Reversionary interest is a future ownership right that returns to the grantor or their estate after the end of a temporary transfer of property or income rights. In estate and trust planning, a grantor who transfers assets to a trust but retains the possibility that they, or their estate, will regain ownership has a reversionary interest. This interest can affect whether assets are included in the grantor's taxable estate under sections such as 2036 or 2038, and it influences valuation for gift and estate tax purposes. Reversionary interests appear in structures like grantor retained annuity trusts, certain life estates, and trusts with conditional distribution provisions.

Advisors encounter reversionary interests when coordinating with estate planning attorneys on trust designs that intentionally retain or avoid such interests. Tax counsel evaluates whether retained powers or conditions cause estate inclusion, alter charitable deductions, or modify gift valuations. Life insurance may be used alongside arrangements with reversionary interests to provide liquidity or hedge against outcomes where assets revert to the grantor's estate. Clear explanation of reversionary interest helps clients understand why certain retained rights affect whether assets are considered truly transferred for transfer tax purposes.