Demystifying the “Residuary Estate”

If you are creating an estate plan or administering a loved one’s estate, you may encounter the term “residuary estate.” Understanding what this term means and how it works under Illinois and Missouri law is essential for ensuring that all assets are properly accounted for and distributed according to the decedent’s wishes.

What Is a Residuary Estate?

The residuary estate is the portion of a deceased person’s estate that remains after all specific bequests, debts, taxes, administrative expenses, and other obligations have been paid. Think of it as the “catch-all” category that covers everything not specifically assigned to a named beneficiary or purpose in the will.

For example, if a will leaves a specific piece of jewelry to a daughter, a vehicle to a son, and $10,000 to a charity, the residuary estate would include everything else: the house, bank accounts, investments, personal property, and any other assets not specifically mentioned.

Why the Residuary Estate Matters in Estate Planning

The residuary estate serves several important functions:

• Catches unaccounted assets: People acquire and dispose of assets throughout their lives. A residuary clause ensures that any property not specifically mentioned in the will still has a designated beneficiary.
• Prevents partial intestacy: Without a residuary clause, any assets not specifically bequeathed in the will would pass through intestacy laws as if no will existed for those assets. In Illinois, intestacy is governed by 755 ILCS 5/2-1, and in Missouri by RSMo 474.010. This can lead to assets going to people the decedent did not intend.
• Simplifies estate administration: A well-drafted residuary clause makes the executor’s job easier by providing clear instructions for all remaining property.

How Residuary Clauses Work in Illinois and Missouri

In both Illinois and Missouri, a properly drafted will should include a residuary clause that names one or more beneficiaries to receive the remainder of the estate. Common approaches include:

• Single residuary beneficiary: Leaving the entire residuary estate to one person, such as a surviving spouse or adult child.
• Percentage-based distribution: Dividing the residuary estate among multiple beneficiaries by percentage (for example, 50% to a spouse and 25% each to two children).
• Charitable residuary gifts: Leaving all or a portion of the residuary estate to a charitable organization.
• Contingent beneficiaries: Naming alternate beneficiaries in case the primary residuary beneficiary predeceases the testator.

What Happens When There Is No Residuary Clause?

If a will does not include a residuary clause, or if the named residuary beneficiary has predeceased the testator without a contingent beneficiary named, the undistributed assets will pass through the state’s intestacy laws. In Illinois, this generally means the assets go to the surviving spouse and descendants in specific proportions defined by statute. In Missouri, the intestacy distribution follows a similar hierarchy but with some differences in how property is divided between a surviving spouse and children.

This can create unintended consequences, particularly in blended families, where intestacy laws may direct assets to biological children rather than a current spouse, or vice versa.

Common Issues With Residuary Estates

Lapsed Gifts

If a specific beneficiary named in the will dies before the testator, that gift may “lapse” and fall into the residuary estate. Both Illinois and Missouri have anti-lapse statutes that can redirect the gift to the deceased beneficiary’s descendants in certain circumstances, but these statutes do not apply to all situations.

Abatement

If the estate does not have enough assets to pay all debts and fulfill all specific bequests, the residuary estate is typically the first to be reduced (or “abated”). This means residuary beneficiaries may receive less than expected if the estate faces significant debts or expenses.

Tax Implications

The residuary estate may bear the burden of estate taxes unless the will specifically directs otherwise. This can significantly reduce the amount available for residuary beneficiaries, making it important to address tax allocation in the estate planning process.

How to Protect Your Residuary Estate

To ensure your residuary estate is distributed according to your wishes:

1. Include a clear residuary clause in your will that names primary and contingent beneficiaries.
2. Review your will regularly, especially after major life events such as marriage, divorce, the birth of a child, or the death of a beneficiary.
3. Consider a trust: Assets held in a revocable living trust avoid probate entirely and are not subject to the same residuary estate issues.
4. Coordinate with beneficiary designations: Assets that pass by beneficiary designation (life insurance, retirement accounts) are not part of the probate estate and therefore not part of the residuary estate.

Work With an Estate Planning Attorney

At Hunsinger Law Group, we help clients in Illinois and Missouri create comprehensive estate plans that account for all assets, including the residuary estate. A properly structured estate plan ensures that nothing falls through the cracks and that your wishes are honored.

See all of our estates posts.

Whether you are starting an estate plan or have had one for years, have us review it to make sure that your wishes are protected. Call (833) 256-6644 or use our form to schedule a consultation.

HUNSINGER LAW GROUP
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