Creating a comprehensive estate plan is essential to ensure that all your assets—both tangible and intangible—are properly accounted for. However, even the most meticulous planning can leave some assets unassigned, resulting in what is known as a residuary estate. This estate, which can include valuable assets, may be intentionally or unintentionally created and is managed by residuary beneficiaries named in your will or trust.

Understanding the Residuary Estate

In estate planning, the term "residue" refers to the portion of a deceased person's assets that remain after all debts, taxes, and specific gifts have been distributed. These leftover assets, known as the residuary estate, are not assigned to any specific beneficiary and can include anything from forgotten bank accounts to valuable personal property.

Common Reasons for Creating a Residuary Estate

A residuary estate can be formed for several reasons:

• Overlooked Assets: Certain assets may not be considered valuable enough to be included explicitly in a will or trust. For example, household items or personal belongings might be left out due to their perceived low value.
• Accidental Exclusion: Assets acquired after the creation of a will or trust, or those without named beneficiaries (like payable-on-death accounts), might be unintentionally excluded from the estate plan.
• Predeceased Beneficiaries: If a named beneficiary passes away before the willmaker or trustmaker and no alternate beneficiary is named, the assets intended for them may fall into the residuary estate.

The residuary estate can sometimes hold significant value, especially if it includes financial accounts or other high-worth assets without designated beneficiaries. This makes the designation of residuary beneficiaries crucial.

Benefits of Naming Multiple Residuary Beneficiaries

Naming multiple residuary beneficiaries in your will or trust can be a strategic way to ensure a fair distribution of your remaining assets. This approach can help:

• Equalize Inheritances: If you have multiple children or beneficiaries, naming them all as residuary beneficiaries can help distribute leftover assets more evenly.
• Avoid Family Conflicts: By clearly outlining how the residuary estate should be divided, you can minimize the risk of disputes among heirs.
• Support Charitable Causes: Naming a charity as a residuary beneficiary not only supports a cause you care about but can also provide tax benefits and reduce the estate's tax liability.

Challenges of Naming Multiple Residuary Beneficiaries

While there are benefits, there are also potential downsides to naming many residuary beneficiaries:

• Potential for Conflict: If the residuary estate holds valuable assets, disputes among beneficiaries may arise, leading to possible litigation.
• Administration Costs: Managing an estate with many residuary beneficiaries can increase administrative costs and complicate the executor's or trustee's duties.
• Diluted Inheritance: Dividing the residuary estate among numerous beneficiaries could result in each beneficiary receiving a smaller, potentially insignificant amount.

To mitigate these challenges, it's essential to include clear, detailed instructions in your will or trust about how the residuary estate should be divided, such as specifying the percentage each beneficiary should receive.

Plan Your Residuary Gifting with Care

Forgetting to account for some assets in your estate plan is common, but it's important to handle your residuary estate thoughtfully. Consider the potential implications of naming multiple residuary beneficiaries and consult with an experienced estate planning attorney to ensure your plan reflects your wishes and minimizes potential conflicts.

Consult an Estate Planning Attorney

If you're considering how to handle your residuary estate or need advice on other aspects of your estate plan, contact our experienced estate planning attorneys. We can help you develop a strategy that aligns with your goals and protects your loved ones.