The term “residuary estate” is often tossed around in conversations about wills and inheritances, but what does it actually mean? Simply put, it’s the leftover portion of an estate after all the essentials, like debts and funeral expenses, have been taken care of. It also includes any assets that aren’t specifically mentioned in a will, like an antique vase or vacation home.
For those considering leaving property or land as part of their estate, it’s important to understand its value and potential impact. If you’re planning to gauge the value of the estate, you can use our land loan calculator to estimate costs and make informed decisions.
Here’s the thing though: how those assets are distributed can get complicated, and it’s not always as straightforward as you might think. The question is, what happens next?
Key highlights:
A residuary estate refers to the remaining assets after settling debts, taxes, funeral expenses, and specific bequests.
It includes cash, real estate, stocks, and personal items not designated to beneficiaries in a will.
The residuary estate is managed by an appointed executor to honor the deceased’s wishes as stated in the will.
Assets in the residuary estate are distributed according to the directives in the decedent’s will or state intestacy laws if no will exists.
A residuary clause in a will ensures the distribution of remaining assets according to the deceased’s intentions, preventing ambiguity and disputes.
What is a residuary estate?
Typically, a residuary estate is what remains after all outstanding debts, taxes, funeral expenses, and specific bequests have been deducted from the deceased’s total assets. The residuary estate definition encompasses all remaining assets, including cash, real estate, stocks, and personal items that weren’t specifically designated to beneficiaries. You can learn more in our article explaining what is an estate, where we provide some examples as well.
These assets are usually managed by an appointed executor, who ensures that the deceased’s wishes are honored in the distribution of their estate.
The distribution of this estate is typically governed by the directives outlined in the decedent’s will, determining how the remaining assets are allocated among beneficiaries.
If no residuary clause is specified in the will, the remaining assets may be distributed according to state intestacy laws, which may or may not align with the decedent’s wishes. Therefore, including a clear residuary clause in the will is important to make sure all assets are accounted for and distributed according to the testator’s intentions.
Assets included in a residuary estate
Although the specific assets that comprise a residuary estate can vary widely, they generally include any remaining assets after the estate’s debts, taxes, funeral costs, and specific bequests have been settled. You’ll typically find cash reserves, stocks, bonds, real estate, and personal items not explicitly designated to a beneficiary in a residuary estate.
Bonds, stocks, and real estate, in particular, are all popular appreciating assets that can grow in value over time. To learn more about how these types of assets appreciate, check out our article on appreciating assets.
Real estate can be part of the residuary estate if it's not specifically bequeathed in a will.
However, not all assets automatically form part of the residuary estate. For instance, joint assets usually pass directly to the surviving owner and don’t enter the estate. Similarly, trust-held assets follow their own distribution rules and may not be included in the residuary estate, depending on the terms of the trust. You can read more about trusts and how to put your home in a trust in our article.
To determine what falls under the residuary estate, you’ll need to gather and document all the assets. This will help you identify the remaining assets that will be part of the residuary estate. Make sure to have proper documentation to ensure the distribution of the residuary estate is accurate.
How residuary estate is distributed
The distribution of a residuary estate involves allocating the remaining assets according to the terms specified in the will. As a beneficiary, you’re entitled to a share of the residuary estate, which may include cash, investments, real estate, and personal belongings.
The executor will manage the distribution process. Their job is to make sure that all debts, taxes, and specific bequests are settled before allocating the remaining assets.
You’ll receive your share of the residuary estate according to the terms specified in the will, which may include a percentage or a specific share of the assets. If you’re a primary beneficiary, you’ll receive your share directly. If not, the assets may go to contingent beneficiaries or revert to the estate.
Here are key points to note about the distribution of a residuary estate:
The executor must allocate assets according to the terms specified in the will.
The distribution process may require court oversight and adherence to state probate laws.
Beneficiaries must be notified and informed about the distribution process.
Executors are legally obligated to manage the distribution fairly and transparently.
Importance of residuary clause
Don’t forget to include a residuary clause. It’s the only way to make sure that all your assets are distributed according to your wishes.
As part of estate planning, this clause designates who receives the remaining assets of your estate after all debts, taxes, and specific bequests have been settled.
Legal experts consider it one of the most significant clauses, as it prevents assets from being left unallocated and reduces disputes among heirs.
Role of executor in residuary estate
Managing the residuary estate is a significant responsibility that falls on the shoulders of the executor. This person’s job is to ensure that all debts and taxes are paid before distributing the remaining assets to beneficiaries as outlined in the will. Their primary duty is to follow the specific instructions set forth in the will regarding the distribution of the residuary estate.
Here are the key tasks an executor needs to perform:
Compile an accurate inventory of the estate’s assets and liabilities to determine the value of the residuary estate.
Allocate shares to multiple beneficiaries according to the will’s instructions.
Provide transparency to the residuary beneficiaries by keeping them informed about the estate’s financial status and distribution process.
Act in the best interest of the beneficiaries and ensure a fair and lawful distribution process. The goal is to prevent potential disputes during the probate process.
Common examples of residuary estate
Specific gifts, such as a designated house or a prized family heirloom, are typically allocated to beneficiaries as outlined in the will. However, you may wonder what happens to the remaining assets that aren’t explicitly mentioned. This is where the residuary estate comes into play.
The residuary estate includes all remaining property after specific gifts have been distributed, such as cash reserves, stocks, bonds, and real estate not explicitly mentioned in the will. Personal items that aren’t specified in the will, such as furniture or collectibles, automatically fall into the residuary estate.
Also, if a beneficiary predeceases the testator and no alternate heir is named, the intended gift may revert to the residuary estate. The allocation of the residuary estate is determined according to the terms outlined in the will. The objective is that all remaining assets are distributed according to the deceased’s wishes.
As a result, the residuary estate plays a big role in honoring the deceased’s intentions and distributing their assets accordingly. It’s responsible for carrying out the deceased’s wishes and making sure their assets are distributed as intended.
The bottom line
You’ve now learned about the residuary estate meaning in a will and its significance in estate planning. You know that it encompasses the remaining assets after settling debts, taxes, and specific bequests. The residuary clause in a will ensures your wishes are respected, while the executor plays a vital role in distributing the estate.
Familiarizing yourself with a residuary estate will help you make better decisions when creating your own estate plan, and your assets will be allocated according to your intentions. If you want to make investments that could potentially be passed on, you can check out our article on the best stocks under $50 to invest in. You might also be interested in our explanation of active vs. passive ETF investing to see which one is right for you.
