Reversionary Interest

Definition

Reversionary Interest refers to the interest retained by the original owner or grantor in a property after transferring a lesser estate to another individual. This retained interest becomes possessory after the termination of the preceding estate (e.g., life estate), meaning the property will ‘revert’ back to the grantor or the grantor’s heirs if no remainderman is specified.

Key Characteristics:

The reversionary interest is a future interest.
The original owner retains the right to the property after a specified event, often the death of the life tenant.
It is different from a remainder interest, where another designated third party (remainderman) takes possession rather than the original grantor.

Examples

Life Estate Example:
- Scenario: Alice grants a life estate to Bob, stipulating that Bob will hold the property for life.
- Reversionary Interest: Alice retains the reversionary interest. Upon Bob’s death, the property reverts to Alice or her heirs.
Example with Remainderman:
- Scenario: Christine grants a life estate to David and indicates that upon David’s death, the property will go to Elizabeth.
- Remainderman Interest: Elizabeth is the remainderman with a future interest.
- Reversionary Interest: If the remainderman is not mentioned, Christine retains the reversionary interest and the property reverts to her or her heirs at David’s death.

Frequently Asked Questions (FAQs)

What differentiates reversionary interest from remainder interest?

A reversionary interest remains with the original grantor, while a remainder interest goes directly to a designated third party (remainderman) after the preceding estate ends.

How is reversionary interest created?

It is created automatically by law when the grantor transfers a lesser estate but does not specify a remainder interest for a third party.

Can a reversionary interest be sold or transferred?

Yes, the grantor can sell, gift, or otherwise transfer their reversionary interest to another party.

What happens if the reversionary interest holder dies before the life tenant?

If the holder of the reversionary interest dies, their interest is usually transferred to their heirs according to the laws of estate succession.

Life Estate: A property interest lasting for the life of a specified individual, after which the property reverts to the grantor or passes to a remainderman.
Remainderman: A person who is entitled to inherit property upon the termination of the preceding life estate.
Fee Simple: The most comprehensive ownership interest in real estate, which carries the right to possess, use, and dispose of the property.
Future Interest: An interest in property which will begin at some future date, often following the expiration of a present estate.

Online Resources

References

Dukeminier, J., Krier, J. E., Alexander, G. S., Schill, M. H., & Strahilevitz, L. J. (2017). Property. Aspen Publishers.
Smith, J. C. (2012). Real Estate Concepts: A Handbook (3rd ed.). Jones & Bartlett Learning.

Suggested Books for Further Studies

Property Law: Rules, Policies, and Practices by Joseph William Singer
Understanding Property Law by John G. Sprankling
The Law of Real Property by Richard R. Powell

Real Estate Basics: Reversionary Interest Fundamentals Quiz

### What happens to the property at the end of the life estate if a reversionary interest exists? - [x] It reverts back to the original owner. - [ ] It goes to a remainderman. - [ ] It gets divided among the life tenant’s heirs. - [ ] It transfers to the state. > **Explanation:** If a reversionary interest exists, the property reverts back to the original owner or their heirs after the end of the life estate. ### Can the reversionary interest be transferred to another person during the life tenant's tenure? - [x] Yes, it can be sold or transferred. - [ ] No, it cannot be transferred at all. - [ ] Only through a will after death. - [ ] Only with court approval. > **Explanation:** The grantor can sell, gift, or otherwise transfer their reversionary interest to another party even during the life tenant's tenure. ### What type of future interest involves the property reverting to the original owner? - [x] Reversionary interest - [ ] Remainder interest - [ ] Leasehold interest - [ ] Tenancy in common > **Explanation:** In a reversionary interest, the property reverts to the original owner or their heirs when the preceding estate terminates. ### In a life estate granted by Karen to Joe, with no remainderman mentioned, who holds the reversionary interest? - [x] Karen - [ ] Joe - [ ] Joe's heirs - [ ] The State > **Explanation:** Karen, the original grantor, retains the reversionary interest, meaning the property reverts back to her or her heirs upon Joe's death. ### What must occur for a reversionary interest to be possessory? - [x] Termination of the preceding estate - [ ] Sale of the property - [ ] End of the fiscal year - [ ] Approval from a legal entity > **Explanation:** The reversionary interest becomes possessory upon the termination of the preceding estate, such as the end of a life estate. ### Who benefits first from the reversionary interest after a life tenant dies? - [ ] The state - [ ] The life tenant's family - [x] The original owner or their heirs - [ ] The remainderman > **Explanation:** The reversionary interest benefits the original owner or their heirs first after a life tenant dies unless a remainderman is specifically mentioned. ### How does reversionary interest benefit the original owner? - [x] It ensures the property returns to them upon termination of the life estate. - [ ] It provides extra rental income during the estate period. - [ ] It relieves them from property taxes during the estate period. - [ ] It allows unrestricted usage rights to the property. > **Explanation:** Reversionary interest ensures that the property returns to the original owner upon the termination of the life estate, thereby retaining an automatic future interest. ### Which agreement signifies the retention of a reversionary interest? - [x] Granting a life estate without a named remainderman - [ ] Signing a commercial lease - [ ] Establishing a joint tenancy - [ ] Forming a tenancy by the entirety > **Explanation:** Granting a life estate without naming a remainderman automatically implies the retention of a reversionary interest by the grantor. ### What legal doctrine primarily governs reversionary interest? - [x] Property Law - [ ] Contract Law - [ ] Tort Law - [ ] Administrative Law > **Explanation:** The concept of reversionary interest is primarily governed by Property Law, which includes the various future interests and rights in real estates. ### What happens if there’s ambiguity over the existence of a reversionary interest? - [ ] Property automatically becomes state-owned. - [ ] Dispute resolution through local government. - [x] Court intervention and interpretation. - [ ] Property goes to the life tenant’s family. > **Explanation:** If there’s ambiguity regarding the reversionary interest, the matter can go to court for clarification and legal interpretation.