For parents who have more than one child, it may be necessary during their lifetime to make monetary advances to help a particular child or children but not all at that time. For example; the purchase of a house or to help clear a debt problem. The advancement can be either be made as a gift or a loan.
Upon the death of the parents, in most cases they would wish for all of the children to have benefitted the same so that there is no unfairness felt between the children.
The above can be achieved simply by the inclusion of a ‘Hotchpot’ clause within the Will. Whether the advancement was made either as a gift or a loan is irrelevant because the clause will work in the same way.
The Hotchpot clause relies on the testator keeping a record outside of the Will of any gifts made and in the terms of a loan, a loan agreement between both parties should put in place. It must be kept up to date and noted if any repayments have been made during lifetime. The record must be easily located, ideally kept with the Will as this is the document which the Executors will use.
In the majority of Wills, where there is more than one child, the residue of the estate is usually left to the children on equal shares. However, with the inclusion of the Hotchpot clause, this can still be case but the Executors must take into account any gifts or loans which have been made during lifetime. The amount of the advancement made to a particular child is then taken into account when calculating their share upon the distribution of the residuary estate, thereby equalising the estate.