One of the goals of estate planning for many people is avoiding the need for their estate to go through a lengthy, costly probate. This is stressful for loved ones, it delays beneficiaries’ ability to get their inheritances and it makes the estate plan public for anyone who may want to find it – like relatives who weren’t included.
There are many ways to allow your assets to skip probate, as we’ve discussed here before. One that most people who aren’t estate planning professionals aren’t aware of is something caused a residuary clause. This clause, which should be included in the will, covers the residuary estate (or the “residue” of the estate). That might sound trivial, but it’s not.
What does the residuary clause cover?
The clause covers any assets that don’t have a designated beneficiary, either in the will, in a trust or in a beneficiary designation on an account. For example, there may be a forgotten savings account that doesn’t have a joint or payable-on-death owner and isn’t addressed anywhere in the estate plan. Sometimes, people will purchase something of value shortly before they die and not get around to addressing it in their estate planning.
Maybe there is a beneficiary designated directly on an investment or retirement account, but they predecease the owner. If there’s no contingent beneficiary and a new beneficiary isn’t named, it would become part of the residuary estate.
Any inheritance that’s declined by a beneficiary would also become part of the residuary estate if there’s no surviving contingent beneficiary. Declining an item that you’ve inherited is referred to as disclaiming it.
What happens to the residuary estate?
That’s part of what’s covered in the residuary clause. You may designate that anything in the residuary estate be sold and the proceeds divided among your beneficiaries or given to a charity. You may leave the decision up to your “remainder beneficiary,” who is the person you name to oversee these assets. It’s often the executor.
Having a residuary clause is just one element of a well-crafted estate plan that can make things easier for everyone after you’re gone. That’s why it’s so important to have experienced legal guidance.