Residuary estate: what it means in a will and who receives it

What is the residuary estate?

The residuary estate, often just called the residue of the estate, is what is left once everything else in the will and the estate's bills have been dealt with. HMRC's definition of the residue of an estate describes it as what remains after the personal representatives have paid or provided for the debts and funeral expenses, the costs of administration and the legacies, and inheritance tax on UK assets passing under the will normally counts as one of those administration costs.

The people or charities who inherit it are the residuary beneficiaries, and the will usually divides it into shares, either equally between named people or as fractions or percentages. Each share is calculated from the final figure, so a residuary beneficiary cannot know exactly what they will receive until the administration is nearly finished, and the residue also catches anything the will does not mention by name. Our guide to what an estate includes explains which assets count in the first place and which, such as a home owned as joint tenants, pass outside the will altogether.

What is paid out before the residue?

Debts, funeral costs, the costs of administering the estate and any inheritance tax all come out before the residuary beneficiaries receive anything, and the specific gifts and cash legacies are dealt with first too. Where the estate can pay all its debts, the order in which the person's assets are used to meet them in England and Wales is set by Part II of the First Schedule to the Administration of Estates Act 1925. Property the will does not dispose of is used first and the residue second, in each case keeping back enough to pay the cash legacies, followed by any property the will set aside or charged for paying debts, and only then the money held back for the legacies and, after that, the items left as specific gifts. The will itself can change this order.

A mortgage works differently. Under section 35 of the same Act, a property left to someone carries its own mortgage unless the will or another document clearly says the debt should be paid from elsewhere, and a general instruction to pay debts out of the residue is not enough. The practical effect of the statutory order is that where a will leaves £10,000 to a friend and the rest to two children, every pound of debt and cost reduces the children's shares before the friend's gift is touched.

What happens to a gift if the beneficiary predeceased the person who made the will?

Normally the gift fails, which is known as lapse. HMRC's manual on lapsed gifts explains that a failed gift of a particular item or sum usually falls into the residue.

There is an exception for children and other descendants. Under section 33 of the Wills Act 1837, a gift to the person's child or other descendant who died before them does not lapse if that beneficiary left descendants of their own who were alive when the person died, and instead passes to those descendants, divided equally down each family line. So the children of a son who predeceased his mother share what he would have received. The rule gives way to any different intention in the will, and HMRC notes that it does not cover a life interest and that a gift to "such of my children as are alive at my death" benefits only the surviving children.

Gifts can also fail because the beneficiary, or their spouse or civil partner, witnessed the will, which makes the gift void under section 15 of the Wills Act unless the will was also properly witnessed by two other independent people, or because after a later divorce section 18A treats the former spouse as having died on the date of the divorce, unless the will shows otherwise. Many wills name a substitute, so the exact wording is always the place to start.

What happens if a share of the residue fails?

If a residuary beneficiary dies before the person who made the will, and neither the will nor section 33 saves their share, HMRC says that share passes as it would on intestacy, unless the will provides otherwise, for example by giving it to the surviving residuary beneficiaries. This is a partial intestacy, and section 49 of the Administration of Estates Act 1925 applies the intestacy rules to the part of the estate the will does not dispose of, which the personal representatives hold on trust for whoever those rules make entitled.

The result can surprise families. If a will leaves the residue equally to a brother and a close friend and the friend dies first with no substitute named, the friend's half goes to relatives in the order the intestacy rules set, so a spouse, children or parents would rank ahead of the brother. Our guide to the intestacy rules sets out who inherits in what order.

What happens when there is not enough money to pay everyone?

The residue shrinks first, so a residuary beneficiary in a stretched estate may receive little or nothing, and if it runs out the gifts themselves are reduced, which is called abatement.

Once the residue, and anything the will set aside for paying debts, is used up, the cash legacies are cut back next. HMRC's manual explains that gifts of the same kind abate rateably, so two legacies of £10,000 and £5,000 facing a fund of £9,000 would become £6,000 and £3,000. Specific gifts of particular items are only drawn on after that, sharing any remaining shortfall in proportion to their value, and a will can set its own order instead. HMRC also notes some conflict in the courts' approach to whether the 1925 rules decide which assets pay cash legacies, so where an estate is this tight, paying a solicitor to confirm the order is usually worthwhile.

How does inheritance tax affect the residuary estate?

Unless the will says otherwise, inheritance tax on UK assets passing under the will comes out of the residue, so specific gifts and cash legacies are paid in full and the residuary beneficiaries bear the tax. Section 211 of the Inheritance Tax Act 1984 treats tax on UK property that passes to the personal representatives, and was not held in a trust before the death, as a general administration expense unless the will shows a different intention. HMRC's guidance therefore says specific gifts normally do not bear their own tax, the main exceptions being a gift the will says must bear its own tax and a gift of property outside the UK, which bears its own tax unless the will says otherwise.

