Many times, the term “residue” will be used in a person’s Will or Trust. So what is the residue of an estate and what is covered by the term?
In the administration of a Will or Trust after a person dies, there are certain things that are paid out or distributed-usually in a certain order. Generally speaking, this includes the expenses of administering the estate (such as attorneys and CPA fees), obligations which must be paid (such as taxes and creditor claims), and specific devises (gifts) designated in the Will or Trust to go to a certain beneficiary. After all of these are paid or distributed, what is left is referred to as the “residue.” The provision in the Will or Trust which designates what happens to the residue is sometimes referred to as the “residuary provision” or “residuary clause.”
Take, for example, Nancy’s estate consisting of $40,000 in a savings account, a vehicle, and a house. Nancy’s Will provides: “Upon my death, I devise my vehicle to my granddaughter, Katie, and $3,000 to my church. All of the rest, residue and remainder I leave to my children, David and Martha, in equal shares per stirpes.” Under this Will, the last provision, “all of the rest, residue and remainder” is the residuary provision. It controls the distribution of the residue. In administering Nancy’s estate after her death, first all estate administration expenses are paid, then taxes and creditors are paid. Once that is done, then the vehicle is distributed to Katie and the $3,000 is distributed to the church. Whatever is left is the residue and that goes to David and Martha equally.
Every Will and Trust should include a residuary provision. This is the provision that acts as the “catch all” for all remaining assets or property not specifically distributed. Recently, I encountered a Will that a person had executed which lacked a residuary clause. As this person’s estate is probated, it will be interesting to see what happens to the residue after all costs of administration, taxes, creditors are paid and after all specific gifts are distributed. Who will get the residue? That’s a topic for another blog.