In addition to everything else that you need to handle when a loved one passes, there are often unfamiliar procedures and legal terms that you need to understand. One term that comes up frequently is “residuary estate.”
In a nutshell, a residuary estate is what is left over after the executor distributes specific gifts that were named by the deceased (when they made the will) and once the family has paid all taxes, fees, liens, and debts of the deceased. However, things are not that simple. People always receive specific gifts before you calculate the residuary estate.
A Residuary Estate Example
Liam puts in his will that he wants to leave specific gifts of £2,000 to a local registered charity, £500 each to his two brothers, and £1,000 to his daughter. Then he wants the rest of his estate (the residuary estate) to go to his wife.
If Liam dies and there is only £2,000 in his accounts, the executor of the will may need to sell the flat and/or other items belonging to Liam to satisfy the specific gifts left in the will. The residuary estate is what is left after the debts are satisfied, and the specific gifts are paid. So even if Liam wanted his wife to be able to keep the flat as long as she wanted to do so, she might not be able to do so.
The residuary beneficiary is the person who receives the residuary estate. This gives the person rights in the UK that he or she would not have otherwise – for example, the residuary beneficiary is entitled to see the accounting for the estate by the executor. He or she would then know what debts are paid, any items that the executor sells, and so on.
Is There Just a Single Residual Beneficiary?
There can be more than one residuary beneficiary. However, it is important to bear in mind that what the residuary beneficiaries receive is the remainder after the executor pays off any taxes, administrative fees, probate costs, debts, and applicable court costs.
In the UK, the executor of a will is personally liable for HMRC payments (Her Majesty’s Revenue and Customs). Executors generally take great care to pay those fees completely and correctly.
Another aspect to consider is that if someone does not include a residuary estate clause in a will, everything that a beneficiary does not receive becomes part of the estate. In some circumstances, not having a residual estate clause in a will can lead to some or all assets of a decedent being tied up in probate court.
The residuary estate is also sometimes referred to as the “remainder” or “residue bequest.” These terms basically refer to the same thing – the estate after debts and other specific gifts/bequests have been given, according to the deceased’s will.
It is also important to note that assets that transfer to beneficiaries immediately after someone dies, such as life insurance or a “Payable on Death” bank account designation, do not become part of the estate unless the intended beneficiary is already dead.
For example, husband and wife “Dale” and “Lucy” have life insurance policies, naming each other as their beneficiaries. Lucy dies, and Dale gets her life insurance payout. A few years later, Dale dies. The monies from Lucy’s life insurance become part of Dale’s estate, and when Dale’s life insurance payment comes in, that becomes part of Dale’s estate. The beneficiary, Lucy, has already passed.
In a Nutshell
So, in short, when trying to understand exactly what residuary estate means, think of it as being what is left over after a meal. The estate itself is the meal and what is leftover becomes the residuary estate.
If you are making a will, be sure that you have mentioned your residual estate and that you know what it means, and that will save your heirs and intended beneficiaries a lot of headaches.