Many people write a will to make sure their assets are distributed to their family and friends when they pass away. If you don't name specific assets — like a personal belonging or real estate property — and assign a beneficiary to receive them, they become part of the residuary estate, which is also known as the residual estate or estate residue. When your beneficiaries can’t accept an inheritance for any reason, including when they die before you, the assets they were supposed to receive also become part of the residuary estate. The residuary estate encompasses all of the overlooked or unclaimed assets that once belonged to the deceased — after beneficiaries receive the items named for them in a will, and all necessary expenses, including estate taxes, debts, and funeral costs, have been paid.
With provision to your will, called a residuary clause, you can give, or bequest, this remaining property to a specific beneficiary. If you don't have a residuary clause in place, the probate court will decide who inherits the residuary assets as per state intestacy laws — or as if there was no will at all. That means when you die, if you forgot to bequeath your car to your favorite niece, it might end up with an estranged child, who you didn’t want to inherit your things because they're your next of kin.
What is the residuary estate?
When someone writes a will (the testator) or creates a trust, they can provide instructions as to how their belongings and property should be distributed upon their death. People often make specific bequests, or gifts, like stating that their youngest child should receive the rental property and their sister should inherit all the jewelry.
After these gifts have been distributed, and the deceased’s taxes, debts, and burial expenses have been paid (with estate funds via the executor), some items and valuables may be left over — and end up part of the residuary estate. Unaccounted assets that make up the residuary estate can include the following:
Personal property that isn't valuable enough to be named in a will. For example, you might not bother with bequeathing your clothes or that extra set of batteries in your basement to someone. (You can give away this type of stuff all at once with a residuary clause. We'll discuss that in depth next.)
Specific assets and bequests that the testator but forgot to identify in the will. For example, they may have acquired property after the will was written, and forgotten to update the will (like with a codicil).
The inheritance of a deceased beneficiary. When a beneficiary of a will predeceases the testator, their assets will become part of the residue of the estate. To prevent that from happening, the testator can include a contingent beneficiary (a backup, in addition to the primary beneficiary) or a method of distribution, like per stirpes, to accommodate this scenario.
Similarly, any assets that are meant to transfer directly to a beneficiary after you die, like a life insurance payout or a payable-on-death bank account, can become part of the residuary estate when there are no named beneficiaries.
What is a residuary clause?
Including a residuary clause in your will enables you to pass along any belongings in the residuary estate to a specific person after your death. It is both common and useful in estate planning, since you’d otherwise have to list every single asset and piece of property you own to make specific bequests to your beneficiaries.
The clause will name the residuary beneficiary who is also sometimes known as a remainder beneficiary. For example, "I give my car to my niece, my rental property to my son, and the residue of my estate to my wife," or "....I give the remainder of my estate, including any personal and real property, to my wife."
If you name a group of people as residuary beneficiaries — "I give the residue of my estate to my surviving children" — there may be confusion as to how it's divided or what happens if one of them dies. You can however indicate what percentage of the residue goes to each beneficiary.
When you have many beneficiaries or a complex strategy for giving, you might consider consulting with an estate-planning attorney for legal advice. They can help you to write a will that is as precise as possible, which can save your heirs from legal expenses in the future if there's a dispute or prevent them from contesting the will. If the will has a no-contest clause, then a residuary beneficiary may even lose his bequest or share of the residue.
Residuary beneficiaries of a trust
If you’re the grantor of a trust, you can name a residuary beneficiary to receive trust assets. They would only receive assets that were already in the trust at the time of your death, but didn't have a beneficiary attached to them.