A reversion interest is a legal right to property that automatically returns to the original grantor, or their heirs, after a temporary estate or interest granted to another party has ended. It is a type of future interest that remains with the grantor, rather than being transferred to a third party.
Understanding Reversion Interests
A reversion interest typically arises when a property owner transfers a lesser estate than what they originally hold. For example, if a property owner has a fee simple absolute (full ownership) and grants someone a life estate or a leasehold interest, the remaining "future" interest, which ensures the property returns to the grantor, is known as a reversion. This means the grantor never fully relinquishes all rights to the property; they merely postpone their full enjoyment or possession.
Key Characteristics
- Future Interest: It is a right to possession that will become effective at some point in the future.
- Automatic Return: The property automatically reverts to the grantor or their estate without any additional action required.
- Retained by Grantor: Unlike a remainder interest, which is granted to a third party, a reversion is an interest that the grantor keeps for themselves.
- Created by Lesser Estate: It is established when the grantor conveys a smaller estate (e.g., life estate, term of years) than what they originally held.
Reversion Interest in Trust Law
Specifically in trust law, a reversion interest describes a right to property that reverts back to the settlor (the person who created the trust) after a beneficiary's interest in the trust has concluded. This ensures that the original creator retains ultimate control or ownership of the asset in the future.
Practical Example
Consider the following scenario:
- Scenario: Bob owns Rose Cottage. He wants his mother, Judy, to live there for the rest of her life.
- Action: Bob executes a deed or trust document that grants Judy a life interest in Rose Cottage.
- Stipulation: The document explicitly states that upon Judy's death, Rose Cottage is to revert back to Bob.
- Outcome:
- Judy enjoys the use of Rose Cottage during her lifetime.
- Bob holds a reversion interest in the cottage, meaning he has the right to possess it again once Judy's life interest ends.
- Upon Judy's death, ownership of Rose Cottage automatically reverts to Bob.
This mechanism allows the grantor to provide for a beneficiary for a specific period while ensuring the property ultimately returns to them or their estate.
Reversion vs. Remainder
It's helpful to distinguish a reversion interest from a remainder interest, as both are future interests but differ significantly in who receives the property after the preceding estate ends.
| Feature | Reversion Interest | Remainder Interest |
|---|---|---|
| Recipient | The original grantor or their heirs | A specified third party (someone other than the grantor) |
| Creation | Arises automatically by operation of law when a lesser estate is granted | Must be explicitly created and granted to a third party |
| Example | Grantor gives life estate to A, then property reverts to grantor. | Grantor gives life estate to A, then property goes to B. |
For further legal definitions and distinctions regarding property interests, you can refer to legal resources such as the Legal Information Institute at Cornell Law School.
