What is your residuary estate and how can you avoid partial intestacy?
Your residuary estate is the part of your estate that remains after all of your debts, expenses, and specific gifts have been paid. It is the part of your estate that is not specifically left to anyone in your will. Partial intestacy is a situation that occurs when someone dies with a will that does not dispose of all of their assets. This can happen for a number of reasons, such as if the will is incomplete or if it is invalid, and is often a result of the residuary estate not being sufficiently considered.
In the event of partial intestacy, the intestacy rules will apply to the assets that are not disposed of by the will. This means that the assets will be distributed to the deceased person's relatives according to the law, rather than according to the wishes of the deceased person. This can result in your assets being distributed to people you do not want to inherit them, and it can also make the probate process more complex and time-consuming.
When writing a will, people often focus their attention on specific gifts, such as items with high sentimental value, and sometimes do not consider what happens to their residuary estate and the implications for their loved ones. There are a number of ways a residuary gift can fail and result in partial intestacy:
A beneficiary of the residuary gift predeceases you. If the beneficiary of your residuary gift predeceases you, the gift will fail and the residuary estate will be distributed according to the intestacy rules, unless there is an alternative beneficiary mentioned in your will.
The residuary gift is invalid. If the residuary gift is invalid, for example, because it is not properly drafted or because it is not in accordance with the law, the gift will fail and the residuary estate will be distributed according to the intestacy rules. For example, you may expect your residuary estate to be worth £500,000. In your will, you leave £75,000 to each of your four grandchildren and the remainder to be donated to charity, but due to unforeseen care costs during your final years, your residuary estate is only worth £150,000 when you pass away.
The residuary gift is ambiguous. If the residuary gift is ambiguous, meaning that it is unclear who is supposed to inherit the gift, the gift will fail and the residuary estate will be distributed according to the intestacy rules. For example, you leave part of your residuary estate to your ‘local community’ but neglect to define who or which entities fall into this class.
To help mitigate these risks, consider whether you want to leave your residue absolutely or on fixed succession interests.
Leaving residue absolutely means that you are giving the residuary estate to the beneficiaries of your choice, without any restrictions. This means that the beneficiaries can do whatever they want with the assets, including selling them, giving them away, or keeping them.
Leaving residue on fixed succession interests means that you are giving the residuary estate to the beneficiaries of your choice, but you are also specifying how the assets must be distributed. This could involve dividing the assets equally among the beneficiaries, or giving a specific asset to a particular beneficiary.
There are a few key differences between leaving residue absolutely and on fixed succession interests.
Flexibility: Leaving residue absolutely gives the beneficiaries more flexibility in how they use the assets. They can do whatever they want with the assets, without being restricted by any conditions you may have put in place.
Certainty: Leaving residue on fixed succession interests gives you more certainty about how the assets will be distributed. You can specify exactly who will receive the assets and how they will be divided.
Complexity: Leaving residue on fixed succession interests can be more complex to draft. You need to make sure that the conditions you put in place are clear and unambiguous.
Cost: Leaving residue on fixed succession interests can be more expensive. You may need to pay a solicitor or professional will writer if you need to draft specific conditions to be put in place.
In most instances we recommend to leave your residuary estate absolutely, unless you have specific wishes or have a complex family situation, whereby disagreement may arise from allowing your beneficiaries to decide what they do with the estate.
