A "remainder" is a residue of an estate in land, depending upon a preceding particular estate created by the same instrument, and limited to arise immediately on the termination of the preceding estate but not in abridgment of it.
Unlike a reversion, which is an estate created by operation of the law, a "remainder" is an estate created by an act of the grantor in favor of some person other than the grantor. Remainders are either vested or contingent.
A "vested remainder" is one where neither the right to the possession of the estate upon the determination of the preceding estate nor the person entitled to the same is uncertain. The only uncertainty is the time of enjoyment.
Generally, a remainder is vested if it meets both of the following tests:
- It is always theoretically possible to identify the persons with rights of future possession regardless of when the supporting estates may end.
- There is no contingency to the remainders which could cause it to be extinguished before the supporting estates terminate.
A vested remainder may be vested either absolutely or defeasibly.
An absolute vested remainder is one who is vested in possession unconditionally upon the determination of the particular estate. Example: X, is seized in fee, grants to A and his heirs, but if A dies before B, then to B and his heirs.
"Vested remainders" are favored by law. If a remainder is subject to two different interpretations, one of which causes it to be vested and the other one which causes it to be contingent, courts have shown the tendency to select the former interpretation so that the remainder be considered vested. Vested remainders have traditionally been treated on a parity with other estates. They are alienable and devisable.
A "contingent remainder" is one where there is an uncertainty either as to the right to the estate, or as to the person entitled to the same, or as to both. A contingent remainder depends on an event or condition which may never happen or be performed.
In the grant to A for life, with remainder to A's children, uncertainty does exist as to who will be A's children (if there is any) at the time of A's death.
In some jurisdictions, contingent remainders are now considered to be alienable.
Transfer Of Remainders
A vested remainder may be transferred to the same extent as any other estate in possession, either by conveyance inter vivos or by will. Vested remainders have traditionally been treated on a parity with other estates.
A contingent remainder has not always been considered an alienable estate. However, they are generally considered to be alienable in many states.
Insuring Through a Transfer
Although the significance of distinctions between vested and contingent remainders has diminished, the distinction is still important in connection with the application of various technical rules and most notably the rule against perpetuities (See Rule Against Perpetuities 17.52). The rule applies to effectively destroy contingent remainders which violate the rule.
When examining titles to real property, the need for distinguishing between vested and contingent remainders frequently arises in situations where title is vested in a life tenant with remainder over, and the main problem becomes how to convey a marketable title to a purchaser.
The classic situation where title is vested in A for a life estate with remainder to B (B having an indefeasible vested remainder) presents no problems for the conveyance of an absolute estate as long as A and B, either jointly or be separate instruments, convey their respective interests into the same party.
Unfortunately, the classic situation constitutes only a fragment of the possible arrangements pertaining to remainders that may exist. It is necessary that legal advice be obtained from the Company whenever remainders are involved in the chain of title of the property to be insured.