A recent case demonstrates the need to carefully consider how one drafts the residuary provisions of a will or trust.
Article III of Decedent’s will left the “rest, residue, and remainder” of her estate to Sister, Nephew 1, Nephew 2, and Niece. Sister was to receive 2/5, and the Nephews and Niece were each to receive 1/5. In that same article, the Decedent gave Nephews the right to purchase her residence on the condition that they “shall pay such amount to [Niece] as makes her share of [Decedent’s] estate equal with them.” If Nephews did not exercise their right to purchase, the property was to be sold and the proceeds divided “with the rest of [Decedent’s] estate in the manner set forth above.”
Based on this language, Sister asked the court to interpret the will as giving her a 2/5 interest in the Decedent’s house. Under her interpretation, Sister should receive two-fifths of the proceeds of the house regardless of whether it was purchased by Nephews or a third party.
The Nephews had a different interpretation. They argued that Sister should only receive a portion of the house proceeds if it were sold to a third party; i.e., if Nephews did not exercise their option. Because Nephews did intend to purchase the house, Nephews’ only obligation was to Niece, to whom they would pay 1/3 of the value house. Sister should get nothing.
The trial court agreed with Nephews, and Sister appealed. The issue, as the Tennessee Court of Appeals noted, was whether the residence was part of the residuary estate.
The very purpose of a residuary clause is to function as a dragnet for devising parts of a testator’s estate not otherwise disposed of.
The Decedent placed the residence provision in Article III, which purported to dispose of the “rest, residue, and remainder” of the Decedent’s estate. This would tend to support Sister’s argument that the residence should be included in the residuary estate.
The appellate court was not persuaded. It observed that the provision giving Nephews the right to purchase mentions Niece, but not Sister. From this it concluded that Decedent’s intent was to exclude Sister from benefiting if Nephews chose to purchase the house. According to the court:
The testator’s intent is clear from how she worded the provision. As written, there is an unambiguous intention for the Nephews and the Niece to share the value of the residence property equally if it stays in the family. We must presume that the absence of any language entitling [Sister] to a share indicates that the testator intentionally excluded her from a share of the property.
Drafters of wills often give too little thought to the residuary clause. This case, however, demonstrates the need for careful drafting. The issue could have been avoided if Decedent had addressed the purchase option in a separate, preceding article. Then there would have been no question that the house was not part of the residuary estate upon exercise of the option.
Source: In re Estate of Christian, 2017 WL 729753 (Tenn. Ct. App.)
Posted by Joel D. Roettger, JD, LLM, EPLS