What is Residuary Estate?
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Residuary Estate is the balance of an estate after tax, liabilities and any specific personal items or cash gifts (legacies) have been paid.
The residue of your estate is essentially ‘everything else’ – ie after all specific cash gifts and personal items have been dealt with. It is usually dealt with in percentage terms.
In this guide, we explain what can pass under your residuary estate, what can not, and what you should have in mind when deciding how to split to your residuary estate.
What is your Residuary Estate?
The residue of your estate (commonly known as ‘residuary estate’) is everything else that hasn’t already been gifted under the terms of your will. The main bits that might come out first include:-
- TESTAMENTARY EXPENSES – eg funeral costs, executor expenses, and Inheritance Tax; then
- ITEM LEGACIES – also as known as ‘chattels’. This can be anything from a watch, to a car!
- CASH LEGACIES – these are fixed cash amounts
> Take a look at the various things that your Will needs to include.
What sort of assets can/will be included in my Residuary Estate?
The simple answer is everything! Remember that the ‘norm’ is that the items that comprise your residuary estate will actually be encashed and then distributed in money terms to your ‘residuary beneficiaries’ in the percentage terms that your will sets out. Nevertheless, the sorts of assets that will comprise ‘residuary estate’ might include:-
- Houses
- Pensions
- Other investments
- Personal items
- Vehicles
- Cash
What does a Residuary gift look like in my Will?
There are two main ways that residuary estate clauses are usually drafted. One is to specify percentages – this is typically if those shares differ between residuary beneficiaries. Where the shares are equally, you might expect the residuary clause in your will to look something like this:-
I GIVE the rest of my estate in equal shares to JANE BLOGGS of 1 The High Street Grimsby BILLY SMITH of 7 The Crescent Bath and RAVESH PATEL of Dulverton Road Guildford or to the survivor of them absolutely
You may also want to leave part of the residue of your estate to a charitable beneficiary (see below).
What can NOT pass under my Residuary Estate?
Not everything can pass under the terms of our will. The obvious things that fall into this category include:-
- Joint assets (eg joint bank accounts and property held as a Joint Tenancy)
- Assets held in trust (eg death in service benefits or family trusts)
The reason these assets can not pass under the terms of your will is that legal principles override your will and define where those assets end up. Eg for property held under a Joint Tenancy, a legal principle called the ‘Right of Survivorship’ applies and it means that immediately upon the death of any one joint owner, that share passes to the surviving owner(s) automatically (and outside of the terms of a Will).
This same principle applies to joint cash assets like bank accounts.
Your residuary estate is the bulk of the assets that pass under the terms of a will. It is usually dealt with in percentage terms.
What takes priority – Legacies or Residuary Estate?
Legacies are always paid first! So for this reason, fixed legacies should really only be token amounts and not form any great proportion of the value of your potential estate. Remember too that the value of your estate might change between making your will and the point at which you die.
What happens if I do not specify who gets what assets?
It is generally considered bad practice to name specific assets in your Residuary Estate as the identity of those assets might change and the gift fail (eg if a bank is taken over or changes its name). Instead, it is likely that the safest bet is to simply deal with the residuary estate as a whole, or in percentage terms (see above).
Generally, your Executors will realise the value of all assets (eg sell or encash them), and distribute the money according to the terms of your will. That said, they will normally offer beneficiaries the opportunity to take assets ‘in situ’ without them being sold – eg property, shares, and so on.
Is Inheritance Tax (IHT) payable on my Residuary Estate?
Yes! If your estate is liable to IHT then your residuary estate will form part of that for the purposes of the tax calculation. The Inheritance Tax (IHT) thresholds and exemptions change from time to time and the current (and historical) values can be found in our ‘What is Inheritance Tax (IHT)?‘ article.
The notable exemption from Inheritance Tax (IHT) is gifts to charities.
Are gifts of Residuary Estate to a Charity exempt from Inheritance Tax (IHT)?
Yes! Gifts of residue to a charitable organisation are generally totally free from UK IHT.
Can I leave my whole estate to Charity?
You can leave your residuary estate to whomever you please! If you decide to leave your whole estate to one or more charity then it may look something like this:-
I GIVE the whole of my estate to CANCER RESEARCH UK (RCN 1089464) of 2 Redman Place London E20 1JQ
Gifts to registered charities are generally free from Inheritance Tax (IHT).
> Guide to Inheritance Tax (IHT)
Should I include ‘substitute’ provisions?
There is only ever so much that your will can do to cover all eventualities, but equally including some sort of substitute provisions is certainly recommended. So for example, it is quite normal for a married couple with children to leave their residuary estate to their surviving spouse, failing that the children in equal shares. But, what happens if the whole family were to die together (perhaps in an accident)? This is where a substitute provisions should be included.
Can I specify the age my children inherit?
The law states that beneficiaries will inherit at 18 years of age. So, if you want to delay this, any residuary gifts to children should state the age at which they would inherit – eg 21. This will then override the general law that specifies 18.
Can my children have some of the money before they’re 18?
Yes, your executors can make money available to your children (or their appointed guardians) before 18 should it be needed.
The obvious thing that money is needed for is the general upbringing of your children. This is made available to their guardians out of their share in your residuary estate.
