Your residuary estate is anything left in your estate that you have not specifically dealt with elsewhere in your Will. This is also sometimes referred to as the residue. If the Will creates a trust of the residue, then the residuary estate may subsequently be referred to as the trust fund.
A gift of your residuary estate is a gift of everything left in your estate once all of the specific gifts, non-specific gifts, debts and tax have been distributed or paid.
So you may choose to leave some specific gifts to individual people, but the bulk of what you own – the residuary estate – to your spouse, civil partner, children, or any other beneficiary you identify. In that instance the Will explicitly deals with the residuary estate.
But it is possible for a residuary estate to be created unintentionally. For example, you may have a residuary estate because:
there is something you forgot to include in your Will;
you have acquired some property or assets since you made your Will; or
one of your specific or non-specific gifts failed because it was too unclear.
This means that it is a good idea to identify a beneficiary of your residuary estate, even if you don’t think it is going to be very much. This will prevent anything that you haven’t dealt with being distributed according to the intestacy rules.
An additional detail to be aware of is that if you want to divide your residuary estate between two or more people, and some of them are exempt from inheritance tax and others are not, they may not all receive an equal share. For example, if you include a provision in your Will leaving half of your residuary estate to your daughter and half to a charity, the charity (being exempt from inheritance tax) would inherit a half, while your daughter would inherit a half, minus inheritance tax. Your Will can specifically state that each beneficiary should receive an equal share after inheritance tax has been paid.
When you make specific gifts in your Will you can specify whether they are to be left subject to, or free from, inheritance tax. However, if you make such gifts free of tax, then the tax payable on them will be payable out of your residuary estate, leaving less to distribute to your residuary beneficiaries. Obviously you cannot avoid tax by trying to leave your whole estate, or the residuary estate, free of inheritance tax.
If your Will does not deal with the residuary estate, it is managed according to the intestacy rules. This is why it is almost always the case that the residuary estate is mentioned in a Will.