Sunday, April 13, 2014

The Residuary Clause – Handling the Leftovers


The Residuary Clause – Handling the Leftovers

We are reaching the end of our discussion about Wills.  The Will is the most basic and fundamental document of your Estate Plan.  Any individual can benefit from having a Will, even if they do not have much.  Unfortunately, after a divorce, if you did not have much before the divorce, you probably have less than half when it is done, because the lawyers always get their due.  However, assuming I handle your divorce economically, we would try to preserve as much as possible, for you to build forward.  If you have children, the greater goal is to preserve the post-divorce wealth, let you use and grow that wealth, and then pass along as much as possible to care for your children.  Having a Will allows you to avoid probate, and let your Estate avoid other fees after your passing.

Assuming you have applied the many tools discussed in prior blogs and dealt with all the special items and gifting, you may still have some leftovers.  You may also not have a lot of special gifting to do, in which case everything is a leftover.  It is also possible that you made your Will, but as time passes, things change, and you never changed your Will to keep up.  Therefore, these new or other things need some way to pass under your Will.  The way we cover this unknown is the “Residuary Clause”.  The Residuary Clause functions as the catchall provision that ensures that the Will disposes of all property included in your Estate.

The law gives a broad and open-ended definition for a residuary devise or gift to encompass an almost unlimited array of property, unless the Will provides otherwise.  Essentially, unless something is specifically gifted in the Will, everything could go by way of the residuary clause.  If you failed to include, if the intended gift is defective, void or lapsed, whatever there may be is saved by the residuary clause. 

There may be a variety of special issues that come up regarding residual property to flow through this clause.  As I caution throughout my blogs, you must consider each case on its own.  Your unique facts and variables will offer something different every time.  You may fall into a simple general application, but you may have some little item that makes your situation special, so always have complete disclosure, full show and tell, with your Estate Planner, so that we can work to create the results you want. 

For the sake of story telling, let’s assume there is some problem with your Will when you pass.  The law favors people having Wills rather than passing with a Will, so the court will do whatever is reasonable and practical to find a valid Will.  The primary reason is that if there is some expression of your intent to pass your things to your heirs or designates, the court will try to respect your intent and fins a Will.  Sometimes, this simple Residuary Clause can be the primary valid remainder of a defective Will, so at least some of your intent can be supported.  However, if your Will is terminally defective, and the Residuary Clause fails to save the Will, then your things will pass to heir under the laws of intestacy.

While we are getting ahead of ourselves, in a more comprehensive Estate Plan, there is usually a Will AND a Trust, a very standard practice is to have the Residuary Clause pass all remaining property to your Trust.  This is referred to as a “Pour Over” to an existing trust.  It is also common for a Trust to be created by this “Pour Over”.

Another very common technique is to have the Residuary Clause pass the remainder of your property to a number of heirs, such as your children of grand children.  All of the rules and ways to give to a group of people, as we discussed in prior blogs, apply to the Residuary, as if it is a Will in the Will.  Gifts can be general or specific.  Gifts can be fractional to individuals or classes.  What seems to be an emergency net, can be the best way to direct to any number of heirs or recipients in a broad manner.

Next time, we are going to continue our wrap up phase on Wills and talk about Charitable Devises and other issues.  After that, I hope to have special discussions on taxes.  In the meantime, I hope you will review your Estate Plan with you're “A” Team, or at least begin to seek out an Estate Planning Attorney to start this process.  Stay tuned for future blogs.  However, if you have any questions, feel free to respond below, or if you are interested in learning more about an Estate Plan, Wills, Trusts, Advanced Healthcare Directives, or Divorce, Custody, Visitation, Child Support, Spousal Support, Property Division, Modifications, Remarriage, or Pre-Nuptial Agreements, please contact me at please contact me at fbegun@gmail.com, or through my other websites, www.fcbegun.com, or www.linkedin.com for Fred Begun.