One wonderful thing about family life is the variety of parent, child and sibling relationships and the ties that bind. When it comes to estate planning, those same relationships—complicated by realities such as blended families, children’s varying financial circumstances, higher needs dependants, divorce, personal injury, or simply bad luck—can present the greatest challenges. It’s also worth noting parents’ increasing support of adult offspring—for instance, in 2021, Canadian parents gave more than $10 billion in down-payment help (for first-home purchases) to their children.1
Over time, for various reasons, there’s often a mix of unequal gifting of assets or loans to children. As a result, parents often ask: How do I make things fair to all my children when I’m gone?
Enter the hotchpot clause. The more familiar word, hodgepodge, is a sometimes recognized synonym. Hotchpot’s roots include the Anglo-Norman and Middle French hochepot meal, featuring a mix of meat and vegetables—a stew. The original English word, hotchpot, introduced prior to 1381, eventually morphed to metaphorically mean a medley or jumble. Then came the rhyming version, hotchpotch, covering both the stew and jumble definitions.2 As laws develop to reflect life, it was a natural progression for hotchpot to assume an ongoing legal meaning. Merriam-Webster, for instance, defines it as “the combining of properties into a common lot to ensure equality of division among heirs.3”
From our vantage point, a hotchpot clause in a will means that when the executor is calculating a beneficiary’s share of the estate distribution, they add any lifetime gifts or advances the beneficiary received to “the pot.” The executor then reduces the beneficiary’s share of the estate by the amount gifted or loaned. To ensure the hotchpot clause fulfils its role in equalizing things among beneficiaries, the will also includes a provision releasing or cancelling any debt owed by a beneficiary.
Let’s look at a hotchpot clause in action. Consider Ralph, a 65-year-old widower with three adult children, Debbie, David and Don. Ten years ago, Ralph and his wife loaned Debbie $150,000 for a down payment on her first house. She’s been repaying the loan, but still owes $125,000 and might not fully repay it during Ralph’s lifetime. Five years ago, David, injured in a car accident, needed to renovate his home, making it wheelchair accessible. So, Ralph gifted David $200,000 to cover those costs. Ralph hasn’t provided any lifetime gifts or loans to Don. Ralph’s current will states any debts his children owe to Ralph should be forgiven (i.e., cancelled)4 and his $2-million estate is to be divided equally among his children. The document doesn’t include a hotchpot clause.
Example 1 on the adjacent page shows how, under the current will, Ralph’s lifetime wealth will be divided among his children (no tax taken into consideration).
| Example 1 | Debbie | David | Don |
| Balance Of Loan/Amount Of Lifetime Gift | $125,000 | $200,000 | - |
| One-Third Of $2-Million Estate | $666,667 | $666,667 | $666,667 |
| Total Received | $791,667 | $866,667 | $666,667 |
Ralph knows this distribution may seem unfair, especially from Don’s point of view. Ralph loves all his children and doesn’t want his will to create hard feelings among the siblings. However, expecting to live many years, Ralph needs to conserve his $2-million estate as financial security in case expenses increase substantially as he ages. Ralph’s dilemma: how to treat his children equally, knowing he can’t afford to make any further lifetime gifts.
Working with an experienced estate lawyer, Ralph’s advisor suggests adding a hotchpot clause to his will. The clause doesn’t need to include the word hotchpot, but often does. As discussed earlier, the hotchpot clause instructs Ralph’s executor to bring the value of any outstanding loans or gifts into account when calculating the amount each child receives under the will terms. Like the original will, and to ensure the hotchpot clause works effectively, the instructions forgive any debts the children owe Ralph.
Example 2 illustrates how funds will be distributed should he leave a $2-million estate, using a will that includes hotchpot and release clauses (no tax taken into consideration).
| Example 2 | Debbie | David | Don | |
| Balance Of Loan/Amount Of Lifetime Gift | $125,000 | $200,000 | - | |
| Hotchpot | ||||
| Value Of Frank’s Estate | $2,000,000 | |||
| Add: Balance Of Debbie’s Loan | $125,000 | |||
| Add: David’s Gift | $200,000 | |||
| Hotchpot Amount | $2,325,000 | |||
| Equal Distribution Of Hotchpot Amount | $775,000 | $775,000 | $775,000 | |
| Less Lifetime Gifts Received | ($125,000) | ($200,000) | ||
| Fair Distribution Of $2-Million Estate | $2,000,000 | $650,000 | $575,000 | $775,000 |
In this example, Debbie, David and Don each receive a total of $775,000 from their father, through a combination of loan cancellation, gifts and inheritance.
One of the nice things about a hotchpot clause is the clarity it brings to the situation. It shows Ralph wants his children to share equally the total amount passed on to them. The hotchpot and accompanying release clause will probably end any doubts about whether Ralph forgave Debbie’s loan, or any argument by David that his father did not intend to account for the gift he received.
Another benefit of a hotchpot clause is that it can be written to include any loans or gifts made after the will has been signed. For example, while Ralph at age 65 is uncomfortable making additional gifts to his children, at age 80 with the $2-million estate intact, he might feel more comfortable giving Don or Debbie large gifts, aligning the amount of money they receive with the total amount originally given to David. If Ralph makes a future gift, he won’t need a new will; the hotchpot clause will take care of making things fair.
However, what happens if the amount advanced to one child is greater than their equal share of hotchpot? For example, what if David needs a lot of money from his father while he’s alive, depleting Ralph’s estate and resulting in David’s advances totalling more than his share of the remaining estate? Generally, David wouldn’t be compelled to repay the shortfall to his father’s estate. Instead, Debbie and Don might share the estate, with David receiving nothing.
As with other wealth transfer tools, the thought and structuring of the will including a hotchpot clause is important and we recommend working with an estate lawyer with experience in this specific area. In addition, using Ralph’s situation as an example, he should carefully:
It’s critical to:
The more well-defined the hotchpot clause, the better the opportunity to do its job and help equalize the unequal among siblings. It will also help avoid any unintended consequences.
In today’s world, as parents increasingly support their children one way or another and face the reality that they’ve been uneven with their gifting and/or loans, we expect the ancient hotchpot clause will be called upon more often to help solve the rich stew of family life.
NOTES:
1.Rob Carrick, “Parents gave their adult kids more than $10 billion to buy houses in the past year,” Globe and Mail, October 24, 2021, https://www.theglobeandmail.com.
2. Ben Yagoda, “Hotchpotch,” Not One-Off Britishisms, July 18, 2019, https://notoneoffbritishisms.com.
3.“Hotchpot,” Merriam-Webster Online Dictionary, https://www.merriam-webster.com/dictionary/hotchpot.
4. Debra L. Stephens, “Hotchpot Clauses,” May 3, 2018, https://welpartners.com/resources/WELL-six-minute-estates-lawyer-hotchpot-clauses-2018.pdf. (accessed March 29,2023). “Failing to include both the hotchpot and release clauses in the will could create unintended prejudice for some beneficiaries and a windfall for others. The hotchpot clause in and of itself does not operate to release the beneficiaries from the obligation to repay any debts owed by them to the testator’s estate.”