Reversionary Interest

What Does Reversionary Interest Mean?

Reversionary interest is a provision in a trust that allows the original owner of a property to reclaim it after transferring it to a beneficiary.

It is also referred to as reversion to settlor or revertor to settlor.

Insuranceopedia Explains Reversionary Interest

Reversionary interest means that the grantor of a trust retains the right to reclaim a transferred property after a certain period or upon the fulfillment of a specific condition. For example, if the grantor transfers ownership of a house to their grandparent for as long as they live, the ownership will revert to the grantor when the grandparent passes away.

The same idea comes up in life insurance estate planning, where whether the grantor keeps a reversionary interest can change how a policy placed in a trust is taxed and who eventually receives the payout. That is one reason the rules around naming life insurance beneficiaries are worth reviewing whenever a trust is involved.