Acting as the executor of an estate is a considerable undertaking. For many people, it will involve completing numerous unfamiliar tasks, including reading and interpreting the will. Wills can have daunting clauses full of ‘legalese’ which may prevent them from being clear to the executors trying to interpret them. It is important to be able to understand the will so that you can administer the estate according to the deceased’s wishes.

One clause that people may not be familiar with, as its use has decreased over the years, is the hotchpot clause. A hotchpot clause requires the executor to bring all debts owed to the deceased at the time of their death into the estate in order to equalize the amounts inherited by the beneficiaries. A testator may decide to use a hotchpot clause in their will to ensure that their estate is distributed equally among their beneficiaries. The presence of this clause will require the executor to find evidence of all the outstanding debts owed. The executor must then add these debts to the total value of the estate and subtract the amount of the loan to each beneficiary from what they are entitled to inherit. In this situation, the loan is essentially considered a distribution that has already occurred from the estate.

Consider the case where a parent passes away and leaves their estate to their 4 children equally. Prior to the parent passing, Child A and B had borrowed nothing from the parent, Child C had borrowed $50,000 and Child D had borrowed $100,000. Before considering the loans, the value of the estate is $500,000. If the parent had previously forgiven the loans, the $500,000 would be divided equally between the four children. If the parent includes a hotchpot clause in their will, the outstanding loans would be considered part of the estate, making the total value of the estate $650,000, and the executor would then deduct the amount of the loans from each child’s inheritance before the final distribution as follows:

• Child A and B would each receive $162,500;
• Child C would receive $112,500; and
• Child D would receive $62,500.

By factoring in the loans previously given to beneficiaries, the hotchpot clause allows a testator to ensure all beneficiaries are benefitting equally from the estate, rather than allowing some to receive a larger financial benefit. Of course, the testator may have had reasons for providing benefits during his or her lifetime, or had prior discussions with the beneficiaries such that equalizing the benefits under the Will was not a concern. In that case, a hotchpot clause may not be needed.

If you are the executor of a will that has a hotchpot clause, you will need to do additional work to ensure you find all the loans and distribute the estate accordingly. If you have not already retained a lawyer to help you with the administration of the estate, this may be a good time to consider hiring one.

Thank you for reading!

Darien Murray