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What is a Residuary Estate and Why Do I Need One?

| Mar 23, 2020 | Estate Planning

As simple as it sounds, there are two crucial points in having a residuary estate.  First, I always be sure that every reasonable contingency has been resolved by the plan.  No matter what the odds, it is the practitioner’s job to find a recipient for the testator’s assets.  So, it begs the question of what is reasonable.  Depending upon the testator’s situation, I will often have up to five (5) contingency plans.  For example, my wills may bequeath the assets to 1 the spouse, to 2  the children, to 3 the grandchildren, to 4 nieces and nephews and if none of my previous beneficiaries survive to 5 the testator’s heirs at law or to a charity.  I find it bordering on the absurd to go much more beyond this level in thinking through what may happen, and it becomes nearly comical to ask the testator to try.  If there is a significant change in the testator’s family, he will need to return to make a new will.  Second, make sure all of the testator’s assets have been bequeathed.  I have reviewed wills, especially ones that are self-prepared using an online form, that have not disposed of 100% of the testator’s property.

Another consideration in drafting the residuary provisions of the will is who will be the recipient(s) of the residuary estate.  Is it the spouse?  If so, is it a second marriage?  Is the spouse a person who has the financial wherewithal to handle large sums of money, or does the spouse need someone to manage the money for her or him?  If the residuary beneficiary is a child, is the child of an age of majority?  Even if the child is legally an adult, is the child ready to possess all incidents of ownership over the assets?

If the residuary beneficiary is a charity, does the will describe the charity with sufficient detail that there can be no question as to who is to receive the property.   This issue commonly arises when naming a church as a residuary beneficiary.  If the will provides that “I give and devise 50% of my residuary estate to the First Methodist Church”, that is not sufficient.  Each town may have a First Methodist Church.  The testator may have attended and favor the First Methodist Church that they used to attend prior to moving into a nursing home.  Similar to needing to describe the property in a specific bequest with sufficient detail, the practitioner needs to describe the recipient of the residuary bequests with sufficient detail so that there is no dispute as to the proper party to receive the residuary gift.