Can I leave my Residuary Estate in a Letter of Wishes?
No! The distribution of your residuary belongs in your will – and only your will! A letter of wishes is designed to simply provide guidance to your executors (and guardians).
Hi. Is Inheritance Tax against all of my estate or just the residuary estate? Also, what happens if my estate is passing to charities? Does that help reduce the inheritance tax on my residue estate? Thank you.
Hi Dave and thanks so much for your question. Yes, IHT is potentially payable against a whole estate, not just residue. And/but yes, gifts to charities are exempt from IHT. Also, if you leave more than 10% of your estate to charity then the remainder of your estate is charged at a reduced IHT rate of 36% rather than 40%. Hope that helps Dave – and thanks again for your post. Rgds Team Qlaw!
Great article, this is very helpful!
Thanks so much Darren. Best wishes – Team QLAW!
If you had an estate after specific legacies of £370,000, what happens if the will says 10% of the residue of the estate goes to the spouse? How would you calculate what IHT is payable in order to calculate the distributable residue?
Hey Simon and thanks so much for a super question! Lots of potential flags in there. I assume that you are one of the executors appointed by the Will of the deceased, and in the process of applying for Probate? So, here goes with the basic principles!
The starting point of course to establish an Inheritance Tax (IHT) liability is to look at the estate as a whole (not all assets will pass via the residuary clause of the will). So, one would expect to look at things like lifetime gifts; joint assets; and assets to which the deceased might have had some form of trust interest (eg an Interest in Possession Trust).
Next you mention legacies. There are rules around where and how IHT against legacies is paid from (either against the legacy itself, or taken from residuary estate). So this will be something to explore and will be defined by the will/law.
There is an alarm bell in there that the spouse is only to receive 10%? This seems extremely unusual and I wonder if there are grounds for them to dispute the will if it leaves them in financial difficulties?
Next, are there any assets which might mitigate IHT due to relief that they attract? For example are there business assets, or is there a matrimonial home?
As to the tax attributable to the residue itself, then one would also (in addition to the above) want to look at things like are other residuary beneficiaries exempt (eg charities). The spouse is of course exempt (spouse exemption) and amounts passing to a surviving spouse on death (whether via the will or otherwise) are exempt from IHT.
A really super question Simon for which a big thank you. We can obviously only discuss the generic subject matters that your query points to, but if you would like our specific advice/help then do please reach out directly.
Best wishes from Team QLAW!
if 3 people are gifted in a will and then a statement of the bulk is left to another recipient is that ok to be used when dividing the estate .
Hi, and thanks for your question. So as a general rule of thumb, you would expect the executors of an estate specific cash legacies to be paid first. Cash legacies tend to be ‘token amounts’ of the estate, and not form a large proportion of the over all value. Having paid those cash legacies (and all other liabilities eg inheritance tax, funeral costs, and so on) the executors would then look to pay the remaining balance – the ‘residuary estate’. It should be paid to those ‘residuary beneficiaries named in the will. And, if there is more than one ‘residuary legatee’, then it should be divided in the proportions set out in the terms of the will. Hope that helps! You may also find the articles below of help. Thank you for reaching out to Team QLAW!
What is a Cash Legacy?
Cash Legacy or Gift of Residue?
Hi
My mum and step father had “mirror” trust wills (from 1999) that specified their portion of the estate went to each other for life benefit, then their portion of the estate passed to their respective children (40% to me and 60% to his two children) once they had both passed.
Up until 3 years ago their property was held as tenants in common and there was no joint bank account, each had their own.
When they moved the new property ended up as joint tenants and the profit from the sale of their old property was put into a joint account. Their wills were not updated and they still maintained their own individual bank accounts.
Sadly mum passed a few months ago and I understand that the house and main bank account pass solely to him as they were jointly held even though this was not what Mum intended as she still went with the intent of their wills. At 80 she did not understand legalities and there was a certain level of trust and expectation on her part as to how my step father would handle things.
However, he has also moved the money from her personal account to his personal account claiming it is also part of his inheritance as her spouse/next of kin.
So basically do I have any claim on what was in mum’s personal account as I believe her personal account still forms part of her will trust ?
Thanks in advance
Hi Jay and thank you for your enquiry. Firstly please accept our condolences following the passing of your mother. We can not advise you in the context of this online forum, but hopefully the following generic observations may help? You clearly have a good grasp on joint tenancy v tenancy in common, and the implications this has on the ability of a share of property passing into a trust. By virtue of a principle known as the ‘right of survivorship’, property held as joint tenants passes automatically on death overriding wills. The same principle applies to joint bank accounts.
Also, was in fact the will trusts you refer to still valid at the point at which your mother passed? Had they renewed their wills, perhaps other provisions were made? And/or, if they had simply cancelled the wills (and not made new wills) then the rules of intestacy would apply making a surviving spouse the main beneficiary.
There are limited grounds for challenging a will (or more broadly the testamentary position of someone when they die). Have a look at this article which you may find helpful which looks at the broad reasons for challenging a will.
If you feel that things have not been dealt with correctly with your mother’s estate then you should take legal advice sooner than later. We can help with that. As above, the scope of this forum is simply to provide/discuss generic legal matters, NOT provide specific advice. Nevertheless, we very much hope this is of some help.