There are numerous aspects to consider when it comes to dealing with estate planning. This can include whether to use a will or a trust as your central estate planning document. You will also have to decide which assets will go to which beneficiaries. However, what many people forget to think about is their residuary estate.
What is a residuary estate
A residuary estate is what is left over after specific assets have been distributed and debts and taxes have been paid. It is the portion of your estate left to be distributed after all other specific bequests have been made. Essentially, a residuary estate is the “leftovers” of your estate.
For example, assume you have a will that states your car should be given to your sister and your house should be given to your children. You also have some cash in a savings account, but you have not designated a specific beneficiary for it. If you were to pass away, your car would go to your sister, your house would go to your children and any debts and taxes would be paid from your estate. The remaining cash in your savings account would then be distributed as part of your residuary estate.
Note if you do not have a will or other estate planning documents in place, your assets will be distributed according to state laws. In some cases, this could mean your assets will go to someone you would not have chosen. This is why you should be sure to have a comprehensive estate plan in place. Your financial advisor can help you.
How to distribute your residuary estate
There are a few different ways to distribute your residuary estate. One option is to leave it to one or more specific individuals or charities. Another option is to divide it among your heirs in equal shares. You could also choose to leave your residuary estate to a trust, which would allow you to control how the assets are distributed after you pass away.
Tax implications of a residuary estate
Be sure to consider any potential tax implications arising from your residuary estate. Depending on the size of your estate, there also may be estate taxes that need to be paid. Consulting with a financial advisor can help you understand your options and minimize your tax liability.
Have an estate plan in place
Overall, a residuary estate is an important aspect of estate planning which should not be overlooked. By understanding what it is and how it works, you can help ensure your assets are distributed in the way you want, ensuring your loved ones are taken care of after you pass away.
You need to have a comprehensive estate plan in place. This should include a will or trust, power of attorney and healthcare directives. There may be other legal documents and instruments you need, depending on your individual situation. A financial expert can consult with you to help you determine exactly what it is you will need in your estate plan.