Residuary Estate Definition and Example

When mapping out your estate plan, you may come across the term “residuary estate.” A residuary estate generally consists of the remaining assets after debts, taxes, administration expenses, and specific gifts. A residuary clause can direct who receives this remaining property rather than leaving its distribution to applicable state law.

A financial advisor can help you select a structure for your estate that accomplishes your goals.

What Is a Residuary Estate?

A will allows you to spell out in a legal document how to distribute your assets. If you have children, your will should also address guardianship. Any distributions to children and other beneficiaries, come from the residuary estate. This property includes your probate estate after deducting debts, taxes, expenses and gifts. It serves as a catch-all for property not specifically mentioned in the will. It can also include assets that become part of the estate through the terms of the will or state law.

How Do You Create a Residuary Estate?

It can happen intentionally or unintentionally. For example, when you draft your will you may state that you want certain assets left to certain individuals. But you could also include a residuary estate clause outlining your plans for assets not in the will. In this case, you’re creating a residuary estate intentionally but planning ahead for it in the creation of the will.

Residual estates also occur without advance planning. For example, your heirs may work with a residuary estate if:

You forgot to include certain assets in your will
You acquired new assets after drafting your will and did not add a codicil addressing distribution of these assets
A beneficiary passes away before you or is unable to receive their inheritance for some other reason

Assets designed to have a named beneficiary but lack one also become part of the residuary estate. So, for example, setting up a payable on death account but failing to add a beneficiary to it. Now any funds in the account will transfer to the residual estate.

When a residuary estate exists, that can complicate the probate process for your heirs. Any unclaimed or otherwise overlooked assets follow state inheritance guidelines for distribution. This happens only after the estate pays all taxes, outstanding debts, and final expenses.

Reasons Why You May Need Residuary Estate Planning

Residuary estate planning helps cover assets not specifically named in your will or type of trust. This can happen if you forget to include an asset, acquire new property, or a named beneficiary dies before you. Without a residuary clause, state law dictates what happens to these assets rather than your own wishes.

You may also need residuary estate planning if you have complex or growing assets. This includes investment accounts, personal property, or digital assets. A residuary clause acts as a safety net. It ensures everything not named still goes to the right person or people.

Another common reason is to avoid confusion and legal disputes among heirs. When you leave assets out of a will, it can lead to delays in probate and disagreements about who should inherit what. A residuary clause helps prevent this by clearly stating how to divide any leftover assets.

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Residuary Estate Example

Closeup of an estate planning worksheet.

Here’s an example for someone with a wife and one adult child. They draft a will leaving the marital home, the furnishings in it and two vehicles to their spouse. They include a residuary clause stating that all other assets must pass to their child.

If your spouse were to pass away before you, any assets you set aside for them in a simple will would become part of the residuary estate. The entirety of the residual estate, along with the items you already designated for your adult child, would go to them once you pass away.

Now, what if you draft a will but don’t include a residuary estate clause? In that scenario, anything that you didn’t specifically leave to someone in the will becomes subject to the probate rules of your state. Your estate would have to distribute assets to your heirs at law the same way it would if you were to die intestate. Heirs at law include people who the state recognizes as eligible to inherit your assets, including your spouse, children, parents, siblings and other relatives.

Residuary Beneficiary of a Trust

A trust acts as a legal entity that allows you to transfer assets to a trustee. This trustee is responsible for managing those assets on behalf of the trust beneficiaries according to your wishes. You may want to establish a trust if you have a larger estate, have a special needs beneficiary you want to plan for or want to create a legacy of charitable giving.

As with a will, it’s possible to have a residuary beneficiary of a living trust. This person would receive any property or assets in the trust not designated for specific beneficiaries.

Defining residuary estate with a trust is easier than it is with a will, as the only property that’s considered is what’s already been transferred to the trust. If you’ve taken the time to set up a trust properly, you’ve likely already made provision for each beneficiary you want to be included and which assets they should receive. You could still run into issues, however, if a named beneficiary passes away and you haven’t named anyone as a residuary beneficiary.

How to Write a Residuary Estate Clause in a Will

It’s possible to write a residual estate clause into your will. If you’ve already drafted a will, you may need to add a codicil or draft a new will to replace the old one. The clause itself is fairly simple and should contain wording along the lines of:

“I wish to leave the remainder of my estate to…”

You’d then name the person you’d like to inherit your residuary estate. Keep in mind, however, that if you’re naming multiple persons it’s important to specify what percentage of the estate they each get.

Say you’re divorced and you want to leave $50,000 in cash to your parents and the remainder of your estate to your two children. In your residuary clause, you could specify that you’d like each child to receive an equal share of your remaining assets. Otherwise, you could be setting the stage for family conflicts between heirs after you pass away.

Talking to an estate planning attorney or a financial advisor can help you determine how to word a residuary clause and what assets to include. Your financial advisor can also discuss whether you need additional estate planning vehicles, such as a revocable living trust.

How Residuary Estates Interact With Beneficiary Designations

A residuary clause generally applies to property passing through your probate estate, not every asset you own at death. Retirement accounts, life insurance proceeds and certain financial accounts can pass directly to named beneficiaries. Property held jointly with rights of survivorship can also pass directly to the surviving owner. These assets generally do not become part of the residuary estate when the beneficiary designation or ownership arrangement is effective.

This distinction makes it important to review beneficiary designations along with your will. For example, naming one child as the beneficiary of a retirement account and dividing the residuary estate equally among two children does not necessarily divide the overall estate equally. The retirement account passes under its beneficiary designation, while the residuary clause controls the probate property that remains.

Beneficiary designations can also require updates after marriage, divorce, a death or another family change. Reviewing the will and non-probate assets together can help identify whether the distributions still reflect how you want your property divided.

Bottom Line

A residuary estate is something you may need to plan for when creating a will or trust. Fortunately, it’s fairly easy to do so by including the proper wording in your will and estate planning documents. Taking time to plan for residual assets can help to eliminate confusion and stress for your loved ones when the time comes to divide your estate.

Estate Planning Tips

Consider talking to a financial advisor about how to manage a residuary estate when drafting a will or trust. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Every state has different requirements for making a will and it’s important to understand what’s needed for your document to be legal. For example, a will typically needs to be witnessed by at least two adults of sound mind who have no financial interest in its contents. If you’re using online will-making software to draft a will, these programs can walk you through the process step by step. Once you make a will, be sure to keep it in a safe place. You may also want to let your loved ones know that the will exists and where to find it once it’s needed.