It is very easy to make big mistakes when planning your estate. One of the most common planning errors involves a failure to properly identify and value your assets. For example, you may already have created instructions for the descent of your home, your vehicle and your main financial assets.
However, you may not have acted yet to handle other assets that could be worse tens of thousands of dollars, possibly even more. Many people fail to consider their residuary estate during the planning process, which inevitably leads to complications or unintended outcomes during estate administration.
What is your residuary state?
Any assets that you have not specifically left for beneficiaries by name will be part of your residuary estate. Those remaining assets might include your personal wardrobe, your furniture and even very valuable property, like power tools and jewelry. Your personal possessions, from collectibles to hobby supplies, are as much a part of your estate as your most valuable belongings, like your home.
For some people, recognizing the value inherent in these assets will prompt them to expand their existing estate plans to include more of their assets. Others simply add a residuary clause to remove any major gaps from their existing estate documents.
What is a residuary clause?
You can leave all of the remaining resources in your estate to one person or a combination of beneficiaries using a residuary clause. A residuary clause is where you name the beneficiaries who will receive or share in the remainder of your property after the major assets go to the intended beneficiaries. It could also include instructions to sell the remainder of your property so that loved ones or a charitable cause will benefit from the value of your assets.
The more personal property you have, the more important it is to address it in your estate plan. Otherwise, the distribution of those assets will likely fall to your executor, who may struggle to determine the best way to handle those assets. Family members may fight over property that they want for personal reasons or that they see as valuable if you don’t provide detailed instructions.
Creating thorough estate planning documents is important for those who want to leave a specific legacy behind when they die.