Future interest

In property law and real estate, a future interest is a legal right to property ownership that does not include the right to present possession or enjoyment of the property. Future interests are created on the formation of a defeasible estate; that is, an estate with a condition or event triggering transfer of possessory ownership. A common example is the landlord-tenant relationship. The landlord may own a house, but has no general right to enter it while it is being rented. The conditions triggering the transfer of possession, first to the tenant then back to the landlord, are usually detailed in a lease.
As a slightly more complicated example, suppose O is the owner of Blackacre. Consider what happens when O transfers the property, "to A for life, then to B". Person A acquires possession of Blackacre. Person B does not receive any right to possess Blackacre immediately; however, once person A dies, possession will fall to person B. Person B has a future interest in the property. In this example, the event triggering the transfer is person A's death.
Because they convey ownership rights, future interests can usually be sold, gifted, willed, or otherwise disposed of by the beneficiary. Because the rights vest in the future, any such disposition will occur before the beneficiary actually takes possession of the property.
There are five kinds of future interests recognized at common law: three in the transferor and two in the transferee.

Vesting

Vesting means granting a person an immediate right to present or future enjoyment of property. In plain English, one has a right to a vested asset that cannot be taken away by any third party, even though one may not yet possess the asset. When the right, interest or title to the present or future possession of a legal estate can be transferred by its holder to any other party, it is termed a vested interest with respect to that holder.
A vested interest may be one of three types:

A future interest is absolutely vested if its beneficiary must eventually take possessory ownership.
A future interest is vested subject to divestment if something could occur that would divest the remainder of an interest. For example, "From O to A for life, then to B, but if A stops growing corn, then to C": B would have a vested remainder subject to divestment because he could be divested of his interest by an act of A before the interest becomes possessory.
A future interest is vested subject to open if it belongs to a class of beneficiaries, where that class can expand. A common example is a grant from O "to A's children", where A is a man: the class of A's children can't be closed until approximately thirty eight weeks after A dies, so any children alive at the time of the grant are vested subject to open. This interest is also sometimes referred to as being vested subject to partial divestment.

A person may divest themselves of, or alienate, only those interests that are guaranteed to vest. This rule aligns with the policy that a person should not be allowed to sell a thing that he or she does not own outright. Interests that are not guaranteed to vest are subject to the rule against perpetuities.

Future interests in the transferor

Reversion

A reversion occurs when a granted estate is absolutely vested in the grantor.

Example: "O grants Blackacre to A for life."
Analysis : A is guaranteed to die, at which point Blackacre returns to O. This future interest is absolutely vested in O.
Analysis : A has a life estate.
Alienation: O can alienate her future interest. A can alienate his rights in the property, but only to the extent that those rights were granted him. So A can sell Blackacre to B, but once A dies it returns to O. Notice that B has no control over this kind of vesting.

Reversion is not subject to the rule against perpetuities, because O's future interest is absolutely vested.

Possibility of reverter

There is a possibility of reverter when an estate will return to the grantor if a condition is violated. The possibility of reverter can only follow a fee simple determinable.

Example: "O grants Blackacre to A as long as A refrains from drinking alcohol."
Analysis: If A never drinks after the grant, then Blackacre will belong to A at O's death, and be distributed according to the rules of probate. If A does drink after the grant, then the property returns to O.
Language used: Durational. Examples include "for as long as", "while", and "during".
Alienation: O's interest is freely transferable.

This type of future interest can only follow the fee simple determinable. The vesting of the future interest is determinable at the time of the grant, because reverter is automatic if the condition is broken—a possibility of reverter, therefore, is not subject to the Rule Against Perpetuities.

Right of entry (or power of termination)

This type of future interest follows a fee simple subject to a condition subsequent. A grantor has the power of termination when an estate may return to the grantor if a condition is violated and the grantor decides to reclaim the estate. This type of grant may occur when the grantor wants the option of deciding the severity of the violation.

