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:-
- Other investments
- Personal items
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.
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).