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You need to understand what a residuary estate is. Here’s what to know.
What is residuary estate?
Residuary estate is a probate term that refers to the assets in a deceased person’s estate after all gifts are bequeathed and debts, taxes, administrative costs, probate fees and court costs are paid. Gifts that cannot be passed to the person specified in the will, due to death or for other reasons, also are considered a part of the residuary estate.
While wills are a must for estate planning, they don’t usually list every piece of property owned by the person who made the will.
Listing each asset would be unrealistic since people’s assets continually are changing. The residuary clause specifies the deceased person’s wishes for items that are not specified in a will or that cannot be bequeathed to the person named due to death or other reasons.
When a will doesn’t include a residuary clause, the assets that are not specifically bequeathed to an heir are distributed to heirs, according to the succession laws of that state. These succession laws address the distribution of property of deceased persons who do not have a will.
This approach is problematic. Since the assets will be tied up in probate court, their distribution likely will be delayed. Additionally, because the probate court doesn’t know the deceased person’s wishes, the assets may not be distributed as the deceased person intended.
Residuary estate example
Cory’s will bequeaths his home and furnishings to Jessica, and the remainder of his property (his residuary estate) to his daughter, Sarah. Cory doesn’t name any alternative beneficiaries.
Jessica dies before Cory. Because Cory has specified that Sarah is to receive his residuary estate and his home and furnishings can’t be passed on to Jessica, they become a part of the residuary estate, and the entire residuary estate passes to Sarah.
If Cory didn’t include a clause that addressed his residuary estate, all his property that wasn’t specifically bequeathed to someone, including the property he left Jessica, would be distributed by the probate court, according to the probate laws in his state.
Is it time to plan your estate? Here’s a rundown of estate planning basics.
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