Residuary estate refers to the leftover (or residual) part of an estate after affairs are settled. The executor of an estate settles debts, taxes, and expenses, then distributes the estate as outlined in the will, including any specific gifts or bequests. What remains is the residuary, or residual, estate.
In this guide, we explain how the residuary estate works, who receives it, and risks such as partial intestacy.
Key takeaways
- The residuary estate is the leftover part of an estate after the executor pays debts, taxes, and expenses and makes specific gifts.
- It includes property covered by the will that isn't specifically given to someone.
- Wills may include a clause that names a residuary beneficiary. Without one, state intestacy laws (default inheritance rules) decide who gets the leftover assets.
- If the estate lacks enough assets to satisfy all obligations and gifts, state abatement rules determine which gifts are reduced and in what order.
What does residuary estate mean?
In estate planning, the term “residuary estate” generally refers to property passing under a will that remains after the executor pays debts, taxes, and expenses and distributes other gifts under the will. People also call it the residue of the estate or the residual estate.
The backpack analogy
Imagine an estate as a backpack containing assets such as cash, real estate, investments, and personal items. After using some of the backpack's contents to pay taxes and debts, the executor of the estate removes specific gifts and hands them directly to named people. The residuary estate consists of everything still inside the backpack after those specified items have been removed.
Common terms used in estate planning
- Estate: All the property and money a person owns at death.
- Probate: The process of settling the affairs of an estate. It may involve a probate judge or need to be settled in probate court.
- Probate estate: The property that goes through the probate process. Property that passes outside the will, such as life insurance with a named beneficiary, isn't part of it.
- Intestacy rules: State laws that set default rules for asset distribution if a will doesn't specify, or if a person dies without a will.
- Beneficiary: A person, organization, or entity that receives a distribution from a probate estate.
- Executor of an estate: The person in charge of settling an estate and managing asset distribution according to the will. Some states call this person a personal representative.
- Testator: The person whose estate is being settled by a will.
- Decedent: A person who has died. In estate planning, this typically refers to the testator.
- Bequest: A gift left to a beneficiary in a will. It typically refers to assets, items, or money.
How does a residuary estate work in a will?
In a will, the testator usually distributes the residue through a residuary clause. A common phrase is “all the rest, residue, and remainder of my estate.” The person or organization named to receive that property is the residuary beneficiary, also called a residuary legatee. If the will has no residuary clause, the remaining property passes under state intestacy rules.
For example, suppose a will leaves a particular house to one beneficiary and $50,000 to another, then says “the rest to X.” The executor gives the remaining property passing under the will (the estate residue) to X as the residuary beneficiary.
What is a residuary clause?
A residuary clause is the provision in a will that directs distribution of the residuary estate to named beneficiaries. It helps prevent partial intestacy by directing remaining property subject to the will, including certain overlooked assets and property acquired after the will was written, to the named residuary beneficiaries. Without it, that property may pass under state default laws instead.
Where can I find a residuary clause?
Wills typically place the residuary clause near the end, after specific gifts and other instructions. Executors and probate courts look for standard phrasing like “all the rest, residue, and remainder of my estate,” which signals the catch-all for any remaining property.
Example of a residuary clause
A basic residuary clause might read: “I give all the residue and remainder of my estate, both real and personal property, of whatever kind and wherever situated, to my spouse, Jane Doe. If Jane Doe does not survive me, I give it to my children in equal shares.” A residuary clause covers everything the will doesn't otherwise give away.
What is the hierarchy of distribution of assets in an estate?
An estate usually pays debts, expenses, and taxes before making distributions. The executor typically satisfies specific and general gifts before the residue. Priority depends on state law and the will.
Payment of debts, expenses, and taxes
- State laws generally require an estate to pay debts and taxes before it makes any distributions. Many states also give administration costs, reasonable funeral expenses, family allowances, and exempt property priority over ordinary unsecured creditors and beneficiaries.
- Medicaid estate recovery applies only in certain situations. Medicaid is government health coverage for people with low income, and states may seek repayment from an estate for certain benefits they paid, subject to federal and state exceptions. Medicare, the program mainly for people 65 and older, is separate and works differently.
- If an estate is insufficient to pay all of the decedent's debts, U.S. law gives priority to claims made by the federal government. An executor who pays other debts before such a federal claim may be personally liable to the extent provided by federal law.
