Residuary Estate: Example and How to Distribute
Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.
Putting a residuary clause in your will to designate a beneficiary of your residual estate can help your family and friends understand what you want to happen to all of your assets when you die.
What is a residuary estate?
A residuary estate is the portion of a person’s assets that are left over after paying off their estate’s debts, taxes and expenses and after distributing any specific gifts of property or money. People often put instructions in their wills about what to do with their residuary estates.
» MORE: Best online will makers
Example of a residuary estate
If you die with a $1 million estate, $300,000 of those assets might go toward paying any debts and taxes you owed. The executor of your estate might also use $50,000 to cover expenses associated with settling your estate (such as an accountant to prepare your final tax return, cleaners to prepare your house for sale, or to pay for your funeral). The executor would also follow any instructions you put in your will to make bequests of specific property or amounts of money to certain people or organizations (leaving a $10,000 heirloom necklace to your niece, for example).
At that point, there may still be assets left in your estate (as much as $640,000, in this example). This is your residuary estate. Accordingly, you might add a residuary clause to your will stating that any residuary estate goes to your cousin Frank, for instance. And if Frank were no longer alive at the time of your death, the will might state that the residuary estate should be divided equally between two of your favorite charities. In this example, Frank and/or the charities are the residuary beneficiaries.
Bequeathing a residuary estate to a charity might reduce estate taxes or inheritance taxes, because the IRS allows estates to deduct charitable contributions. This leaves less of the estate subject to tax (though most estates probably aren't subject to federal estate tax).
How is the residuary estate distributed?
The executor of a person’s will is responsible for overseeing the distribution of the assets according to the decedent’s wishes. However, if you die without a will (which is called dying intestate), your estate may need to go through the probate process and a court may decide how to distribute your assets.
If you do have a will but it doesn’t have a residuary clause, the residuary portion of your estate may have to go through the probate process and a court may decide how to distribute those assets.
If you have a trust, you might consider creating a pour-over will, which is a type of will that contains instructions to automatically transfer (“pour”) any leftover or forgotten assets into the trust upon your death. The idea is to ensure that your beneficiaries get everything you intended to give them.
Residuary estates can be large — even the majority of an estate in some cases. That’s one reason it’s important to have a will, a trusted executor and an estate plan.