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?
(NB – our articles and any comments thereon do not represent legal advice and should not be taken as such. If you require legal advice about your particular case, please make contact with us).
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.
(NB – our articles and any comments thereon do not represent legal advice and should not be taken as such. If you require legal advice about your particular case, please make contact with us).
Hi
My father passed away last year and I have completed probate and am now, as an executor, in a position to distribute the residual estate. My mother, as the sole beneficiary, wishes to pass the residual estate to myself and my sister, so I am currently preparing a Deed of Variation. My question is in relation to how specific the wording needs to be in order to have legal validity. The proforma I am using simply asks for the new beneficiaries, but not the percentage split; is it legally assumed that the split will be 50% each (which it will)? Many thanks
Hi, so sorry to hear of the passing of your father. Whilst we can not provide you with specific advice in this forum, the following generic information will hopefully help.
We don’t currently have a proforma deed of variation on the site, but will look at adding that (with explanatory notes). As a general rule, you would expect a deed of variation to refer to the will (in particular the part of changed) and then set out the gift as if it were in in the will made by the deceased. So yes, you would expect it to be worded in such a way to specify the gift including proportions. If you haven’t already, do take a look at our article on deeds of variation.
One thing does spring out of your query and it is the question of what motivates the change being made? In particular, if it is for the purposes of Inheritance tax (IHT) planning, do remember that a deed of variation re-directing residuary estate to someone other than the surviving spouse has the effect of reducing the transferrable nil rate band by the amount of the variation. Indeed, in the sorts of circumstances you describe, it can even be a worthless exercise (depending on particular circumstances). Separately but sort of related to that point is whether you need to even bother with a deed of variation come what may. Again, this is NOT legal advice, but the general point to be mindful of is that a redirection of residuary estate away from surviving spouse can, in the right circumstances simply be done by them making a gift (a Potentially Exempt Transfer – known as a PET). Again, this all depends on the reasons for wanting to do it and the particular financial situation. BUT, once a deed of variation is done, the amount of gift results in that amount being lost in the transferrable nil rate band. If instead the surviving spouse makes a PET, the transferable nil rate band remains in tact and can be claimed on second death. And, if the survivor lives themselves for more than 7 years, the PET will totally disappear too! If they die within 3 years the gift is pulled bac into their estate, BUT, remember that the preserved transferable nil rate band remains in tact making it a benign point. And, after 3 years, the ‘Taper Relief‘ rules will apply – potentially creating amore advantageous outcome.
Have a look at our article on Lifetime Gifts.
Thanks once again for reaching out to QLAW. We hope the above is a help!
Hello, my Father in Law’s Will contains sections covering Legacies, Gift of Residential Property and Residue.
The legacies amount to about £70k, the property is worth about £360k and we don’t think there are any significant savings.
The Gift of Residential Property provides a mechanism for establishing a market value and specifies that the property will be transferred to my Father-in-Law’s son provided he pays a certain percentage of the market value to each of his sisters (including my wife).
The residue is to be distributed equally between the children.
Am I correct in assuming that any shortfall in paying the legacies from other assets will need to be paid entirely by my Brother-in-Law from the value he receives from the property.
Many Thanks
Hi Des, and thank you for a really interesting query.
As a general rule of thumb, (1) cash legacies take precedence; and then (2) residue is paid in the proportions set out in the residuary clause. And, if a beneficiary wants to take an asset on account of their entitlement to residue, unless the will states otherwise, you would expect the net outcome to be that (the asset concerned included) the residuary beneficiaries end up with the correct percentage they are set to receive – whether that is cash or assets.
But, it all comes down to the terms of a particular will. And here, what sounds important is establishing if the house is a specific gift to your brother in law (known as a device of property), or does it pass silently under the clause of residue (albeit seemingly with some sort of buy out clause)?
Check out these further articles that might be of help:
Cash Legacies
Legacy or Residue
When are Legacies paid?
Hope this helps, and thank you again for reaching out to QLAW!
thanks in advance for your comment. What is considered in residuary estate in regard to bank accounts. Would it the balance in the bank account at the date of death?
Hi and thanks for your question. Bank accounts are ‘valued’ for probate purposes as being the balance at close of business on the date of death, PLUS any interest that has accrued to that date, but has not yet been credited.
Hello
How does one pay the total of IHTax when all the assets are distributed in various accounts, shares, bonds etc.? Does one pool them into one current account first? I realise that bank accounts are only protected to the sum of 85K? Thanks.
Hi Dee, and thank you for your excellent question. IN generic terms, this is what generally happens in practice (each estate of course having its own articular peculiarities).
IHT payable against cash assets is due before probate is issued. By definition therefore, money tends to be frozen at that point. However, many banks will release funds directly to the Revenue for the purposes of that initial payment of IHT. Any balance due against property can be paid later, usually allowing time for the executors to realise the case assets after probate has been issued, or of course, to sell the property in question.
As a related aside, you would certainly expect there to be a centralised ‘executor account’ come what may where all assets are paid to, and bills paid from. If you have a solicitor act for you, they can generally arrange this for you via their own commercial banking arrangements (as part of their ‘client account’).
Hope that helps – and thank you for reaching out to Team QLAW!
In the following clause “5.1)I give all of the residue of my estate (out of which shall be paid my funeral and testamentary expenses and my debts) and my property over which I have at my death and general power of appointment (herinafter referred to as the “Trust Fund” to my Trustees to hold in the following manner:-
5.1.1 As to a third share to my Son the said CHARLIE FARLIE for his own use and benefit absolutely”
Does this mean that Charlie Farley actually gets the funds to do with as he wants as he is a Beneficiary of the estate or do the Trustees (of which he is one hold the funds upon Trust. Is it only the property that is in the Trust Fund please?
Hi Our house is in joint names , bought and paid for but we both have agreed if we die we would like our share to go to our children even if one of us is still alive , but the house would not be sold until the other has died or wishes it to be sold is that allowed Itis only valued at £240,000 However all money will be left to the survivor until they have passed away and they can do what they wish with it Would we be able to do this