What is a residuary clause, and why do you need it in your will?

On Behalf of | Jun 30, 2024 | Probate

When people start their estate planning, they often wonder whether they need to update their will or living trust every time they buy a new car or get a new piece of jewelry. They’re concerned about what will happen to assets not specifically listed in their estate plan. 

If you have a well-crafted estate plan, you shouldn’t have to make modifications unless something significant in your life changes or a specific change to the plan is needed. Divorce and/or remarriage would be examples of life changes. If you change your mind about your chosen executor or other administrator, you need to modify the plan.

Unless you acquire a new and valuable asset, like a home, you likely don’t need to amend your plan. Note that if your home is in a revocable living trust, you would simply title the new home in the name of the trust, although there may be other estate plan changes necessary.

What assets are covered by a residuary clause?

There will inevitably be assets of varying degrees of value left behind that aren’t addressed in your estate plan. They’re known as your “residuary estate.” They’re typically addressed in a simple residuary clause in your will.

The residuary clause covers not just assets for whom there’s no named beneficiary, payable-on-death, transfer-on-death or joint owner. It also covers any asset left to a beneficiary who predeceased you if there was no contingent beneficiary. It also covers any asset that might be declined by the beneficiary (again, if there’s no contingent beneficiary).

Why you need a remainder beneficiary

You need to name a “remainder beneficiary” in the residuary clause. This is the person who will take possession of the assets in the residuary estate (after any debts, taxes and required expenses are paid). You also need to designate what you want them to do with this “estate residue.” You may want everything sold and the proceeds divided among your beneficiaries or given to a charity, for example. You may want to leave it up to their discretion.

If there’s no residuary clause, those assets will need to go through probate. That’s why experienced estate planning professionals ensure that they’re included, along with other elements of a thorough estate plan that will help ensure that your wishes are carried out and your loved ones don’t experience unnecessary issues in settling your estate.