Legal Definitions - tontine

A tontine is a unique financial arrangement where a group of individuals contributes to a common fund. While all participants are alive, they typically receive a regular income or benefit from this fund. The distinctive feature of a tontine is that when a participant dies, their share or portion of the fund is not passed on to their heirs. Instead, it is redistributed among the remaining living participants, causing the income or benefit for each survivor to increase. This process continues until a predetermined condition is met, often when only a few or just one participant remains, who then receives the entire remaining fund.

• Example 1: Retirement Income Pool

  Imagine a group of ten friends, all in their early sixties, decide to pool a portion of their retirement savings into a tontine. Each friend contributes $50,000 to a professionally managed fund. From age 65, they all begin receiving an equal annual payout from the fund. When the first friend passes away, their share of the fund's annual income is reallocated among the nine survivors, increasing each of their individual payouts. This process continues, meaning the last few surviving friends will receive a significantly larger annual income stream than they did initially. The deceased friend's family does not inherit their $50,000 contribution or any future payouts from the tontine; the benefit is solely for the living participants.

• Example 2: Joint Real Estate Investment

  Consider five business partners who jointly purchase a valuable piece of commercial land with the agreement that it will be held under a tontine structure. Each partner contributes an equal share to the purchase price. They plan to develop the land in the future, but for now, they share any minor rental income generated. If one partner dies before the land is developed or sold, their ownership interest in the land automatically transfers to the remaining four partners, increasing each survivor's proportional stake. The deceased partner's estate would not inherit their share of the land; instead, the surviving partners would collectively own a larger portion. The last surviving partner would eventually own the entire property.

• Example 3: University Research Grant

  A philanthropic organization establishes a special research grant fund structured as a tontine for a cohort of eight promising doctoral students. Each student receives an annual grant of $15,000 for four years to support their advanced research. If a student withdraws from the program or passes away during the four-year period, their $15,000 annual grant is divided among the remaining students in that cohort, increasing the individual grant amount for the survivors. This ensures that the full fund amount continues to support active researchers within the designated group, rather than being passed to the deceased or withdrawn student's family.