When you designate the intended beneficiaries of your assets in your will or living trust, you’ll likely include valuable assets like your home and other real estate, cars and boats, bank, retirement and investment accounts, valuable jewelry, art and collectibles. You may even include memorabilia, photographs and other sentimental items you want a particular family member to have and continue to pass down.
You can encompass smaller items in categories like home furnishings, clothing or sports equipment so that you don’t have to change your estate plan every time you buy a new sofa, designer dress or set of golf clubs.
What’s included in the residuary estate?
It’s virtually impossible, however, to include everything you own in your estate plan. Often, family members find things after someone has died that the decedent didn’t even realize they had. These things are considered part of what’s called the “residuary estate” – essentially the residue of the estate.
In addition to assets that weren’t mentioned in the estate plan, the residuary estate also includes assets:
- Left to a beneficiary who predeceased the decedent (if there’s also no surviving contingent beneficiary listed)
- Declined by a beneficiary (again, if there’s no surviving contingent beneficiary)
The residuary estate needs to be addressed in the estate plan. Otherwise, it will end up in probate, which can extend the time it takes to settle the estate.
The residuary clause and remainder beneficiary
Typically, this is done with a simple residuary clause that names a remainder beneficiary for the residuary estate. People often name their spouse or other trusted family member (or their executor, if it’s not one of those people) to be the remainder beneficiary. Generally, they direct them to keep, sell, donate or distribute any assets in the residuary estate (assuming they don’t have to go towards paying debts) at their discretion.
The residuary estate is one of those things that’s easily and quickly included in an estate plan if you’re working with an experienced legal professional. That’s just one more reason not to create your own estate plan or rely on a do-it-yourself online program. There are many legal intricacies in even the simplest plan that create problems for your family and subvert your wishes if not handled correctly.