Example: "O grants Blackacre to A, on condition that A refrains from drinking alcohol."
Analysis: If A never drinks after the grant, then Blackacre will belong to A at O's death, and be distributed according to the rules of probate. If A does drink after the grant, then A's rights in Blackacre end, although A is still in possession of Blackacre.
Language used: Conditional. Examples include "on condition", "if used for", and "provided that".
Alienation: O's interest is vested. This interest is never subject to the rule against perpetuities. O's interest cannot be transferred inter vivos ; can only be transferred by will or by intestate succession upon death of the grantor.

This type of future interest follows a fee simple subject to a condition subsequent. To see why, consider that in order to retain Blackacre, A must continue to perform under the terms of the grant. If A fails to "not drink", that condition will trigger the subsequent loss of A's rights in Blackacre.

Future interests in a transferee

Remainders

A remainder is a future interest in a third party that vests upon the natural conclusion of the grant to the original grantee. It is the interest in the property that is "left over", or remains, after the original grantee is finished possessing it. For example, O's grant "to A for life, then to B" creates a remainder in B. There are two types of remainders: vested and contingent.

Vested remainders

A vested remainder is created when property is granted to both a direct grantee and a named third party, and is not subject to a condition precedent to the third party taking possession.

Example: "O grants Blackacre to A for life, then to B".
Analysis : A has a life estate.
Analysis : B has a vested remainder, because Blackacre will vest in B after A dies, with no further conditions.
Alienation: B may divest his vested remainder, which is not subject to the rule against perpetuities. A is subject to the rules regarding divestiture of a life estate, as noted above.
Question: If B dies before A, who takes possession upon A's death? Answer: B's estate. The terms "and his heirs" are assumed to be part of the conveyance.
Vested remainders subject to open
Example: "O grants Blackacre to A for life, then to B's children".
Analysis: The class of B's children can't be determined until approximately thirty-eight weeks after A dies, so any children who are unborn at the time of the grant have a remainder contingent upon B having offspring. Children of B are fully vested as soon as they are born, provided A is still alive. B's children who are born have vested remainder subject to open, because the conveyance was given to a class of persons and B could still have more children. If B dies before A, then the class is closed, and only those children alive at A's death will have an interest.
Vested remainders subject to total divestment
Example: "O grants Blackacre to A for life, then to B, unless B and C have divorced ".
Analysis : If B and C have not divorced before A dies, B will own Blackacre. If B has divorced C, then the property will vest in O without O having to make a claim for it. So O has a reversion.
Analysis : A has a life estate.
Analysis : B has a vested remainder subject to total divestment. Blackacre vests in B, but divests if B has divorced C.
Alienation: B can alienate because his remainder is vested. His interest divests if the condition subsequent occurs.

Note: a different result would be reached if the grant was "O to A for life, then to B, unless B and C are not married ". In this case, B's interest would not divest even if B had divorced C because he could remarry C before A's death. The condition subsequent is a state of affairs at a certain time, not an event occurring before a certain time.

Contingent remainders

A contingent remainder is created when a remainder cannot fully vest at the time of granting. This normally occurs in two situations:

when the property can't vest because the beneficiary is unknown, or
when the property can't vest because the beneficiary is subject to a condition precedent which has not yet occurred.

Legislatures and courts tend to prefer vested remainders over contingent remainders, to reduce uncertainty in ambiguous grants, and to speed up probate.

Executory interests

An executory interest is a future interest, held by a third-party transferee, which either cuts off another's interest or begins some time after the natural termination of a preceding estate. An executory interest vests upon any condition subsequent except the natural termination of the original grantee's rights. In other words, an executory interest is any future interest held by a third party that isn't a remainder.
Executory interests usually arise when a grantor gives property to one person, provided that they use it a certain way. If the person fails to use it properly, the property transfers to a third party. There are two different types of executory interests: shifting and springing. Executory limitations transferring ownership from the grantor to a third party are called springing executory interests, and those that transfer from the grantee to a third party are called shifting executory interests.