A crucial part of writing your Will is dividing and distributing your estate to your beneficiaries. In our guide today, we’ll breakdown the key terms you should know and the difference between your estate and ‘gifts’.
Key estate terms in your Will
We’re often asked the difference between an estate and residual estate and how to leave a gift to someone special. Let’s break down these terms!
- Estate: Your estate is an inventory of everything you own at the time of your death. This can include assets such as property, shares, bank accounts, household items and much more.
- Beneficiary: A beneficiary is an individual (such as a family member or loved one) or group (such as a charity or not-for-profit) who receives part of the estate
- Gift: A gift is generally a specific asset or item or designated amount of money you choose to leave to a particular beneficiary. When giving to charity, this is also known as a Gift in Will or bequest.
- Residual Estate: The residual estate is the remainder of the deceased’s estate once all debts and expenses have been paid and gifts have been distributed to the beneficiaries.
How do residual estates work?
Generally, once an individual has passed, a process known as Probate must be completed to distribute their estate. Once the Court has granted probate, the Executor can finalise the estate by paying any debts and expenses, before allocating any gifts to beneficiaries. This can often include items such as vehicles, jewellery, heirlooms and pets.
Following the distribution of gifts named in the Will, the Executor can divide the residual estate.
Typically this is stated as a percentage within the Will and can be left to an individual or group such as a charity, as long as the total amount equals 100%. For example, you may choose to leave 30% of your residual estate to your siblings and the remaining 40% left to a charity such as Beyond Blue.
What happens if I do not nominate a beneficiary for my residual estate?
Suppose you fail to nominate a beneficiary for your residual estate. In that case, you could be deemed to have died ‘partially intestate’, which means that the Court will divide the remaining assets according to the law of intestacy.
To avoid this, it is best to include a backup beneficiary in your Will, should the first beneficiary pre-deceases you.
Disclaimer: The content of this blog is intended to provide a general guide to the subject matter. This blog should not be relied upon as legal, financial, accounting or tax advice.