Remainder Interests in Texas Real Estate

Categories: Probate

In a previous article, we discussed future interests in real property, and more specifically, the type of future interest known as an executory interest. There are three basic types of future interests that can be created. There is another type of future interest created in a third party known as a remainder interest. This article gives a general overview of future interests in real property, and in particular, the type of future interest known as a remainder interest. If you have questions about Texas real estate or probate matters, contact Austin probate lawyer Farren Smith for a consultation.

Types of Future Interests

A future interest in property does not entitle the owner to use or possess the property immediately, but will give the owner possession in the future. There are three types of future interests:

  • Reversionary interests;
  • Remainders; and
  • Executory interests.

A reversionary interest is a future interest kept by the transferor upon transferring the property to someone else for a present period of time. A remainder, which we will discuss more below, is a future interest created for a third party that is capable of becoming a present interest upon the occurrence of a specified event. An executory interest is a future interest in a third party that is not a remainder.

To illustrate the differences in these types of future interests, consider the following examples:

Reversion Example

“Ben Johnson, owning land in Round Rock in fee simple, conveys the land to Tom Hamilton for life.” In this case, Mr. Johnson transfers the land to Mr. Hamilton for Mr. Hamilton’s lifetime, but retains a reversion in the land and takes possession upon the death of Mr. Hamilton.

Remainder Example

Ben Johnson, owning land in Pflugerville in fee simple, conveys the land “to Tom Hamilton for life, and on Tom Hamilton’s death, to Jordan Masters and his heirs.” In this case, Mr. Johnson gives the land to Mr. Hamilton, and upon the death of Mr. Hamilton, the land goes to a third party, Mr. Masters.

Executory Interest Example

Ben Johnson, owning land in Austin in fee simple, conveys the land “to the First United Methodist Church of Austin for so long as the premises are used for church purposes, and if they shall ever cease to be so used, then and in that event to the Children’s Medical Center Foundation of Central Texas.” In this case, Mr. Johnson gives the land in fee simple to the First United Methodist Church of Austin, and upon the cessation of the church, the land goes to a third party charity, the Children’s Medical Center Foundation of Central Texas.

Remainder Interests

As mentioned above, there are two types of future interests that can be created in a third party transferee: remainders and executory interests. A remainder is a future interest created in a transferee that is capable of becoming a present interest upon the natural termination of an intermediary transfer. A remainder must be expressly stated in the deed or instrument creating the intermediate possession. The most common example of a remainder interest is when a person gives a possessory interest in property (usually a life estate) to one person, with a subsequent transfer of the property to another person after the life estate.

If you encounter remainder interests or wish to create a future interest in your Will, it would be best to consult with a Texas probate attorney such as Farren Smith to discuss the proper language for creating the transfer.

Sources

  • In re Townley Bypass Unified Credit Trust, 252 S.W.3d 715, 717 (Tex. App.-Texarkana 2008, no pet.)
  • 8-43A Texas Transaction Guide–Legal Forms