The most important clause in estate planning

The two most common devices for distributing your assets upon death are a will and trust. Both documents should contain language that provide for the distribution of your assets and this can be completed in a number of different ways. However, one clause in particular is the most important clause that should always be in your estate plan.

The person entitled to receive a distribution of all or a portion of your assets pursuant to the will or trust is known as a “beneficiary”.  A “specific bequest” is a distribution of a particular item or asset to the beneficiary. For example, you leave your engagement ring to a son and your wedding band to your daughter. Unfortunately, in most instances, people do not include specific requests in their estate plan and this is the source of contention among the beneficiaries. It is important to discuss with your estate planning attorney the variety of methods to try and avoid these types of problems.

A grant of a specified sum of money, as opposed to a particular item of personal property, is known as a “pecuniary bequest”. Pecuniary bequests are a way of ensuring the beneficiary will receive a particular sum from the estate (assuming that there are sufficient assets after the payment of fees and expenses).

The residuary clause.

While these other types of provisions are significant, the most important language in the distribution of your estate is known as the “residuary clause”. A residuary clause refers to a section in your will or trust that disposes of any estate property that remains after satisfaction of all other gifts. In other words, the residuary clause is a catch-all provision that provides for the distribution of your assets at death which are not otherwise addressed in the estate plan. Here’s a sample residuary clause in a will (similar language is used if you have a trust):

I devise, bequeath and give all the rest and remainder of my estate of every kind and character, including, but not limited to, real and personal property in which I may have an interest at the date of my death, in equal shares to my children.

Why is the residuary clause essential part of your estate plan?

If your will or trust only contained pecuniary and specific bequests and you did not account for the distribution of all of the assets in your estate, then the remaining assets would be passed according to the laws of intestate succession and may not necessarily be disposed of in the manner you desire. For example, let’s assume you have a will and are survived by your spouse and two children. Your will has no residuary clause. Your estate consists of a home, vehicles and two bank accounts. One account contains income from you and your spouse’s jobs; however, the other account contains $150,000 that you inherited from your father. An inheritance is separate property not community property. In the absence of a residuary clause which left everything to your spouse, under Nevada’s rules of intestate succession, the $150,000 would be distributed one-third to your spouse and two-thirds to your children. These types of outcomes can be disconcerting, especially if these were children from a prior marriage.

The absence of a residuary clause in your trust can have even more significant adverse consequences. Let’s suppose the same situation existed as above, except it was your revocable living trust that failed to contain a residuary clause. If the Trust didn’t specifically distribute the inheritance, then the bank account would have to be subject to probate administration (and the associated legal fees and costs) due to the absence of the residuary clause. Ironically, probate avoidance is one of the primary reasons for use of a trust!

How do I know if my estate plan contains a residuary clause?

Generally, if you have used the services of an attorney to prepare your estate plan, there should be a residuary clause included in the document. However, it is still a great idea to review the document to ensure it was not omitted. Unfortunately, our experience is that this mistake of not including a residuary clause incurs most often with Do It Yourself wills and on-line will kits. If you are interested in a free review to confirm if your plan includes this essential clause, please don’t hesitate to contact us today.

For more than 30 years, Attorney Lee A. Drizin has practiced in the areas of estate planning, probate, trusts, guardianship and real estate matters representing clients throughout the state of Nevada.

Drizin Law is providing this information for educational purposes only. It should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. This information is based on general principles of Nevada law at the time it was created and you should be aware laws frequently change. Moreover, the laws affecting you may differ depending on the circumstances. You should consult with a qualified attorney in your own state or jurisdiction concerning your particular situation. Review of this information does not create an attorney-client relationship.