These obligations can reduce the property available for distribution, including the residuary estate.
Distribution of specific and general bequests
After paying these obligations, the executor distributes specific and general bequests. The executor first fulfills the will's specific bequests (“my diamond ring to A,” “my shares of XYZ Corporation to B,” “my house at [address] to C”) from the exact asset identified. The executor then addresses general bequests (“$50,000 to B”) from remaining liquid assets or sale proceeds.
Distribution of the residuary estate
Only after the executor completes all specific bequests and required payments does the executor deliver the estate residue to the residuary beneficiary or beneficiaries in accordance with the residuary clause.
Abatement and its impact on the residuary estate
Abatement rules determine which gifts take the loss when an estate doesn't have enough assets to pay its obligations and satisfy all gifts in full. The order of abatement varies by state, and the will may change it.
Under laws based on the Uniform Probate Code (a model law many states have adopted), for example, property passing by intestacy generally abates first, followed by residuary, general, and then specific gifts. Other states may apply different rules. As a result, residuary beneficiaries are often among the first affected by a shortfall, and their share may shrink a lot or disappear.
What does a residuary estate include?
A residuary estate generally includes the remaining probate property covered by the will after the executor pays debts, taxes, and expenses and distributes other gifts under the will.
Residuary estates most commonly include items such as:
- Bank accounts in one person's name with no payable-on-death beneficiary (someone named to receive the money when the owner dies)
- Stocks and other investments in one person's name with no transfer-on-death designation (a beneficiary named on the account)
- Personal property the will doesn't specifically give to someone
A residuary clause can also capture certain assets or property acquired after the will was written that the will doesn't otherwise clearly give away. This reduces the need to amend the will every time assets change.
Not every asset without a gift in the will becomes part of the residue. Assets with a named beneficiary, assets that pass to a surviving joint owner, and assets held in trusts generally pass outside the will. Pensions and IRAs follow the plan's or account's own rules, so they don't automatically become residuary assets.
Who are residuary beneficiaries and what are their rights?
A residuary beneficiary (also called a residual or remainder beneficiary) is the person or people who receive what remains after the estate pays debts, taxes, and expenses and distributes specific gifts.
Typical residuary beneficiaries include a surviving spouse, children as a class (“to my children in equal shares”), other close relatives, or charities. The clause can name one person, a group, or alternates (for example, “to my spouse, but if my spouse does not survive me, to my children”).
What are the differences between residuary and specific beneficiaries?
Specific beneficiaries receive particular identified assets, and residuary beneficiaries receive distributions from the residuary estate.
Rights of residuary beneficiaries
Residuary beneficiaries generally have an interest in the proper administration of the estate, but their specific rights and remedies depend on state probate law and the circumstances of the estate. These rights may include:
- Receiving notice that probate has opened
- Getting information about estate assets, debts, expenses, and accountings
- Receiving the residuary distribution once the estate is ready for distribution
- Asking the court for help if the executor mismanages the estate
Residuary beneficiaries also have an economic interest in estate management, because every dollar spent on fees, debts, or unnecessary expenses reduces the residue they receive.
What is a residuary trust?
The residuary estate is what remains after the executor makes required payments and gives prior gifts. The executor can handle that residue in three ways. The executor can distribute it outright to beneficiaries. The executor can place it in a testamentary trust, which is a trust created by the will. Or the executor can transfer it to an existing trust through a pour-over provision, a will clause that sends property into a trust you've already set up. If residual property goes into a trust, that trust is called a “residuary trust.”
Outright distribution vs. residuary trust
With an outright distribution, the residuary beneficiary receives the property directly, rather than through a continuing trust. With a residuary trust, the trustee (the person or institution that manages the trust) holds legal title to the assets and manages them under the trust terms and applicable law. The beneficiary receives the benefits the trust provides.
Practical differences between outright distribution and residuary trusts
Choosing between the two affects how inherited property is managed, when beneficiaries receive it, and what protections may apply.
Control and timing
- Outright: Once the beneficiary receives the property, they can spend, invest, or give it away with no oversight.
- Residuary trust: The trust's rules dictate distributions, such as providing income until age 25 or making staggered principal payments.
Risk exposure
- Outright: Once distributed outright, inherited assets may be reachable by the beneficiary's creditors. Depending on state law and whether the assets stay separate or mix with marital property, they may also come up in a divorce.
