The ordinary meaning of the word residue is a leftover part or remnant. In estate planning, residue has a special meaning, referring to the portion of a deceased person’s assets that remain after all debts and taxes have been paid and gifts have been made to beneficiaries.

Wills and trusts are designed to distribute specific assets to specific beneficiaries. Typically, a will or trust directs that assets such as real estate, personal property, and financial accounts be divided among named beneficiaries.

Sometimes, assets slip through the cracks and are not assigned to a specific beneficiary or explicitly given to a beneficiary. These assets comprise the residuary estate—think of them as “leftovers” or “everything else” in an estate plan. This can happen for a few different reasons:

• The assets were not considered valuable enough to be explicitly included in a will or trust and may have been deliberately excluded. For example, the average American home has thousands of items, and about one in 10 homes also includes off-site storage rental. It may not make sense to mention specific items in an estate plan that just amount to clutter.
• An asset was accidentally left out of a will or trust. When making an estate plan, certain assets may simply be overlooked. Assets obtained after a will or trust was created are likely not explicitly mentioned in these documents. Assets that should have a named beneficiary (such as a payable-on-death account or life insurance policy) but fail to name one may also end up in the residuary estate.
• A beneficiary predeceases the willmaker/trustmaker. If a will, trust, or account names a beneficiary but the beneficiary passes away before the person who created the will or trust passes away, the assets may become part of the residuary estate if no other beneficiary is named to receive these assets.

The residuary estate does not necessarily consist of worthless scraps a person did not plan for. Residuary assets such as financial accounts that lack named beneficiaries can be quite valuable, and multiple small assets can be valuable in the aggregate. In some cases, the residuary estate could be the most significant part of an estate.

Talk residual gifting with an estate planning attorney.

To discuss these and other factors that can affect your residual gifting strategy, reach out and schedule a time to talk to one of our estate planning attorneys.