Life Estates and Future Interests

Introduction to Life Estates and Future Interests

The property law of every state allows ownership to be divided in time between a present possessory estate and various future interests. This law can be highly technical, but it offers approaches to managed retreat that have significant benefits for both current landowners and governments. For example, a government can purchase a remainder interest in a parcel leaving the property owner with a life estate, which will give the landowner a possessory ownership interest that will terminate at his/her death, automatically vesting full ownership at that time in the government.^{See footnote 1} Present possessory interests can also be structured to terminate on the occurrence of events related to climate change, such as a rise of the mean high tide line to a certain level. 

 

Life Estates and Future Interests in a Managed Retreat Context

In a managed retreat context, governments and other nongovernmental partners, like land trusts or nonprofits, can purchase and hold title to future interests in land. Once the future interest held by the government or nongovernmental partner becomes possessory, they will enjoy full ownership and can manage the land for conservation or related purposes. 

The acquisition of future interests should be coupled with other tools like hazard mitigation buyouts, open space acquisitions (e.g., Florida Forever Land Acquisition Program), or development permits (e.g., Norfolk, Virginia). Governments with new or active Transfer of Development Rights (TDR) programs can also attain future property interests through their “banks,” in addition to current development rights to all or part of a property. With a TDR bank, developers purchase TDR credits from a government or third-party entity instead of directly from landowners. A TDR bank can make programs more predictable and manageable for both landowners and developers (for more information, see the Market-Based Tools>Transfer of Development Rights section of this toolkit).

Like with leasebacks, state and local governments can consider leaving private owners with present possessory estates like life estates to encourage participation in hazard mitigation and open space acquisition programs. Acquiring only future interests can help facilitate property acquisitions in the short term where sea-level rise and other climate impacts are projected to occur over a long-term time horizon. Moreover, acquiring only future interests can help bring along property owners who want to stay in their homes or continue using their properties for other uses like working lands for agriculture or forestry. Acquiring only a future interest will eventually give the government full fee simple ownership of the parcel, but allow a private owner substantial discretion in the use of the parcel during the possessory estate.^{See footnote 2} In addition, depending on the level of participation in an acquisition program, leaving private owners with present possessory interests could allow governments to better plan for and allocate funds to phase acquisitions that will not all happen at once, compared to after a post-disaster event.^{See footnote 3} 

Future interests should be acquired on a case-by-case basis where they can be justified by the physical environment, local support, funding availability, and level or ease of government administration, among other factors. Governments may avoid acquiring future interests for properties facing severe, imminent threats from sea-level rise, flooding, and erosion. Acquiring future interests may be less attractive for landowners with long-standing or significant economic, cultural, historical, or sentimental ties to their homes or where there is an expectation or desire that homes will be passed from one generation to another. Moreover, land without a “clean” title or mortgage (e.g., liens) could complicate or prevent governments from acquiring a future interest.

 

Policy Tradeoffs of Life Estates and Future Interests

Administrative	Future interests may offer a more flexible and attractive approach for both governments and private property owners than a buyout alone. Governments must monitor when future interests vest in possession. Once title transfers, governments will become responsible for managing the land including demolishing any structures and restoring floodplains and coasts to their natural conditions.  The structuring and monitoring of future interests require substantial legal expertise and time.
Economic	State and local funding sources are likely to be needed to acquire future interests. In particular, there are likely restrictions on using federal hazard mitigation funding to purchase future interests compared to more traditional buyouts.  Future interests can offset or defer some of a community’s costs associated with buyouts. For example, residents that remain in their communities for longer periods of time defer the loss of property tax ratables while contributing economically to their communities. Governments can also phase acquisition costs over a longer-term, planned time period.
Environmental	Increased participation in buyouts through the use of future interests can enable governments to convert large-scale areas to open space, which can maximize benefits and avoid checkerboarding.
Social/Equity	Future interests can increase participation in buyouts and help minimize some of the negative social consequences of buyouts by allowing homeowners to stay on their properties for longer, but not unlimited, time periods. They can also increase the political acceptance of buyouts. Future interests can provide people additional time to remain in and contribute to their communities and to plan for their transition to new homes.

 

Practice Tips

When implementing life estates and future interests in a managed retreat context, decisionmakers may consider the following practice tips to address and balance different policy tradeoffs: 

• Prepare for becoming a landowner: Government agencies that do not already own or manage publicly owned buildings or properties should familiarize themselves with the administrative and legal responsibilities in their state for becoming future landowners. This tool may require different administrative needs when compared to buyouts, open space acquisitions, and leasebacks. For example, governments will have to create some type of monitoring or enforcement mechanism to know when its future interest in the land vests. 

• Evaluate potential funding sources: It is likely that governments will have to compensate property owners for the sale or transfer of their future interests in land, unless, for example, a property owner wants to donate his/her future interests for conservation purposes. Accordingly, governments will need to identify potential funding sources to purchase these future interests. For example, governments should assess whether federal hazard mitigation funding regulations place any restrictions on the use of future interests, or if alternative state and local sources are needed. 

• Develop a life estate and future interests policy: Governments should consider developing policies for the use of life estates and future interests. For example, a policy could include criteria for when an agency should offer a limited possessory interest as an option to coastal homeowners or standard terms and conditions when drafting a future interest. These policies can enable governments to implement life estates and future interests more consistently and fairly for all participants and maximize community and environmental benefits. 

• Draft conditions with current and future land use in mind: Governments should ensure that any future interests take account of the best available science to protect property owners and life estates from future hazards. For example, projected sea-level rise should not outpace the actuarial life expectancy of a life estate holder. Deed conditions terminating a present possessory interest should employ widely accepted indicia of increased environmental risk, such as repetitive flooding or a specific rise in the mean high tide line. Deeds for present possessory interests will need to employ additional conditions to ensure that current land uses allowed on a property are compatible with and will not preclude or undermine efforts to conserve future species habitat.