- Residuary trust: A properly drafted spendthrift trust provision (which limits creditors' access to trust assets) or discretionary provision may protect assets from certain creditor claims. The protection depends on state law and the type of claim.
Minors and incapacity
When a residuary beneficiary is a minor, an outright inheritance can create practical and legal problems because minors generally can't manage substantial property on their own. A residuary testamentary trust solves this by having the trustee manage the funds. The trust's rules may authorize the trustee to use funds for the child's health, education, maintenance, and support. The trustee then distributes the remaining trust property when the child reaches a specified age or ages.
Even for adults, a residuary trust can help in certain situations. If a beneficiary has disabilities or receives benefits based on income and assets, such as Supplemental Security Income (SSI), tailored special needs trust planning may be necessary to avoid unintended effects on eligibility.
Tax planning and “residual trust”
Not every residuary trust is a tax-planning tool. A trust that holds the residue may simply be a testamentary trust set up under a will. A bypass (or credit shelter) trust is a specific structure some married couples use to reduce estate taxes.
In that kind of plan, the estate splits into a marital trust for the surviving spouse and a second trust holding the balance. The surviving spouse may receive income or limited access, and the structure can keep those assets out of the spouse's taxable estate.
Tax rules and state trust laws vary. Anyone choosing between an outright distribution and a trust should review specific numbers and family facts with an estate planning attorney or tax advisor.
What is partial intestacy?
Partial intestacy occurs when someone leaves a valid will, but the will doesn't effectively give away all of their probate property. That property then passes to heirs under state intestacy laws.
Failing to list an asset individually doesn't necessarily cause partial intestacy. A broad residuary clause often captures property that isn't individually listed, including certain property acquired after the will was written.
Intestacy laws usually favor immediate family, such as spouses, children, parents, and siblings, in a set order. The order and shares vary by state. If no qualifying relatives exist, the property could go to distant cousins or even the state. This can undermine what the person who made the will wanted.
Some consequences of partial intestacy include:
- Unintended distributions. Property may go to heirs under state law instead of the people or organizations the testator wanted to benefit.
- Added work for the executor. The executor may need to identify heirs and work out how to distribute the intestate property under state law.
- Possible disputes. Uncertainty about who receives property can cause disagreements among beneficiaries or heirs and increase the time and cost of settling the estate.
How LegalZoom can help
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FAQs about residuary estate
Does the residuary estate include bank accounts?
It can. A bank account in one person's name with no payable-on-death beneficiary may become part of the probate estate. If the will doesn't specifically give the account to someone, it may become part of the residuary estate. Accounts that pass directly to a surviving joint owner or a payable-on-death beneficiary generally pass outside the will.
Can the residuary estate include a house?
Yes, if the house is a probate asset and the will doesn't specifically give it to someone. A house held with joint survivorship rights, in a trust, or through another arrangement that passes outside probate generally isn't part of the residuary estate.
Does the residuary estate include life insurance?
Generally, no. Life insurance is paid directly to the named beneficiary and doesn't go through the will. It becomes part of the estate only if the policy names the estate (or the executor) as beneficiary. It can also become part of the estate if no named beneficiary is alive and the policy sends the money to the estate.
How do inheritance taxes or estate taxes affect the residuary estate?
Estate tax and inheritance tax are different taxes. The federal estate tax, when it applies, is based on the size of the whole estate. Some states charge an inheritance tax, which can depend on who receives the property and how they're related to the person who died.
Who pays these taxes, and from which assets, depends on the type of tax, federal and state law, and the terms of the will. Taxes don't always come from the residuary estate.
What are lapsed gifts?
A lapsed gift is a gift in a will that fails because the beneficiary dies before the testator. A will may name an alternate beneficiary, and a state's anti-lapse law may pass the gift to the beneficiary's descendants (such as children and grandchildren) instead. If neither applies, the gift usually becomes part of the residuary estate.
For example, suppose a will gives a car to a friend who dies first, and no alternate is named. The car may pass under the residuary clause.
Can a residuary beneficiary be a charity?
Yes. A charity can be a residuary beneficiary. For example, a person may leave specific items or cash gifts to family and name one or more charities to receive the remaining residuary estate.
Ruby Chakraborty, contributed to this article.
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