Testamentary Bequest

What is a testamentary bequest? 

A testamentary bequest is a transfer of assets or property to another person or entity (e.g., a charity or non-profit organization) upon one’s death. 

Key takeaways 

• There are three types of testamentary bequests: specific, general, and residuary.
• While each type of bequest has its own benefits, there are also potential disadvantages you should be aware of when planning your estate. 

Testamentary and non-testamentary bequests distinguished. 

Testamentary bequests may be distinguished from non-testamentary bequests in that the former are transferred in accordance with the decedent’s will out of their probate estate’s assets, whereas the latter are transferred through inter vivos trusts, life insurance policies, or other legal vehicles that bypass probate.

Types of testamentary bequests 

Testamentary bequests may be broken down into three categories: 1) specific bequests, 2) general bequests, and 3) residuary bequests. Let’s break each of these down in detail. 

Specific bequests: Specific bequests are specific assets or property identified in a will to go to a specific beneficiary. Examples would be providing that your wedding ring should go to your daughter Sara, or that your investment account #123457 at XYZ Investment Firm should go to your grandson Eric. 

General bequests: General bequests do not designate a specific property or have no specific beneficiary. For example, if you leave 30% of your estate or $100,000 to your son Mike, those are general bequests even though they have a specific beneficiary because your estate can be comprised of various types of assets with fluctuating values in the first example, and you did not specify where the money should come from (as compared to the specific bequest example above, where you designated a specific account that should go to your grandson Mike). 

Residuary bequests: Residuary bequests can be thought of as a “catch-all” provision instructing who should receive whatever is left over from your probate estate after all debts are settled, expenses and costs associated with the probate proceedings are paid, and general bequests and specific bequests have been distributed. For example, your will provides that your brother should receive your vintage Mustang (specific bequest), your three children should receive $100,000 each (general bequests), and the remains of your estate (if any) should be distributed to XYZ charity (residuary bequest).  

Why the form of your bequests matters 

While each type of bequest has its optimal uses, real-world circumstances can sometimes lead to unintended outcomes. Specifically, issues commonly arise in the following situations:

• A specifically bequeathed asset no longer exists at the time of the decedent’s death. In such cases, in some states, if the asset was sold to buy a similar one, the new one will be considered a “replacement” of sorts that will go to the same beneficiary, 
• The beneficiary of a specific bequest dies before the decedent. In such cases, in some states, the bequest will be inherited by the beneficiary’s heirs, and in others, it will pass to your own beneficiaries per the state’s intestacy laws.
• There are insufficient assets in your probate estate to cover both specific and general bequests after debts are settled, and expenses are paid off. Again, state succession laws will apply here, with potentially unintended results.

Bottom Line 

In many cases, the reasons for using one form of bequest over the other seem self-evident. However, with the passing of time and changing circumstances, issues can arise that could result in outcomes that are very different from those you originally intended. The best way to mitigate these potential issues is to ensure that your will is meticulously crafted and regularly updated.