When drafting a will, many people focus on specific bequests—leaving certain items or sums of money to specific individuals or charities. However, a crucial component often goes overlooked: the residuary clause. This clause plays a vital role in ensuring that any assets not specifically mentioned in the will are distributed according to the deceased’s wishes. Here, we’ll break down what a residuary clause is, why it’s important, and how it can impact the administration of your estate.
What is a Residuary Clause?
A residuary clause in a will addresses the “residue” of an estate. The residue includes all assets that remain after specific gifts, debts, taxes, and other expenses have been paid. These assets can include:
Property or items not specifically mentioned in the will
Proceeds from the sale of property
Newly acquired assets that weren’t included in previous updates to the will
The residuary clause essentially acts as a catch-all, ensuring that all remaining assets are distributed according to the testator’s (person creating the will) intentions. Without it, assets not specifically mentioned may be distributed based on state intestacy laws, potentially causing unintended results.
Why is a Residuary Clause Important?
Ensures Comprehensive Distribution of Assets
The primary purpose of a residuary clause is to cover any property or assets not specifically allocated. Many people acquire new assets over time or inadvertently forget to update their will. The residuary clause ensures these assets are included and distributed according to the will, preventing any portion of the estate from going unaddressed.
Prevents Partial Intestacy
Without a residuary clause, any assets not specified in the will could be distributed based on state intestacy laws. This means that certain assets might be distributed according to state guidelines rather than the testator’s wishes. By including a residuary clause, the testator can ensure their estate is fully administered within the scope of the will.
Simplifies Probate and Reduces Legal Challenges
A well-drafted residuary clause simplifies the probate process by giving clear instructions for the remaining assets. Without this clause, the probate court must intervene to determine how to handle unallocated assets, potentially leading to delays, legal fees, and family conflicts. A residuary clause helps provide clarity and minimizes the likelihood of legal disputes.
Provides for Alternate Beneficiaries
A residuary clause allows for flexibility in case the primary beneficiaries of the estate are unable or unwilling to inherit the assets. For instance, if a residuary beneficiary predeceases the testator or refuses the inheritance, the clause can include alternate beneficiaries, ensuring the assets are still distributed according to the testator’s broader intentions.
How Residuary Clauses Work
A residuary clause typically appears near the end of the will and includes language specifying how the remaining assets are to be divided. Here’s a basic example:
“I leave the rest, residue, and remainder of my estate to my [spouse, children, charity, or other named beneficiary]. If any of my residuary beneficiaries predecease me, their share shall go to [alternate beneficiaries or another designated individual].”
The specifics of the clause can be tailored to individual circumstances. For example, some people choose to leave their residuary estate to multiple beneficiaries in specified shares (e.g., 50% to one person, 25% to another, etc.). Others might designate a charity or other organization as the sole residuary beneficiary.
Common Scenarios Where a Residuary Clause is Essential
Unexpected Assets: Over a lifetime, people acquire various assets, some of which may not be specifically listed in the will. A residuary clause ensures these assets, including newly acquired property, are covered.
Forgotten Assets: Some assets may inadvertently be left out of specific bequests. For example, a valuable piece of art or an investment account could be forgotten, especially if the testator hasn’t updated their will recently.
Divestment and Consolidation: When an executor consolidates accounts or sells estate assets to pay debts or taxes, the residual assets from these actions fall under the residuary clause, ensuring they’re distributed as directed.
Disposition of Non-Tangible Assets: In cases where a testator doesn’t make specific allocations for digital assets or intellectual property, the residuary clause may capture these items.
Beneficiary Predeceases Testator: If a named beneficiary for a specific bequest dies before the testator and there’s no alternate beneficiary named, the assets may fall back into the residuary estate, ensuring they’re still directed according to the testator’s broader wishes.
Drafting a Clear and Effective Residuary Clause
When drafting a residuary clause, clear language is essential. Here are some key considerations:
Define the Beneficiaries: Clearly specify who will inherit the residuary estate, whether it’s a person, multiple individuals, or a charity.
Specify the Share: If you’re leaving the residue to multiple beneficiaries, specify the share or percentage each should receive. Vague language can lead to confusion and disputes.
Name Alternate Beneficiaries: In case your residuary beneficiary predeceases you or chooses to disclaim their inheritance, an alternate beneficiary ensures that your assets are directed where you want them.
Update Regularly: As you acquire new assets, review your residuary clause to ensure it reflects your current wishes. Updating the clause regularly can help avoid partial intestacy and unintended outcomes.
What Happens Without a Residuary Clause?
If a will lacks a residuary clause, any assets not specifically bequeathed are distributed according to California’s intestacy laws (or the laws of the state where the probate occurs). Under intestacy laws, assets are typically passed down to the decedent’s closest relatives in a predetermined order (spouse, children, parents, siblings, etc.).
This can lead to several issues:
Unintended Beneficiaries: Assets may go to family members the testator didn’t intend to inherit, potentially excluding individuals or organizations they would have preferred.
Family Disputes: Relatives may contest the distribution of unallocated assets, leading to legal conflicts that could have been avoided with a residuary clause.
Additional Probate Costs: Handling assets without a clear directive can increase court time and legal expenses, reducing the estate’s overall value.
Conclusion
A residuary clause is a crucial part of any will, ensuring that all assets are accounted for and distributed according to the testator’s wishes. By capturing assets not explicitly listed, it prevents partial intestacy, simplifies probate, and reduces the risk of family disputes. Whether you’re drafting a will for the first time or revisiting an existing one, make sure to include a residuary clause that reflects your intentions.
If you’re unsure about how to draft a residuary clause or want to review an existing will, consulting an estate planning attorney can help you craft a clause that provides clarity, flexibility, and peace of mind for you and your loved ones.
Contact the top-rated California trust and probate attorneys Moravec, Varga & Mooney today to schedule a telephonic consultation. Have questions, call (626) 460-1763 or email LV@MoravecsLaw.com.
Southern California Probate Lawyer Serving all counties in California, including Los Angeles, Riverside, San Bernardino, Sacramento, Santa Cruz & Beyond.
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