Reversion
A reversion in property law is a future interest that is retained by the grantor after the conveyance of an estate of a lesser quantum that he has (such as the owner of a fee simple granting a life estate or a leasehold estate). Once the lesser estate comes to an end (the lease expires or the life estate tenant dies), the property automatically reverts (hence reversion) back to the grantor.
Who holds the reversionary interest?
A landowner who is concerned about the future use of his land can donate or sell the land on a conditional rather than absolute basis. A reversionary interest is created by a deed that reserves to the grantor a future ownership right upon the occurrence of some condition.
What is an estate with reversionary interest?
Reversionary interest in the context of real property or wills and estates means a reservation created in a real property conveyance that the property will revert back to the original owner upon the happening of a certain event.
Is a reversionary interest vested?
A reversionary interest can be either a vested interest or contingent interest.
What does reversionary mean in real estate?
In real estate, reversion is defined as the right to resume possession or ownership of a property after a period of time has elapsed or certain events have occurred. The reversionary interest is often held by the original owner of the property, and it takes effect upon the happening of a specified event.
What is an example of reversionary interest?
In trust law terms, a reversionary interest is an interest that reverts back to the settlor of a trust once a beneficiary's interest has come to an end. For example, Bob gives a life interest in Rose Cottage to his mother Judy, and on Judy's death the cottage is to revert back to Bob.
What is an example of reversion?
The definition of a reversion is a turn around, reversal or return to a prior condition. An example of a reversion is a couple getting married again after being divorced. A return to a former condition, belief, or interest.
Is reversionary interest a future interest?
Reversionary interest refers to the right to occupy and use the land sometime in the future (future interest) e.g. upon the expiry of the lease period. In the case of the State land, after 99 years, the land returns to the state. The State is said to have a reversionary interest in the land.
What does reversionary rights of owners refer to?
Reversionary right in real estate simply means that the owner of the property has not given out his property absolutely, for he expects that no matter how long you enjoy the property, he would at the appointed date be able to reclaim his ownership.
Is a reversionary interest excluded property?
Reversionary interests are specifically defined in the IHT legislation to include all future interests. They are usually excluded property and therefore outside the scope of IHT. In most cases, therefore, the gift of a remainder interest will not give rise to any IHT (or CGT) consequences.
What's the difference between reversionary interest and remainder interest in a property?
With reversionary interest, the property reverts to the owner after the death of the life tenant. With remainder interest, the title to the property goes to a named third party following the death of the life tenant.
How is a reversion related to a life estate?
In our story, the person who had the property is known as the holder of the life estate. And the king has the estate in reversion, which means that if the person dies, the land reverts back to the king.
What is an action for reversion?
The objective of an action for reversion of public land is the: cancellation of the certificate of title and the resulting reversion of the land covered by the title to the State. This is why an action for reversion is oftentimes designated as an annulment suit or a cancellation suit.
What is a reversionary interest?
In trust law, a reversionary interest is simply an interest in a trust fund that reverts to the settlor when the prior interest comes to an end. For example, Steve settles a house on trust for his mother for life, then back to him on her death.
Can Sally assign her interest to a settlement for her children?
In the example above, instead of passing her reversionary interest to her children outright, Sally could assign her interest to a settlement for her children, but this becomes more complex. Although the initial consequences are the same on Sally making the assignment, the trust fund will fall into the relevant property regime on Tony’s death. The anniversary dates for the ten-year charges will relate back to the original settlement, as will the applicable perpetuity and accumulation periods, and care would have to be taken that these were not infringed.
Does Tom have a reversionary interest in John?
For instance, where there is a trust that is for John for life, then for Jane for life, then to Tom absolutely, both Jane and Tom have reversionary interests for inheritance tax purposes while John is alive, and Tom has a reversionary interest while Jane is alive.
Can Sally transfer her reversionary interest to her children?
She could assign her reversionary interest to her own children, so that, on Tony’s death, the value passes directly to them. Sally would not be making a chargeable transfer or a potentially exempt transfer, and it would not affect her cumulative total for inheritance tax purposes.
What is reversionary interest?
Reversionary Interest Law and Legal Definition. Reversionary interest is the interest that a person has in a property when a preceding estate ceases to exist. It means any interest the enjoyment of which is postponed. A reversionary interest can be either a vested interest or contingent interest. Under reversionary interest, a transferee's right ...
Can a reversionary interest be enjoyed?
A reversionary interest cannot be enjoyed if the condition is violated and the property upon which the reversionary interest is given will return to the original owner. Reversionary interest in the context of real property or wills and estates means a reservation created in a real property conveyance that the property will revert back to ...
What is reversionary interest?
Reversionary Interest. A landowner who is concerned about the future use of his land can donate or sell the land on a conditional rather than absolute basis. A reversionary interest is created by a deed that reserves to the grantor a future ownership right upon the occurrence of some condition.
