Residue – what does the residue of my estate mean?
The residue of a deceased person’s estate is what is left over after the payment of all expenses in connection with the estate.
Expenses include payment of the funeral, costs incurred in the administration of the estate, payment of the deceased’s debts, the discharge of any liabilities of the deceased, and the distribution of any specific gifts made under their will.
Payment of debts
Administration and probate legislation in the states and territories provide that all the assets of a deceased estate are available for the payment of debts, funeral and administration and testamentary expenses where there are sufficient assets in the estate to do so. That is, the estate is solvent.
In most jurisdictions the statutes set out an order in which to do this: click here for links to the legislation.
Where there are insufficient assets for the payment in full of the debts and liabilities of the deceased, that is the estate is insolvent, the provisions of the Bankruptcy Act 1966 (Cth) apply, which is Commonwealth legislation.
Gifts of residue in a will
The residue of a deceased may be left in the will to the executor named by the deceased on trust to be distributed according to the terms of the will.
The law distinguishes between specific gifts made under a will from those made out of the residue. Gifts of all or part of the residue are general in nature.
In practical terms it means that those beneficiaries entitled to a gift out of the residue won’t be able to take it until all the debts and estate matters mentioned above have been finalised as part of the administration of the estate; and the amount of residue ascertained. Depending on the complexity and size of the estate working through this process can take some time.
At the time of making a will what might seem reasonable between beneficiaries receiving specific gifts versus those receiving residue might well be different at the date of death, with the passing of time and the economic impact on asset values.
Personal items such as jewellery and furniture are not always the subject of specific gifts in a will. It is advisable to seek professional financial, accounting and legal advice and update regularly.
Residue and dying intestate (without a will)
The meaning of what constitutes the residue and residuary estate for someone who has not made a will, that is dying intestate is the same.
When can the residue amount be determined?
Basically after the estate has been administered, that is, when the executor has>
- provided for or paid all debts and testamentary expenses (being those debts incurred in administering the estate such as funeral and burial costs); and
- paid the distributions of legacies or their payment provided for, it should be possible to ascertain the net residue.
Income tax liabilities of executors, administrators and beneficiaries
As to when the income tax liability on any income from the trust estate arises for the executor, administrator and beneficiary in regard to a deceased estate, visit the Australian Taxation Office site for information on this topic, and consult the services of a qualified accountant and lawyer for assistance.
The Australian Commissioner of Taxation has described when the present entitlement of executors and beneficiaries arises during administration of deceased estates in Taxation Ruling IT 2622. This Ruling is based on a case from the Australian High Court1 and other cases and tax legislation.
1. FCT v Whiting (1943) 68 CLR 199
20 September 2014, last updated 27 May 2021