Do You Need a Residual Clause In Your Trust?
It seems like everybody has a reason for putting off the task of devising an estate plan. One easy way to make sure your assets go to the people that matter is by devising an estate plan and including a residual clause.
One easy way to make sure that your assets—regardless of how large or small–go to the people that matter is to create a trust, and included in that trust is referred to as a residual clause.
What is a trust?
A living trust is usually utilized in estate planning for either replacing or supplementing a will. There are two kinds of trusts: testamentary and living. When a testamentary trust is established, assets are placed into the trust after the individual has passed away. Whereas a living trust, assets are transferred while the individual is still living.
Residual clauses, what are they?
In plain English, a residual clause specifies what is going to happen to the “residue” of the estate. In other words, a residual clause takes care of what is remaining following the assets and liabilities have been accounted for in the living trust. Simply put, after distributions were made to heirs, taxes were paid off, and any other claims or liabilities were resolved towards the estate, the funds that are left over are covered by the residual clause.
These clauses have been used to bequeath funds or gifts to charitable organizations or extended relatives. Usually, a residual clause is created to say: All the left over, residue, and remainder of my estate, each real and personal, regardless of the situation, I present, devise, and bequeath to the 123 Organization.
These clauses are also utilized as an umbrella within an estate plan. For instance, what if one of your beneficiaries, a friend or relative to who you wanted to gift money to, passes away before you do? The money that would have been given to your deceased friend or relative is going to now go back to the estate. When there is a residual clause, the money or assets are going to be included in the residuary if they are unused to pay off liabilities or taxes towards the estate.
It needs to be noted that assets bought following a trust being drafted are going to systematically be added in the residual clause—unless your estate planning documentation is modified to justify these new assets before passing.
Should you think about including one in your trust?
A failure to add a residual clause in your living trust might be a problem. According to Intestate laws, devoid of a residual clause, any leftover assets are done away with of in probate court. Probate court could be a time-consuming in addition to a costly process. There are court and legal costs, in addition to costs paid to the executor(s) of the estate. Subject to how much the assets are valued at; probate court might end up costing the estate more money than the assets are valued at.
The main point on residual clauses
It is almost always beneficial to add a residual clause in your trust. Thankfully, these clauses can be added to your trust at any time, in a likewise way a will can be modified at any time. There’s no time like today for planning your estate and guarantee that your heirs and preferred charities get the funds and gifts you are wanting them to receive.
Source:
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Bostwick, H. (2023, March 27). Do you need a residual clause in your trust? LegalZoom. Retrieved April 14, 2023, from https://www.legalzoom.com/articles/do-you-need-a-residual-clause-in-your-trust
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