How are reversionary interests structured?
Reversionary interests can be structured in several ways. The change of ownership can occur automatically when the condition is broken or it can occur only if and when the holder of the reversionary interest elects to retake the property once the condition is broken . The reserved right can be structured as an option to repurchase for nominal, ...
What is reversion of title?
The possibility of reversion impacts marketability of title to a greater degree than the existence of a deed restriction on future use of the property (sometimes called a restrictive covenant). If a restrictive covenant is violated, perhaps inadvertently, the owner can cease the non-compliant activity without concern that his title may be vulnerable to divestment. If the violation has triggered a reversion, title may have been divested or may be subject to divestment even though nothing appears on the public record and the triggering activity has ceased without any visible signs on the property. Title risks are a factor taken into consideration in establishing market value of a property.
What is automatic reversion?
An automatic reversion is created by a deed that grants title from grantor to grantee on condition that, or only for so long as, certain conditions are met. If nothing more is said about how the change of ownership is to occur, it happens automatically upon the occurrence of the condition. Full title and the right of possession become immediately vested in the original grantor or whoever now holds the grantor's possibility of reverter.
Why is reversionary interest important?
A reversionary interest is useful for addressing a number of conservation scenarios: An owner may be more willing to donate land to a municipality for a public park or other conservation use if there is a mechanism in place for a transfer of ownership back to the owner (or the owner’s heirs, successors and assigns) if the municipality ...
Is compensation paid for a right of re-entry?
No compensation is paid upon the occurrence of an automatic reversion or a right of re-entry. This may be perfectly acceptable if the original transfer was a donation strictly for open space purposes. But if the original transfer was a sale, in whole or in part, or the grantee is expected to install improvements consistent with applicable restrictions, then the grantee may not be willing to accept the creation of a reversionary interest that does not provide for some compensation being paid to the grantee upon the reversion or exercise of right of re-entry. One method to address this need for compensation is to substitute for a right of re-entry an option to purchase. The purchase price could be the original consideration adjusted by some factor, compensation for the present value of improvements, fair market value or some other calculation that takes into account the reasonable expectations of the parties without rewarding the grantee for breach of the condition triggering the reversionary right.
Can a reversionary right be exercised for an indeterminate period?
Because a reversionary right may not be exercised for an indeterminate period, an individual who has reserved such a right is well advised to transfer the right during his lifetime to an entity that can act quickly and decisively in the event of a breach of condition.
What is Reversionary Interest?
The interest that a person has in a property when a preceding estate ceases to exist. It means any interest the enjoyment of which is postponed. A reversionary interest can be either a vested interest or contingent interest.
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Grantor Trusts – Part III of IV – Reversionary Interests and Powers to Control Beneficial Enjoyment
In Part I of this series on Grantor Trusts, we look at the nature of trusts in general. In Part II, we shift to a look at grantor trusts, and a few definitional rules.
First Enumerated Exception
The first exception is that the income of a trust will not be considered as taxable to the grantor merely because, in the discretion of any person (other than a grantor who is not then acting as a trustee or co-trustee), such income may be used for the support of a beneficiary (other than the grantor’s spouse), whom the grantor is legally obligated to support—except to the extent that it is in fact used for that purpose.
Second Enumerated Exception
The second exception deals with a power that affects the beneficial enjoyment of trust income only after the occurrence of an event.
Third Enumerated Exception
The third exception applies to purely testamentary powers. A power held by any person to control the beneficial enjoyment of trust income, exercisable only by will, does not cause a grantor to be treated as an owner under IRC § 674 (a), if such power is held by the grantor or a nonadverse party.
Fourth Enumerated Exception
The fourth exception applies to a power to allocate the income or principal of a trust among charitable beneficiaries.
Fifth Enumerated Exception
The fifth exception deals with the power to distribute the trust’s principal.
Sixth Enumerated Exception
The sixth exception relates to the power to distribute or apply income to or for any current income beneficiary or to accumulate the income for such beneficiary. [36] The power to withhold income temporarily is subject to two alternate provisos.
When should IHT payments be drawn from my estate?
These yearly payments are optional and for best IHT planning practice should only be drawn from the plan when there are no other assets available that are still within your taxable estate or when they can be spent (or otherwise leave the estate).
Is a gift trust effective for IHT?
In terms of packaged products, most think they broadly have a choice between a discounted gift trust – which is effective in mitigating IHT but slightly restrictive and subject to underwriting – or a gift & loan trust, which is not hugely effective for IHT planning purposes.
Does FRT avoid pre-owned assets tax?
In addition, the FRT avoids the pre-owned assets tax introduced in 2004, sits outside the capital gains tax regime and defers any income tax charge on the capital invested. TAKE CARE – We hope the investment will grow and so the settlor may be liable to some tax on maturities.
