The Popular Hotchpot Clause, Where to Find it & How to Use it
Hotchpot literally means ‘a mixture of property.’ The concept of hotchpot has existed since the 12th century and its purpose is to ensure the fair distribution between beneficiaries. A hotchpot clause in a Will usually requires the Executors to consider any lifetime gifts made to the beneficiaries by the Testator.
When the Executors calculate the amount, they are to receive under the terms of the Will, the Executors are required to search for any records of gifts or loans made by the Testator to any beneficiaries. They would then reduce the gift in the Will by the amount that was gifted while they were still living.
This is useful when equalising the benefits and ensuring fairness between beneficiaries, by ensuring the eventual distribution is completely equal after the Testator has died. This will also reduce the risk of a contentious claim due to a lack of reasonable provision, as it shows the Testator has shown consideration for the recipient of the gift and that they have tried to make it fair.
The Testator will need to ensure he or she keeps record of any gifts or loans given and keep these in a safe place where the Executors can easily find them – ideally within the Will itself. Records will need to be kept of any instalments made to the beneficiaries whilst the Testator is alive to allow for equal distribution on death.
“What is the object of every hotpot clause? It is simply to prevent a person to whom a Testator has left a share of his estate, and who has been advanced in the Testator’s lifetime, from obtaining, by the combined effect of the bequest and the advance, more of the Testator’s property than he intended the legatee should have.” – Re Cosier (1897) 1 Ch. 325 (C.A.)
Example of Hotchpot
Let’s explore an example hotchpot.
- Henry has two daughters, Alice, and Mary.
- Alice was given £100,000 by her father to buy her first house.
- Mary was given a loan of £150,000 to start a business, which Henry forgives in his Will.
- Henry has a hotchpot clause in his Will – he leaves his daughters £600,000 to be divided equally.
How much should each daughter receive?
Let’s look at the calculation:
The hotchpot amount is £600,000. We then have to add in the £100,000 given to Alice and the £150,000 given to Mary as the forgiven loan. Altogether this comes to £850,000.
Now we must look at how much each daughter will receive.
Alice will receive £425,000, half of the £850,000. But we must take off the £100,000 gift she has already received.
This leaves her with £325,000.
Mary will also receive half the main amount, which is £425,000. But we must take off the £150,000 gift she has already received to start her business. Which now leaves Mary with £275,000.
So, the amount paid out is equal to the amount laid out in the Will, but it is paid out in a way that keeps the beneficiaries completely equal in relation to the property that they have received from their father. As per his wishes.
To find out how quick and easy it is to draft this in Arken Professional, watch our how-to-video below: