A residuary estate refers to what's left of a decedent’s estate after all debts, taxes, and administrative expenses have been paid, and specific and general bequests have been distributed to the beneficiaries.
A specific bequest is when you state in your will that a specific item or asset should go to a particular beneficiary, such as leaving your vintage car should to your best friend, or your art collection to a certain museum. On the other hand, a general bequest is a specific amount of money to be paid out of your probate estate, such as leaving $50,000 to each of your children.
Keeping in mind that state laws differ on how, when, and which of these apply under various circumstances, a residuary estate typically includes:
A residuary estate clause is a provision you can include in your will designating who should receive whatever becomes part of your residuary estate. This is because, as a general matter, your residuary estate is distributed in accordance with your state’s succession laws. Succession laws govern how your estate should be distributed in the absence of a will. These are commonly applied when one dies intestate, and generally provide for the distribution of your estate by degrees of kinship.
If your intended beneficiaries are not the same people as those who would inherit under your state’s succession laws, having a residuary estate clause can ensure that any assets or property that end up in your residuary estate will end up in the hands of those you wish them to.
Example: As a prudent person who thinks ahead, you decide to plan your estate and make a will even though you are only 50 and have many good years ahead of you still. You have three children and want each of them to inherit $100,000 when you die. You have a vintage Jaguar you want your best friend Tom to have. There’s also a charity that supports a cause you are very passionate about that you would love to leave money to, but you’re not quite sure if there will be enough left over from your estate by the time of your passing. By drafting a residuary estate clause, you can designate the charity to receive the proceeds of your residuary estate after your Jaguar is given to Tom, and your children receive $100,000 each.