In estate law, a remainderman is the recipient of a future interest in an asset or a piece of property of which the remainderman will gain possession at the termination of another life estate, which is also established by the same legal document. For example, Jack leaves his Malibu beach house first to his daughter, Jill, for the duration of her life and then, to his nephew, Bob. In this example, Bob, being the remainderman, will eventually get the beach house after Jill dies. A remainderman may receive one of two types of remainders, or future interests, either vested or contingent. Vested remainders are those future interests in which ultimate ownership of the property by the remainderman is certain, while contingent remainders refer to those future interests for which possession of the asset by the remainderman not only depends on the termination of the life estate but also the occurrence of other events.
Vested remainders are future interests that are not subject to limiting conditions that are bestowed on living, named persons. An indefeasibly vested future interest means that the right to ownership is inevitable and cannot be removed. In the example given, Bob is sure to obtain the Malibu beach house after Jill dies, even if Jill marries and has children. Some vested remainders, however, are not guaranteed to lead to ownership. If Bob dies before Jill, he will never possess the beach house.
On the other hand, a contingent remainder applies to an unborn or unnamed remainderman. For example, Jack leaves the beach house to Jill for life, then to Jill’s children. Jill’s future children, who are yet unborn, are contingent remaindermen. Another example of a contingent remainder is if Jack gives Jill the beach house for life, then to Jill’s children as long as they live in California, then to Bob. Both Bob and Jill’s children have conditions that must be met in order for them to gain possession of the beach house. The children, either collectively or individually, have to stay in California in order to keep the beach house, and if they all move out of California, Bob gets the house.
In some cases, estate planners advise investors to donate money to charities in the form of a Charitable Remainder Trust (CRT). This vehicle, created by the United States Congress in 1969, offers taxpayers the opportunity to eliminate capital gains, cut estate taxes, and increase income tax deductions while helping favorite charities. The CRT is an irrevocable trust that has two sets of beneficiaries, the income beneficiaries, who receive the interest and other income from the property donated throughout their lives, and the charity, which acts as a remainderman, receiving the principal of the trust upon the deaths of the first beneficiaries. CRTs are not subject to capital gains taxes or estate taxes, and the contribution is deductible from income taxes. Depending on the payout percentage chosen by the donor, the income from the CRT to the first beneficiary varies between five to ten percent of the trust account's market value.
