What Is a Hotchpot?
I know it sounds like a delicious dish, but a hotchpot is actually an estate planning tool used in many Trusts and Wills. While it is also used in other contexts, as an estate planning doctrine, it dates back as early as the 12th century.
Our children are usually the first we want to inherit our wealth after we die. If we have more than one child, and we love them equally, we want them to share in our estate equally, as well. But sometimes our children have different financial needs during our lifetime that could make an equal inheritance unfair to the others. For example, perhaps one of your children received a substantial gift from you for a down payment on a home, or to satisfy their debts or fend off a foreclosure. In light of such a gift, would it be fair to your other children if that child inherited an equal share of the remainder of your estate? Many people do not think so.
When to Use a Hotchpot in Your Will or Trust
Fortunately, there is a solution to this dilemma. A hotchpot is an estate planning tool that is created by adding a clause to your Trust or Will that takes into account gifts made to your children during your lifetime when dividing up your estate after your death. With a hotchpot clause, such gifts are treated as advancements against a child’s inheritance. These advancements are “brought into hotchpot,” added to the value of your estate before it is divided up, and then deducted from the recipient’s share.
Here is a simple example. Let’s say you have an estate worth $240,000, and three children, Annie, Betty and Charlie. You want your estate to be divided equally among your children; however, you gave Charlie a $60,000 gift to help him purchase a home. If you have a hotchpot clause in your Trust or Will, the gift you made to Charlie during your life will be “brought into hotchpot” and added to the value of your estate, so that your estate would be treated as having a value of $300,000 ($240,000 plus the $60,000 advance to Charlie). Each child’s share would be $100,000, but Charlie will be treated as having already received $60,000. So, as a result of the hotchpot, Annie and Betty each receive $100,000, and Charlie receives $40,000 ($100,000 minus the $60,000 advancement).
When NOT to Use a Hotchpot in Your Will or Trust
It is important to remember that there are many legitimate reasons why someone would not want to use a hotchpot as a way to equalize the inheritance among his or her children. Perhaps a child had special needs or other disadvantages over his or her siblings. Perhaps a child contributed in other ways to your well-being that you want to recognize. A hotchpot is by no means universal in estate planning; but there are many circumstances where it is useful and desirable.
If you think a hotchpot could be appropriate for your estate plan, contact your estate planning attorney to discuss this option.
