A remainder is a future interest in a property that is created at the same time as an estate. An indefeasible remainder is a future interest in a property that is guaranteed to pass to a specific person or persons– regardless of any contingencies or conditions that may occur.
Simply put, an indefeasible remainder is an interest in a property that cannot be defeated or revoked. Even if someone tries to change ownership, or if a condition fails to occur, the indefeasible remainder will not be affected, and it will remain unaltered.
Understanding Indefeasible Remainder With an Example
Let’s say John creates a trust and transfers ownership of a piece of property to that trust. In the trust document, John designates the property to be held by the trust, with the income to be used to benefit his daughter Sarah for her lifetime. After Sarah passes away, the trust document designates that the property should pass to Sarah’s three children in equal shares. The remainder interest held by Sarah’s three children is termed an indefeasible remainder.
No matter how long the trust survives, and no matter what happens, the remainder interests designated in the trust document to Sarah’s children cannot be altered or revoked, regardless of any circumstances that might arise. The remainder interests are said to be indefeasible.
The Benefits of Indefeasible Remainder
Having an indefeasible remainder can be beneficial in several ways. First, it allows an individual to provide for future generations in a cost-effective manner. Second, it can provide tax benefits that would otherwise not be available. Third, it allows an individual to make plans for succession and ensure the continuity of their estate.
Conclusion
Ultimately, understanding the concept of indefeasible remainder is vital for individuals seeking to protect and plan their estate. This type of interest is especially useful for businesses looking to protect property that may not be transferable to a third party or which may not be subject to traditional estate planning tools. By leveraging the protections offered by an indefeasible remainder, individuals can ensure that their wishes are honored and their families are taken care of well into the future.