Definition and example of residual succession
When developing your estate plan, you may come across the term “residual estate”. Simply put, an estate is any part of your estate that has not been distributed to your heirs through a will. Also called estate residue or residual estate, it simply means the assets that remain after your will has been read, the assets have been distributed to your heirs, and the final costs have been paid. Good estate planning can help you avoid leaving residual assets behind.
A financial advisor can help you choose an estate structure that achieves your goals.
What is a residual domain?
A will is a legal document that allows you to appoint guardians for minor children and to specify how you want your assets to be distributed among your heirs upon your death. But all of your assets may not appear in your will for one reason or another. Any assets that are not included in your will or distributed through a trust are automatically part of your estate when you die.
So, how is a residual domain created?
It can happen intentionally or unintentionally. For example, when you are writing your will, you can state that you want certain assets to be left to certain people. But you can also include a residual estate clause describing what should happen to any other asset that has not already been named in the will. In this case, you are intentionally creating an estate, but planning it in advance when creating the will.
Residual estates can also be created without prior planning. For example, your heirs may be given an estate if:
You forgot to include certain assets in your will
You have acquired new assets after the drafting of your will and have not added a codicil providing for the distribution of these assets
A person named in your will dies before you or is unable to receive their inheritance for some other reason
Assets that are designed to have a named beneficiary but do not have one can also be included in the estate. So, for example, if you open an account payable on death with your bank but do not add a beneficiary to it, all the funds in the account will be grouped together in the residual estate.
When an estate exists, it can complicate the probate process for your heirs. All unclaimed or otherwise neglected assets would be distributed in accordance with state succession guidelines, after inheritance taxes, overdue debts or final expenses have been paid.
Example of residual domain
Having an example to follow can make it easier to understand residual successions. Say you are married and have a grown child. You write a will leaving your marital home, the furniture therein and two vehicles to your spouse. You include a residual clause stating that all of your other assets should be passed on to your child.
If your spouse died before you did, any property you reserve for them in your will would become part of the estate. The entire residual estate, as well as the elements that you have already designated for your adult child, will revert to them upon your death.
Now what if you write a will but don’t include an inheritance clause? In this scenario, anything that you did not specifically leave with someone in the will becomes subject to your state’s probate rules. Your assets would then be distributed to your legal heirs in the same way they would if you died intestate. Legal heirs are people who are legally recognized by the state to inherit your property, including your spouse, children, parents, siblings, and other family members.
Residual beneficiary of a trust
A trust is a legal entity that allows you to transfer assets to a trustee. This trustee is responsible for managing these assets on behalf of the beneficiaries of the trust according to your wishes. You may want to set up a trust if you have a larger estate, want to plan for a beneficiary with special needs, or want to create a legacy of charitable giving.
As with a will, it is possible to have a residual beneficiary from a living trust. This person would receive any property or assets transferred to the trust that were not designated for specific beneficiaries.
It is easier to define the estate with a trust than with a will, because the only property that is considered is what has already been transferred to the trust. If you’ve taken the time to set up a trust properly, you’ve probably already made arrangements for each beneficiary you want to include and what assets they should receive. However, you could still run into problems if a named beneficiary dies and you have not named someone as the residual beneficiary.
How to write a residual inheritance clause in a will
It is possible to include a residual inheritance clause in your will. If you have written a will before, you may need to add a codicil or write a new will to replace the old one. The clause itself is fairly straightforward and should contain wording like:
“I wish to leave the rest of my estate to …”
You then name the person to whom you wish to inherit your estate. Keep in mind, however, that if you are naming more than one person, it is important to specify the percentage of the estate they each receive.
Suppose you are divorced and want to leave $ 50,000 in cash to your parents and the rest of your estate to your two children. In your residual clause, you could specify that you want each child to receive an equal share of your remaining property. Otherwise, you could set the stage for family disputes between heirs after your death.
Speaking to an estate planning lawyer or financial advisor can help you determine how to formulate a residual clause and which assets to include. Your financial advisor can also discuss whether you need additional estate planning vehicles, such as a revocable living trust.
The bottom line
A residual estate is something you may need to plan for when creating a will or trust. Fortunately, it’s fairly easy to do this by including the appropriate wording in your will and trust documents. Taking the time to plan for residual assets can help take the confusion and stress out of those close to you when it comes to dividing your estate.
Estate planning tips
Consider speaking with a financial advisor about how to manage an estate when drafting a will or trust. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is best for you. If you’re ready to find an advisor who can help you reach your financial goals, start now.
Each state has different requirements for making a will, and it’s important to understand what is needed to make your document legal. For example, a will usually needs to be certified by at least two sane adults who have no financial interest in its contents. If you use online will writing software to write a will, these programs can walk you through the process step by step. Once you have made a will, be sure to keep it in a safe place. You may also want to let your loved ones know that the will exists and where to find it once it is needed.
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