spouse’s death, the property passes to the children, who hold a remainder interest.
Frequently Asked Questions
Q1. How is remainder interest different from a reversionary interest? A1. A reversionary interest is retained by the original grantor after conveying a lesser estate, while remainder interest is granted to a third party who takes possession after the termination of the prior estate.
Q2. Can a remainderman sell their interest? A2. Yes, a remainderman can sell their remainder interest, although the buyer holds the interest subject to the life tenant’s rights.
Q3. Is remainder interest subject to estate taxes? A3. Yes, remainder interests can be subject to estate and inheritance taxes, depending on jurisdiction and the value of the estate.
Related Terms
- Life Estate: A type of property ownership that lasts for the life of a specified individual, called the life tenant.
- Reversionary Interest: The interest that returns to the grantor after a certain period or condition is met.
- Fee Simple: The most extensive interest in property, typically without limitations on its use or transfer.
- Trust: A fiduciary relationship where one party holds property on behalf of another party.
Online References
Suggested Books for Further Study
- “Principles of Property Law” by Joseph William Singer: A comprehensive source for understanding property interests, including remainders.
- “Wills, Trusts, and Estates” by Robert H. Sitkoff and Jesse Dukeminier: An in-depth look at estate planning techniques.
- “Real Estate Law” by Marianne M. Jennings: This book covers various aspects of real estate law, including future interests like remainder interest.
Fundamentals of Remainder Interest: Real Estate Basics Quiz
### What is a remainder interest?
- [ ] A current interest in an estate.
- [x] A future interest in an estate.
- [ ] The right to inherit a family business.
- [ ] A type of investment security.
> **Explanation:** A remainder interest is a future interest in an estate, which becomes possessory upon the termination of a prior estate, typically a life estate.
### Who is the holder of a remainder interest?
- [x] Remainderman
- [ ] Life tenant
- [ ] Grantor
- [ ] Trustee
> **Explanation:** The holder of a remainder interest is called the remainderman.
### Can a remainderman sell their interest before it becomes possessory?
- [x] Yes
- [ ] No
- [ ] Only if approved by the life tenant
- [ ] Only under court supervision
> **Explanation:** A remainderman can sell their remainder interest, though it will still be subject to the rights of the life tenant.
### What happens to the remainder interest if the remainderman dies before the life tenant?
- [ ] The interest is extinguished.
- [ ] The life tenant inherits the interest.
- [x] The remainder interest passes to the remainderman's heirs.
- [ ] The property reverts to the grantor.
> **Explanation:** If the remainderman dies before the life tenant, the remainder interest typically passes to the remainderman's heirs unless specified otherwise.
### Who pays property taxes on a property with a life estate and remainder interest?
- [ ] Remainderman only
- [x] Life tenant typically
- [ ] Grantor
- [ ] Both life tenant and remainderman equally
> **Explanation:** The life tenant is typically responsible for paying property taxes, maintaining the property, and other associated costs during their lifetime.
### How is a remainder interest created?
- [ ] By paying property taxes
- [x] Through a deed or will
- [ ] By setting up a joint tenancy
- [ ] Purchasing a life insurance policy
> **Explanation:** A remainder interest is typically created through legal documents, such as a deed or a will.
### Which of the following is an example of a remainder interest?
- [ ] A tenant's lease agreement
- [ ] A reversionary interest to a grantor
- [x] A daughter's interest after her mother’s life estate terminates
- [ ] A bank's mortgage interest in a property
> **Explanation:** An example of a remainder interest is a daughter's interest that becomes possessory after her mother's life estate terminates.
### Is a remainder interest always absolute?
- [ ] Yes, it is always absolute.
- [x] No, it can be contingent.
- [ ] Only if mentioned in a will
- [ ] Only if no conditions are attached
> **Explanation:** A remainder interest can be contingent, depending on specific conditions or events that must occur for the interest to become possessory.
### What differentiates a vested remainder from a contingent remainder?
- [x] A vested remainder is not dependent on any condition other than the termination of the preceding estate.
- [ ] A contingent remainder lacks a remainderman.
- [ ] A vested remainder cannot be sold.
- [ ] A contingent remainder is always subject to reversion.
> **Explanation:** A vested remainder is not dependent on any condition other than the natural termination of the preceding estate, while a contingent remainder depends on additional conditions being met.
### What impact can remainder interest have on estate planning?
- [ ] It complicates property trust formation.
- [x] It allows for clearer property succession.
- [ ] It reduces the need for wills.
- [ ] It increases immediate tax liabilities.
> **Explanation:** Remainder interests allow for clearer property succession and division of rights, which aids estate planning by ensuring that property passes according to the desired wishes after the prior estate terminates.
Thank you for exploring the fundamentals of remainder interest. Mastery of property law concepts can significantly enhance estate planning and management.
