When making a will or trust, you can name specific beneficiaries to receive specific items, and you can name residuary beneficiaries to get everything else. For example, in her will, Jenny leaves her piano and her dog to her sister – these are specific gifts – and then names her husband Cesar as the residuary beneficiary to get the rest of her estate.
Residuary beneficiaries are also called "remainder beneficiaries" because they receive all of the property that remains after specific gifts are made.
You can name a residuary beneficiary for a will or trust. However, what a residuary beneficiary receives may be very different in a will compared to a trust.
In Trusts. The residuary beneficiary of a living trust receives all property transfered into the trust that isn't passed to specific beneficiaries. The residuary property is usually easily defined, because the only property to take into consideration is the property that was transferred into the trust. In fact, in a living trust, the residuary beneficiary often gets nothing because trust the maker usually names specific beneficiaries and alternates for all of the property transferred into the trust – so there is little or nothing "left over." For many trust makers, naming a residuary beneficiary is a backup measure, to guard against the extremely small chance that both a primary and alternate trust beneficiary will die first.
In Wills. In contrast, what the residuary beneficiary of will receives can be quite complicated to determine, because the residuary beneficiary of a will receives all of the property in the deceased person's estate (not just the will) after all other property is distributed and all obligations are paid. The residuary beneficiary of a will gets what's left over after the executor:
The size of the residuary estate won't be obvious even to a will maker because the value of the residuary estate changes over time as beneficiaries die, debts pile up, or property increases in value.
The residuary beneficiary receives any "lapsed" gifts – gifts that fail because the beneficiary died before the will maker—as well as any property for which the will maker did not name a beneficiary. Additionally, because all debts and expenses are paid first out of this residual property, the residuary estate cannot be determined until all of these additions and subtractions are made, and the beneficiary could get a windfall or nothing at all.
Ron uses a will to distribute his entire estate. He has a house, a small craft business, some stock, and a sizable savings account. He leaves his stamp collection to his sister Martha, the craft business to his good friend Pete, and names his partner Paul as the residuary beneficiary to receive everything else. When Ron dies, Martha gets the stamp collection, but Pete died the year before, so the craft business goes into the residuary estate. After the bills are paid, Paul will get everything except for the stamp collection.
Same example, except that Ron hadn't paid income taxes in ten years. When he dies, the government demands payment from his estate. Ron's executor pays that bill using Ron's savings account and proceeds from selling the stock, so that all that remains in the residuary estate for Paul is the house and the craft business.
In this scenario, Ron names Paul as the specific beneficiary for all of the big ticket items – the house, the stock, and the savings account – with the idea that he wants Paul to have the bulk of his estate. As before, he names Pete to get the craft business. He names Martha as the residuary beneficiary, figuring that this would include the stamp collection and other trinkets around the house that wouldn't interest Paul. However, after Ron dies, his executor discovers an original painting in Ron's attic worth over a million dollars. Martha will get the painting as part of the residuary estate, even though Ron might have wanted it to go to Paul.