Where the residue is split between an exempt beneficiary, such as a surviving spouse or a charity, and someone who is not exempt, section 41 of the same Act applies whatever the will says, so the tax on the chargeable part of the residue falls on that part alone, although HMRC's guidance adds that tax on any tax-free specific gifts comes out of the whole residue before it is divided. Where personal representatives pay tax that is not meant to come out of the residue, section 211 entitles them to recover it from the person who received that property.

When are residuary beneficiaries paid?

Residuary beneficiaries are paid last, once the debts, tax and other gifts are settled, and in England and Wales section 44 of the Administration of Estates Act 1925 means the executor is not bound to distribute anything before the first anniversary of the death. ICAEW's guide for beneficiaries calls this the executor's year, which is a power to wait rather than a deadline, and says a typical estate takes around six to nine months, a complex one more than a year and a straightforward one with no property to sell or inheritance tax to pay as little as three months.

Executors can pay part of a share early, often called an interim distribution, which HMRC's estate income guidance recognises. The risk sits with the executor, because GOV.UK warns that an executor who distributes before knowing what benefit overpayments must be repaid may have to repay them personally, so a sensible interim payment leaves enough for every debt, tax bill and legacy. A notice to creditors in The Gazette and a local newspaper under section 27 of the Trustee Act 1925, giving at least two months for claims, protects executors against claims they had no notice of when they distributed. Our guide to how long probate takes covers the earlier stages.

What can a residuary beneficiary ask the executor for?

A residuary beneficiary can ask to see the estate accounts, because their share depends on every figure in them. ICAEW's guide says a residuary beneficiary is entitled to see the accounts once probate has been granted, and our guide to estate accounts explains why someone left a fixed sum or a particular item has no equivalent right. ICAEW also says there is no specific legal right to progress updates, although executors are encouraged to keep beneficiaries informed, so a polite written request for a timetable is the natural first step.

If that does not work, section 25 of the Administration of Estates Act 1925 requires personal representatives to produce a full inventory and account of the estate when the court requires one. Where a professional firm is the executor, you can complain to the firm and may then be able to go to the Legal Ombudsman, and where there are grounds the court can remove or replace an executor, although ICAEW warns this can be expensive.

How do the rules differ in Scotland and Northern Ireland?

Scotland has its own succession law, so the Wills Act 1837 and Administration of Estates Act 1925 rules above do not apply there. A surviving spouse or civil partner and children can claim legal rights from the person's moveable estate, which covers money, investments and belongings but not land or buildings, even where the will leaves them nothing, as mygov.scot's guide to making a will explains. HMRC's manual puts the spouse's share at one third of the net moveable estate where there are children and one half where there are none, and the children's joint share at one third where a spouse or civil partner survives and one half where none does. Legal rights are met before the residue is reached, so they can reduce it considerably, and the Scottish Government's guide to what to do after a death says a person entitled to both must choose between legal rights and what the will leaves them.

Northern Ireland has its own version of the section 33 rule, in article 22 of the Wills and Administration Proceedings (Northern Ireland) Order 1994, and HMRC says a failed share of residue passes under the Northern Ireland intestacy rules through section 18 of the Administration of Estates Act (Northern Ireland) 1955. nidirect's guide to dealing with a deceased person's money and property allows executors a year after the death to put the estate in order before paying it out, warns that interest may be payable on anything still undistributed after that, and says beneficiaries can ask a court to order an inventory and accounts.

What to do next if you are a residuary beneficiary or executor

1. Read the will closely, including any wording about what happens if a beneficiary has died, because that decides whether section 33 or the intestacy rules come into play.

2. List every asset and debt you can find, since the residue cannot be worked out until both sides of the account are complete.

3. Set aside enough for debts, tax and the specific gifts before paying anything from the residue, and keep a record of every payment for the estate accounts.

4. Place a deceased estates notice in The Gazette and a local newspaper if you are the executor and are unsure what the person owed.

5. Take advice where the estate may be short or a share of the residue has failed.

The residue is the last figure in the estate accounts, so it depends on every account and debt having been found first, and a forgotten savings account or unpaid credit card changes every residuary share. Our guide to finding the bank accounts of someone who has died covers the searches you can do yourself, and where the paperwork has gaps, Legacy Trail's Account Discovery Service searches for accounts the family does not know about and then notifies those providers on your behalf, which gives you a fuller picture before the residue is shared out.