Hotchpot, noun, Law
“A returning to a common lot or fund for subsequent equal division, especially of advances received by heirs of a person dying intestate.”
If while the parent is living, there have been advances against an estate share to an heir, it will be important to consider those in calculating a final disposition of estate assets.
Consider the case where a parent has $3 million and three heirs each entitled to 1/3 each. Heir 1 has an opportunity to use their share now and parent advances $1,000,000 not as a loan. When the parent dies much later, the $2,000,000 of the estate that parent retained has grown to $3.6 million. How much should Heir 1 receive from the estate?
Option 1 Ignore the advance. Heir 1 gets 1/3 of $3.6 million = $1.2 million, as do the other two heirs. This does not seem fair, but under many wills, this is what would happen.
The will may be silent about the advance or it may contain a clause that requires no consideration of previous distributions for purposes of equalization. Either can be a problem.
When the will includes a clause to consider the advances, the result can still be unexpected.
Depending on the method used to calculate the remaining shares, the differences are potentially quite large. Certainly, large enough to cause conflicts and bad feelings. More probably litigation. There are at least two choices:
Option 2 Hotchpot – adds back the original advance to the estate making it $4.6 million, divides that amount by 3 = $1,533,333 each; then subtract the original advance of $1 million. Leaving $533,333 for Heir 1 and $1,533,333 for the others
Option 3 relates to an English case, Marquess of Abergavenny’s Estate where the court held that the advance must be considered in proportion to the estate at the time of the original advance. Consequently, a beneficiary who has received the maximum possible advancement in percentage terms cannot receive further payments later under the will. This ensures that an heir who has already received an advance will not benefit, at the expense of his co-heirs, from a subsequent rise in the value of the remainder of the estate. In this case, at the parent’s death, Heir 1 had received his 1/3 so would get no more.
Distribution of Estate To Heir 1
There is another problem, of course! Nothing is ever simple.
Suppose Heir 1 returned all or some of the advancement to the parent. You should consider repayments in proportion to the estate at the time they were made. If they were not proportional, then presumably a crafty heir would return the $1,000,000 advance the day before the parent passes on and get back $1,533,333 from the estate. If they paid earlier without proportionality, they may do badly.
Superficially simple situations can lead to mind-blowing complexity. It makes me pleased that I am not a lawyer. On the other hand, seeing the potential for fees from the probable legislation, perhaps I would like to be a lawyer. Hard call. I could be convinced either way.
The message. Constructing successful wills is not the work of amateurs.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. firstname.lastname@example.org