Without the right advice, estate planning can be complicated. There are many legal pitfalls and complicated terms to understand, but it is crucial to get it right. Otherwise, your will may not be legally valid; you must be careful in order to ensure your loved ones receive what they are entitled to when you pass away.

One term that often comes up during the process of writing your will is "residuary estate". It can be easy to ignore this concept when writing your last will and testament, especially if you don't understand what it means. However, it is important to know what this part of your estate is and how it works in conjunction with your will. This will allow you to ensure the right steps are taken to deal with the residuary estate, and that your estate is distributed in the way you intend. 

Below, we explain what the term 'residuary estate' means and what this part of your will entails, what a residuary clause is and why you need it, why it is hugely important to write a will, and how Percy Hughes & Roberts can help with any wills and probate services you need.

If you have any questions we have not answered, our expert wills and probate solicitors are happy to speak to discuss your query and provide the legal services you need. You can contact us by completing the enquiry form below or by calling 0151 666 9090.

What is your residuary estate?

When someone dies, any cash, investments, property, life insurance policies, and other possessions they leave behind form what is known as their estate. The estate is managed by a nominated executor, who is named in the person's will. After debts and any inheritance tax have been paid, the estate is shared among the beneficiaries in accordance with the will.

The residuary estate is whatever is left of the deceased’s estate after all specified gifts have been handed out and debts, funeral expenses, and taxes have been paid. 

What kind of assets may be included in the residuary estate?

Virtually everything that the deceased owned can be part of the residuary estate. The sort of assets that could potentially be left in the estate after everything has been distributed according to the provisions of the will include:

• Property 
• Investments
• Personal belongings
• Vehicles
• Cash

Having said this, not everything within the estate falls into the residuary estate automatically. Some assets that may not be included are:

• Joint assets – Joint bank accounts and/or property held as a Joint Tenancy
• Assets held in trust – Such as death-in-service benefits and family trusts

If any assets are co-owned by another party, they will pass directly to any surviving owners. Trusts will have their own provisions about how to distribute the assets they contain.

What is a residuary beneficiary?

A residuary beneficiary is someone who receives all or part of the residuary estate. You can have more than one residuary beneficiary, and each beneficiary will need to be named in your will. You should indicate what percentage of the residuary estate each beneficiary should receive, if you choose to give a residuary gift to more than one person.

Residuary beneficiaries also have rights that normal beneficiaries do not. For example, a residuary beneficiary is entitled to view the estate accounts after the will has been settled. This is to show how the will has been distributed and should include a list of all payments made and received. This is to ensure the value of the residuary estate is as accurate as possible. 

What is a residuary clause?

A residuary clause (or residuary estate clause) in a will sets out who will inherit the remaining assets once all debts, funeral expenses and taxes have been paid, and after all of the specified beneficiaries have received their gifts. 

Many legal experts argue that this clause is the most important in the whole will. The most straightforward wills may only have a single clause setting out a plan for residuary estate distribution. 

These clauses can be drafted very simply. They may name one or more individuals who will receive residuary assets outright. These shares can be equal or unequal, depending on your wishes. You may also include further provisions that state a certain beneficiary must reach a specific age before they can inherit the assets. 

A common residuary clause in joint wills states that the residuary estate will be left to the surviving spouse or partner on the first death, with assets being left to their children on the second death. Provisions can be made further for grandchildren, to account for cases in which a child predeceases their parent. 

In addition to this, the testator (the person making the will) can also make arrangements to provide for charities and trusts. These additional provisions include:

• Charity Provisions – Where some (or all) of the residuary estate is left to charity
• Trusts – Where clauses are drafted to place assets within a trust
• Discretionary Trusts – A trust in which the trustees have the flexibility to decide which beneficiaries should benefit from the residuary estate
• Life Interest Trusts – Where beneficiaries receive income from the trust fund during their lifetime, but someone else inherits the asset when the beneficiary dies.  This may provide for a surviving spouse, for example

Any valid residuary clause ensures that the residuary estate is not distributed under the rules of intestacy. 

What are the intestacy laws?

If you do not create a valid residuary clause in your will, the residuary estate could be shared out under the UK's intestacy laws. Within these rules, only married couples, civil partners, and close relatives can inherit anything from the deceased’s estate. 

The first beneficiary of a residuary estate distributed under intestacy rules will be a spouse or civil partner. If the person who died was not married or in a civil partnership, there is a hierarchy that determines who inherits. In this case, the deceased’s estate will pass to the following individuals in priority order:

• Your children or grandchildren 
• Your parents 
• Your siblings of whole blood (or their children) 
• Any half-siblings or their children 
• Your grandparents 
• Your uncles and aunts of whole blood (or their children) 
• Your uncles and aunts of half-blood, or their children 
• The Crown

These rules often do not cater to modern families. There are many people who may be deserving of a gift in your will but have no right to inherit anything under intestacy laws. These include:

• Unmarried partners
• Same-sex partners who are not in a civil partnership
• Close friends
• Carers
• Relations by marriage (in-laws)

This is why it is vitally important that you not only write a valid will, but also create a residuary clause within it. In addition to making sure everything is shared the way you wish it to be, it will also ensure you consider and account for everything within your estate.