Question 1

What distinguishes a vested interest from a contingent interest?

Accepted Answer

Distinction: vested interest (the holder has a present right that is certain to take effect: no conditions need to be met; the only uncertainty may be: when the right will be enjoyed, not whether it will be enjoyed), and contingent interest (the holder’s right depends on a future event that may or may not occur: if the event occurs: the interest vests; if not: the interest fails). Example: "to A for life, remainder to B": B has a vested remainder (B will certainly receive the property when A dies). "To A for life, remainder to B if B survives A": B has a contingent remainder (B will receive the property only if B is alive when A dies; if B dies before A: the remainder fails).

Question 2

Can a vested interest be defeated or divested?

Accepted Answer

Divestment: some vested interests can be subject to divestment (a vested interest subject to complete defeasance: the interest will be taken away if a specified event occurs). Example: "to A, but if the property is used for commercial purposes: to B": A has a vested interest that can be divested if A uses the property commercially. Types: vested subject to open (e.g., "to A’s children": if A has more children: the existing children’s shares decrease), vested subject to complete divestment (the interest can be completely taken away), and indefeasibly vested (the interest cannot be taken away under any circumstances: the strongest form of vesting). In FL: indefeasibly vested interests receive the strongest legal protection.

Question 3

How are vested interests valued for Florida estate and gift tax purposes?

Accepted Answer

Valuation: vested interests in possession: valued at fair market value (what a willing buyer would pay), vested remainders: valued using actuarial tables (the present value of the future right to receive the property: depends on the age of the life tenant and applicable interest rates; IRS Section 7520 rate), and vested interests subject to divestment: valued considering the probability of divestment (complex actuarial analysis). FL: does not have a state estate tax (but federal estate tax applies to estates over the federal exemption). Gift tax: transfers of vested interests during life may be subject to federal gift tax (but the $8,000 annual exclusion and the lifetime exemption may apply).

Vested Interest

Vested Interest in Property

vs. Contingent

Types of Vesting

Valuation

Related Terms

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