The Importance of the Residuary Clause.

          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 is a residuary clause, 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 due to 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.