An individual’s estate plan consists of all of their property, including things such as:
- Personal items;
- Real estate;
- Stocks and securities; and
- Other assets.
When an individual passes away, their estate plan dictates how their property will be distributed to their beneficiaries. Although estate planning is often associated with elderly or wealthy individuals, most individuals can benefit from having a comprehensive estate plan.
Well-developed estate plans can have many benefits. For example, a clearly formed estate plan may minimize an individual’s loved one’s tax burden as well as the need for them to attend probate court proceedings.
Although most individual associate estate plans with wills and trusts, they can also address other issues, including:
- How an individual will receive medical treatment;
- Organ donation;
- Who will make legal and financial decisions on their behalf if they are incapacitated;
- Who will care for their minor children;
- Who will take over their business interests; and
- Their funeral arrangements.
If an individual does not create their own estate plan, their estate will be distributed according to the intestate succession laws in their state. Intestate laws vary by state and may, in some cases, result in a distribution which is not in line with the individual’s wishes, which can be avoided with an estate plan.
Each state has requirements for a valid will. However, in general, they include the following:
- The will must be in writing;
- The will must be signed by the testator;
- Although not required, the individual’s will should be dated;
- The will should be witnessed by two or more competent witnesses; and
- The testator has testamentary capacity, which is satisfied if the testator is:
- 18 years or older;
- in the military; or
- is legally married; and
- is aware:
- they are creating a will;
- the will distributes their property when they pass away;
- of the property which they are distributing; and
- who is receiving the property.
- is aware:
What is a Will?
Wills are documents that are included in estate plans which allow an individual, called the testator, to provide instructions regarding how their property should be distributed when they pass away. The property that is disposed of by a will may include both real property and personal property.
Why Should a Will Have a Residuary Clause?
It is a good idea for an individual to include a residuary clause in their will because this provision provides instructions regarding how to distribute any property which remains that has not been expressly disposed of. Wills which contain a residuary clause will often give the rights to the residuary estate to one or more beneficiaries.
If an individual’s will does not have a residuary clause, any property which remains and has not been specifically attributed to a beneficiary will pass to heirs through the succession laws of the individual’s state, or revert back to the state’s possession.
What Happens to the Residuary Estate?
There are several ways a residuary estate can be handled. This will depend largely upon what is included in the individual’s estate as well as what is required by the laws of the jurisdiction.
For example, an estate holder can appoint a specific individual to inherit their residuary estate. The individual who inherits this portion of the estate will be referred to one of the following, depending on the laws of the state:
- Residuary beneficiary;
- Residuary taker; or
- Residuary legatee.
Additionally, the details regarding this type of transaction will be contained in a clause in the individual’s will, called the residuary clause or residuary bequest. In many instances, a residuary taker is a charitable organization.
If, on the other hand, a will does not contain a residuary clause, the residual estate may pass to the heirs of the testator based upon the intestacy laws enacted in that particular jurisdiction. In some cases, the residual estate may escheat, or revert back to the state government, as noted above.
What are Some Common Residuary Estate Legal Issues?
Disputes regarding the distribution of an individual’s residuary estate may arise for several different reasons, especially in cases where remaining property indicates the individual had a significant net worth.
For example, these types of disputes may occur when an individual claims they are entitled to the rights of the residual estate but another individual disputes that claim, stating that the residual estate should be given to a charity instead.
In the majority of cases, however, these types of disputes are handled by conducting official court hearings where a court will determine how a residuary estate is to be distributed. This process usually involves having a court review a testator’s will as well as any other relevant documents which may demonstrate how they wanted their residual estate to be distributed.
This is why it is important for a testator to clearly identify and name any residual beneficiaries within their legal documents, as it helps parties avoid future disputes.
How Does the Residuary Estate Get Distributed?
Once all of the decedent’s gifts, devises, and expenses have been distributed, the administrator or executor of the estate is required to distribute the residue of the estate to the proper beneficiaries.
This may be accomplished by following the instructions which the decedent typically provides in their will regarding the distribution of any residual assets. The following is a list of some of the ways in which a residuary estate may be distributed:
- Pour-over trust. If the will provides that the residue should be left to a revocable trust, the remaining property will “pour over” into that trust. Additionally, it should be noted that the property must be transferred to the named trustee;
- Dividing by percentage or fractional shares. If the residue is to be distributed to one or more individuals and the will provides that it should be issued by a specific percentage or fractional share to each of those individuals, then the residual estate should be divided in accordance with the terms of the will;
- Dividing per capita, or equal shares. In this case, each individual will receive an equal share regardless of their relationship to the testator; and
- Per stirpes, or right of representation. Pursuant to this set of rules, the property must be divided equally at each generational level. The first issues will be given their shares first, for example, first children, then grandchildren, parents, and so on.
Would Community Property or Joint Accounts Be Part of a Residuary Estate?
Generally, community property and joint accounts would not be considered to be part of the estate of a decedent. Instead, the community property or joint account would automatically transfer to the spouse or co-owner directly upon the death of the other owner.
Additionally, community property will be split in half and then distributed according to the laws of intestate or in accordance with the terms of the individual’s will.
Should I Hire a Lawyer if I Have a Question or Dispute Involving Residuary Estate Matters?
It is essential to have the assistance of an estate lawyer in order to resolve any residuary estate matters. These matters are often challenging and time-consuming because the laws which govern them vary by state.
Your lawyer can provide you with advice regarding how to efficiently handle your estate and plan ahead to avoid future disputes. In addition, if a conflict or lawsuit arises, your attorney will represent you in court as well as assist you with the preparation of any necessary legal documents.