Hotchpot or a loan, which is the better way to equalize your children’s inheritances?

I’ll start with the hotchpot option.

The word “hotchpot” is an archaic legal term. I am no historian but I understand it dates to the late 13th century. An example clause in a will would be, “For the purpose of determining the shares of my children in the residue of my estate, all cash gifts made by me to any child during my lifetime shall be brought into hotchpot and accounted for as part of that child’s share.” That’s a meaningless clause without a lawyer’s explanation.

In last week’s column, I didn’t say it was a hotchpot method of equalization but I did give an example calculation when talking about dividing up the proceeds of a will among beneficiaries.

I proposed a $1 million estate, to be divided equally among four children – John, Paul, George and Ringo. While their parent was alive, John was given $100,000 to help with the down-payment on a home. The hotchpot clause would require the executor to do the following:

1. Add the gift to the value of the estate, resulting in an adjusted value of $1.1 million.

2. Then........

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