Is a residuary clause necessary in a will or trust? Yes, both a will and a trust should always contain a residuary clause in addition to any specific bequest clauses. The bulk of a decedent”s estate, if not all of it, typically passes according to the terms of the decedent”s testamentary residuary clause. Let us examine what a residuary clause is, why it is necessary and what undesired consequences might occur without a residuary clause.
Simply put, a residuary clause says who gets any assets, or the sale proceeds, not specifically gifted elsewhere within the will or trust. Thus, a residuary clause is a catch all provision that allows a testator (of a will) or a settlor (of a trust) to ensure that all his or her assets pass as he or she wishes.
Assets that are not specifically gifted elsewhere in the will or trust fall into the catch-all residuary estate. Who receives these residuary assets is controlled by the residuary clause. For example, a very simple residuary clause might essentially read, “I leave all my other assets, not specifically gifted elsewhere [in my will (or trust)] equally to my two children by right of representation.” A residuary clause, however, can be more elaborate and provide for a variety of unforeseen contingencies.
For example, the residuary clause might provide that the first $100,000 of the residue estate goes to the grandchildren in further trust, that next $10,000 goes to certain charities, and that all of the remainder of the estate goes to certain other persons based on various percentages, with alternative beneficiaries named.
Why is a residuary clause essential? Even if a will or trust specifically gifts each and every asset owned by the testator (of a will) or settlor (of a trust) at the time when he or she executed the will or trust that often becomes increasingly insufficient as time passes.
A residuary clause is necessary to address the following issues: (1) who inherits any assets not specifically gifted in the will or trust; (2) what if a beneficiary who is to receive a specific gift does not survive to inherit, or refuses to accept the gift (disclaims), and there is no other alternative beneficiary, who inherits that gift and (3) what if a non-probate asset (such as life insurance or retirement plans) reverts to the decedent”s probate estate (perhaps because of a failure with the designation of death beneficiary form)?
In such cases, without a residuary clause, any later acquired assets, any specific gifts which fail and any extra assets that fall into the probate estate will all pass under the laws of intestacy. Who inherits under intestacy depends on which relatives survive the decedent and the character of each one of the decedent”s assets (i.e., is the asset community property or separate property).
For example, if a decedent dies survived by a spouse and two children, and the decedent”s will does not have a residuary clause, then, with respect to any assets that are part of the decedent”s probate estate, the spouse inherits 100% of any community property assets plus one-third of the separate property, and the children inherit the remaining two-thirds of the decedent”s separate property.
Other non-probate assets, such as retirement accounts, if they exist, should still pass according to designated death beneficiary forms to the surviving designated death beneficiaries.
Not having a residuary clause is virtually unheard of in an attorney drafted will or trust. When it does occur, failing to provide a residuary clause is most likely to be found in a layperson”s handwritten (holographic) will. A well drafted attorney will or trust should provide you greater peace of mind.
