A residuary estate is the portion of a deceased person’s estate that remains after all of that individual’s debts and claims have been satisfied, and once all of the specific distributions, gifts, and bequests have been distributed to the named beneficiaries. In other words, it is the property left over at the end of the above procedures that has not been assigned to anyone.
A carefully drafted will usually includes a residuary clause, which provides instructions to the residuary beneficiary regarding what to do with the property that has not yet been disposed (i.e., the residuary estate). The residuary clause may also state what to do with any bequests that are void or have lapsed.
Why Should a Will Have a Residuary Clause?
It is a good idea to include a residuary clause in a will because this provision will provide instructions on how to distribute any remaining property that has not been expressly disposed of yet. A will that contains a residuary clause will often give the residuary estate the right to name a beneficiary (or several beneficiaries) who will inherit any left over property.
In contrast, if the will does not contain a residuary clause, any property that has not been specifically attributed to a beneficiary will pass to either the heirs through the succession laws of a state, or revert back to the state’s possession.
What Happens to the Residuary Estate?
There are several different things that can happen to the residuary estate. This will largely depend on what is included in the person’s estate and what is required by the laws of a particular jurisdiction.
For example, the estate holder can appoint a specific person to inherit the residuary estate. In such a scenario, that individual will be referred to as either the “residuary beneficiary”, “residuary taker”, or “residuary legatee” (contingent on the laws of a state).
In addition, the details of this type of transaction will be contained in a clause in the will, which is known as the “residuary clause” or “residuary bequest”. In many cases, the residuary taker is often a charitable organization.
On the other hand, if there is no residuary estate clause in the will, then the residual estate may sometimes pass to the testator’s heirs based on the intestacy laws enacted in that particular jurisdiction. In some instances, the residual estate can even escheat or revert back to the state government.
What are Some Common Residuary Estate Legal Issues?
A dispute regarding the distribution of the residuary estate may arise for a number of reasons. This is especially true in cases where the remaining property indicates a significant net worth.
For instance, this type of dispute may occur when one person claims that they are entitled to the rights of the residual estate, but another person may argue against them, claiming that the residual estate should go to a charity instead.
In most cases, however, these disputes are handled by conducting an official court hearing where the court will be the one to determine how the residuary estate is meant to be distributed. This process typically involves having the court review the testator’s will and any other relevant documents that might demonstrate how they wanted their residual estate to be handled.
Thus, why it is so important for the testator to clearly identify and name the residual beneficiaries within their legal documents because it will help the remaining parties to avoid any future disputes.
How Does the Residuary Estate Get Distributed?
Once all of a decedent’s debts, administrative expenses, funeral costs, gifts, devises, and so forth have been distributed, the executor or administrator of the estate is required to distribute the estate’s residue (e.g., any remaining property or funds) to the proper beneficiaries.
This may be done by following the instructions that the decedent usually provides in the terms of their will regarding the distribution of any residual assets.
The following list contains some of the ways in which the residuary estate may be distributed:
- Pour-Over Trust: If the will contents state that the residue should be left to a revocable trust, then the remaining property will “pour over” into that trust. Also, it should be noted that the property must be transferred to the named trustee.
- Dividing by Percentage or Fractional Shares: If the residue has been instructed to be distributed to one or more persons, and the will provides that it should be issued by a specific percentage or fractional share to each of those persons, then the residual estate should be divided in accordance with the terms of the will.
- Dividing Per Capita (Equal Share): In this instance, each individual will receive an equal share regardless of their relationship to the decedent.
- Per Stirpes (Right of Representation): Under this set of rules, the property must be divided equally at each generational level and the first issues will be given their shares first (e.g., first children, then grandchildren, parents, and so on).
Would Community Property or Joint Accounts Be Part of a Residuary Estate?
Community property and/or joint accounts are generally not considered to be part of a decedent’s estate. Instead, the joint account or property will automatically transfer to the co-owner or other spouse directly, upon the death of one of the owners.
Furthermore, all community property will be split in half (i.e., 50/50) and will be distributed via the laws of intestate or in accordance with the terms of a will.
Should I Hire a Lawyer If I Have a Question or Dispute Involving Residuary Estate Matters?
Resolving residuary estate matters can oftentimes be a fairly complex and time-consuming process. Part of the reason these matters can be challenging is because the laws governing them will typically vary from state to state. Therefore, if you have any questions or legal disputes concerning residuary estates, then you should contact a local estate lawyer for further assistance.
An experienced estate lawyer can provide you with professional legal advice that will aid you in handling your estate situation more efficiently. Additionally, in the event of a lawsuit or other legal conflict, your attorney can also help you prepare any required legal documents, as well as represent you during any court proceedings if necessary.