Real estate plays an essential role in the financial well-being of many individuals and businesses, so fully understanding all its nuances is vital. One such example is the concept of residuary estate, which applies to both real estate and personal property.
Residuary Estate is the assets that have been distributed or written into a will. These assets can include both real estate and other property. The residuary estate is essential in real estate law and estate planning as it will help to set out your wishes for the property should you die; residuary estate ensures that the property goes to the heirs you want it to go to.
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What Is Residuary Estate?
A residuary estate refers to any remaining assets after other assets have been distributed according to the instructions in a will. It can also be described as the remainder or residue left over from an estate after all debts, taxes, and expenses have been paid off.
It should be noted that the term ‘residuary’ only applies to assets not explicitly named within the text of a will or trust document. Any assets mentioned in either document are considered “specific legacies” and do not fall under the umbrella of residuary estates.
Residuary Estate Vs. Specific Legacies Explained
Regarding estate planning, many terms can be confusing or difficult to understand. Two of these terms are residuary estate and specific legacies. Understanding the differences between these two terms is essential when creating a comprehensive estate plan.
Residuary Estate Defined
A residuary estate is the part of an estate that remains after specific bequests have been made. In other words, the leftover assets are not explicitly gifted to a beneficiary.
For example, if someone creates a will that leaves their home to their child and their car to their sibling, the residuary estate would include any remaining assets not named in the will, such as cash, investments, or personal property. The residuary estate is typically distributed to the beneficiaries named in the will but can also be left to a charitable organization.
Specific Legacies Defined
On the other hand, specific legacies are gifts of particular assets or property made in a will. These can include items such as jewelry, a painting, or a sum of money.
Specific legacies are given priority over the residuary estate and are typically distributed first. If the specific asset is no longer available or has been sold, the beneficiary may be entitled to compensation from the residuary estate.
While residuary estates and specific legacies play a crucial role in estate planning, they are different concepts that serve distinct purposes. The residuary estate represents the remaining assets that have not been specifically gifted, while specific legacies are specific gifts made to beneficiaries.
Working with an experienced estate planning attorney is essential to ensure that both elements are adequately addressed in your estate plan.
How Does Residuary Estate Apply To Real Estate?
For many estates, one of the most considerable sums of money they will be leaving will be their real estate. That is why most will assign real estate as a residuary estate.
Therefore, the concept of residuary estate applies just as much to real estate properties as to other types of assets like cash or personal property. When it comes to disposing of one’s real estate holdings upon death (or during a lifetime in some cases), an individual will specify how these assets are distributed via their will or trust document.
If no specific instructions are provided regarding how these properties should be disposed of upon death, they typically become part of the decedent’s residuary estate (unless they were co-owned). In such cases where there is no valid will specifying otherwise, state laws usually dictate who receives ownership of these properties following distribution among creditors and heirs designated by law if there’s no valid last will present when someone passes away – this may include spouses, children/minors/grandchildren, etc.
If multiple people are listed on the title/deed, they did not pass away simultaneously. In that case, property ownership is automatically transferred according to survivorship rights; trustees can also handle probate proceedings, typically distributing proceeds from sale amongst surviving owners accordingly, depending on each portion they own.
However, if upon the death of an individual, there are instructions for disposal via last will about property distribution; then these instructions would take precedence.
The trustee appointed by the court (or private executor if applicable) can sell the property or disperse proceeds or the property according to wishes laid out in the last testamentary document.
Understanding what constitutes a residuary estate — particularly when it comes to real estate — helps ensure an individual’s intentions regarding their possessions remain intact once they pass away by ensuring things like tangible assets, including structures like buildings and land parcels, go exactly where desired without being tied up for extended periods in a court proceeding.
Additionally, knowing what gets classified into the residuary estate category ensures proper planning and budgeting can occur before. It makes sure that all liabilities, taxes, and fees associated with their property are taken into account when they die.
We recommend that anyone who owns property looks at this and ensure they know how the property will be handled upon their death by clearly stating this in their will.
This post is only meant for legal advice. Anyone looking at their property distribution upon death should consult an estate planning attorney for more information, as laws can change from state to state.
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